Prospects for the Cosmetics and
Toiletries Business-A Case Study on Body Shop
Repositioning as a masstige brand
·
After a few difficult years,
with flat store sales and store closures in core markets, The Body Shop has
implemented a number of new growth strategies under its new CEO. In the process
of strengthening its position as a masstige brand, with more active product
development and improved services, there are several opportunities for the
company to take advantage of the compound annual growth rate (CAGR) of 3%
(+US$46.2 billion) forecast for the global cosmetics and toiletries market over
the 2005-2010 period, especially with the backing of L’Oréal. With good
indications that The Body Shop’s current customer base is staying loyal to the
company despite raised voices about it “betraying its values” through the
transaction, the takeover will provide The Body Shop with access to L’Oréal’s
market-leading technologies, industry know-how and financial resources.
·
However, the perception of The
Body Shop as a producer of quality cosmetics and toiletries is sometimes
muddied by its concentration on campaigns rather than products. As well as not
giving strong enough information about the quality of its products, this policy
may also have alienated consumers who are not interested in the company’s
message, but who might otherwise buy its products if its marketing was more
conventional. This has allowed competitors to steal a march on the company, through
more aggressive product marketing. Although it should not turn its back on the
environmental and social values that gave it a niche market position and won it
loyal consumers, The Body Shop should focus more on selling its products, not
its campaigns.
Lucrative opportunities in fast-growing categories
·
Skin care, the company’s
largest sector, will continue to enjoy one of the strongest growth rates (CAGR
5%) over the 2005-2010 period. While The Body Shop has been under-performing in
skin care during the review period, there are several indications that the
company is successfully strengthening its position in the sector. While The
Body Shop is still absent in fast-growing categories such as
nourishers/anti-agers and firming/anti-cellulite body care, the company’s new
high-performance Skin Focus range is a step into the dynamic, technology-based
product segment. The development of these capabilities in combination with the
L’Oréal resources should make the company an increasingly competitive force in
the skin care market. Also in The Body Shop’s favour is the growing consumer
demand for ethically sourced organic products, which still is a key part of the
company’s retailing platform.
·
Comprehensive sun care is a
relatively new venture for The Body Shop, which so far has been unable to
follow the speed of the market, mainly due to its inferior size and resources
compared to the leading companies. With a predicted CAGR of 5%, sun care will
be the fastest growing cosmetics and toiletries sector over the 2005-2010
period, adding a value of US$1.6 billion to the market. If The Body Shop, with
access to L’Oréal’s sun care technology, can develop more value-added products
whilst still retaining its natural positioning, the company would be in a
strong position to attract the world’s consumers who are becoming increasingly
concerned about the skin damaging effect of sun exposure. This is particularly
evident in Western Europe, which, despite a comparatively low forecast CAGR of
4% over the 2005-2010 period, will be the region that adds the most value
(US$0.5 billion) to the market due to its sheer size. With extra resources, the
company could also increase its penetration of the Asia-Pacific market (US$0.4
billion, 2005-2010) and in the longer term even consider entering the
fast-growing Latin American market (CAGR 13%, US$0.4 billion, 2005-2010), where
its natural product range should be a strong competitive force in a market
where consumers’ interest towards such products is growing stronger.
Increased focus on colour cosmetics
·
Through the implementation of
new store designs, with a special focus on the colour cosmetics displays, as
well as a new make-up range launched in 2005, The Body Shop has proved that it
is serious about pushing growth in this sector. With a CAGR of 3%, the global
colour cosmetics market is forecast to bring another US$6 billion to the market
by 2010, with Western Europe and Asia-Pacific contributing 62% of this value.
With double-digit CAGRs recorded in both these regions over the 2001-2005 period,
The Body Shop is in a good position to increase sales in the sector and create
a good platform from which to exploit further growth opportunities. With the
backing of L’Oréal as well as the expansion of its multi-channel distribution
network, the company should be able to enjoy future growth through improved
natural product ranges reaching a wider customer base.
More value-added products needed to secure future growth
·
With a forecast CAGR of 3%,
hair care is expected to bring another US$8.8 billion to the market over the
2005-2010 period, driven by intense product development of value-added
offerings. Despite above-market growth in 2001-2003, The Body Shop saw a
slowdown in 2004 and experienced negative growth in 2005, with particularly
weak results in Asia-Pacific. Although the company is in a good position to
benefit from a growing trend towards natural products, it will need to invest
significant resources to improve its position and effectively compete in a
market where competitors increasingly are launching new products with natural
ingredients. However, with the backing of L’Oréal, The Body Shop is likely to
get resources to develop more value-added products, such as speciality hair
care products for specific hair types, which in turn should improve its
competitive position. In addition, by using its own distribution channels, the
company will not have to fight for space in the mass retailers’ increasingly
crowded hair care shelves.
·
The global fragrances market is
anticipated to see a CAGR of 3% over the forecast period, with strong growth
developments in Eastern Europe and Latin America in particular. However, it is
unlikely that The Body Shop will be able to develop its own sales in line with
the sector’s growth, especially given its absence from the aforementioned
high-growth regions. However, while the company has under-performed in Western
Europe and Asia-Pacific, in Africa and the Middle East The Body Shop has
recorded a stronger performance, indicating good growth potential for the company
in this region. The Body Shop’s ability to expand its operations in new
geographical areas is likely to be the key factor in the company’s future
activities in fragrances. The Body Shop’s new masstige positioning may also
benefit the company, as the fragrances sector is increasingly concentrating on
this area; if consumers begin to tire of the endless release of new celebrity
fragrances, The Body Shop’s more straightforward and classic brand image could
prove a selling point.
·
A growing preference amongst parents
for natural baby care products suggests a category that the company could
consider entering in the future. In developed markets, family sizes are smaller
and many parents wait until they are well-off and professionally established
before having children, meaning they have money available to spend on the right
product. However in developing regions there is also a marked preference for
natural baby care products, demonstrated by the growing sales for Natura
Cosméticos (an organically-based direct seller) within the Brazilian market
particularly.
Wider distribution to increase growth potential
·
Bath and shower products was
the company’s most successful cosmetics and toiletries sector in 2005,
recording 10% growth compared to 6% for the market. With a forecast CAGR of 2%
over the 2005-2010 period, bath and shower products will be one of the slowest
growing sectors over the forecast period, putting increased pressure on the
company to intensify its product development in order to sustain value growth.
However, increased focus on more dynamic markets will be needed, in particular
in Asia-Pacific, which is predicted to be the most valuable region over the
2005-2010 period. Opportunities are to be found in the company’s key market of
Western Europe, but to take advantage of these, The Body Shop will need to
lessen its dependence on the slow-growing UK market and focus on high-growth
areas such as Spain. With potential backing from L’Oréal, the company is likely
to be in a stronger position to exploit the opportunities in this sector, both
through new product innovation and entry into new markets.
Increase in non-store retail channels
Increased focus on
expanding its distribution channels will also provide growth opportunities for
the company. Through Body Shop at Home, its direct selling arm, the company has
increased its penetration of the US and UK markets by reaching new customers
living far from its stores. Similarly, the company’s Internet retail site,
currently only available in the US, is in the process of being launched in the
UK, thus reaching a wider range of consumers. With plans to develop these
channels further, the company will continue to broaden its consumer base, which
in turn should spur future growth.
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