The Body Shop as an International Retailer of Toiletries and Cosmetics - Essay Example

Topic: Using The Body Shop as the company, examine the factors behind any changes that have taken place in the structure or geographical location ofits Value Chain in Introduction The Body Shop is an international retailer of toiletries and cosmetics. It came into existence on 26 March 1976 in Brighton, United Kingdom – founded by Dame Anita Roddick with the Mission of social and environmental change – “To dedicate our business to the pursuit of social and environmental change.” As the name suggests -- The Body Shop – it offered homemade skin care and body lotions prepared from natural herbs like jojoba oil and rhassoul mud, having elaborative names – Tea Tree Oil Facial Wash and Mango Dry Mist. The company has achieved commendable heights in business expansion on the global canvas, growing at the rate of 50% annually. Its stock appeared on London’s Unlisted Securities Market in April 1984, opening at 95 pence. The Body Shop was fully listed on London Stock Exchange in January 1986 and at that time, the company’s stock was selling at 820 pence. The market value of the company had reached at £350 million ($591 million) by 1991. The journey was not smooth; ups and downs came when Littlehampton manufacturing plants were sold. In the year 2000, manufacturing was outsourced. Even then, the Body Shop commanded the same market value in the year 2004 (£334 million as of September 2004). The Body Shop’s value chain has expanded vertically and horizontally, transgressing its physical boundaries from the UK and the Republic of Ireland into America, Europe, Middle East, Asia Pacific and Africa. What is value chain? A business system in itself is the value chain of a firm. From business perspective, value is the amount customers are ready to pay for the goods of the firm. A firm’s produce is measured by its total revenue – means the number of units sold times the price. A firm remains in profit only until the total value is above the costs borne by all of the firm’s value activities. Michael Porter uses the term ‘value chain’ for this business system. In an industry, value chain of a company depends on its history, strategy and ways of applying that strategy. The set of activities required to collect inputs, design, manufacture, market, deliver and support the goods and services, creates a generic business value chain. A generic value chain is complete in all value activities with added margin, which comes after subtracting the cost of all activities from the total value. The supplier and channel value chains also carry margins, which are included in the total price paid by the ultimate end-user. (Reimann, The Planning Forum 1989) Michael Porter developed the value chain approach in his book “Competitive Advantage: Creating and Sustaining Superior Performance”, written in 1985. This concept can be used to develop a company’s long term competitive advantage in business. The value chain framework has become an analysis tool for companies’ strategic planning, with the sole purpose of reducing costs resulting in optimum value creation (www.wikipedia.org). To achieve sustainable competitive advantage, a company must have the acumen or expertise to do important activities better than its rival companies. The value chain framework of Porter (1990) is “an interdependent system or network of activities, connected by linkages” (p. 41). In a properly worked out system, the linkages can be an important reason of creating competitive advantage Pathanian Jain, 2001. This is achieved by combining the performance of two fields – the value of the organizations’ activities with its head working segments and later an appraisal of the add-ons made by each segment in the total value added. According to Porter (1985), the value chain configuration is a two-level generic taxonomy of value creation activities. A value chain analysis of a company is made by dividing it into primary and support activities. Primary activities are connected with manufacturing – straightly used in changing the inputs into outputs and delivering the produce as well as providing after sale support – called generally the line activities of the organization, dealing with physical products Porter, 1985: 38 The support activities back-up the primary activities as well as each other – by administering general functions, resourcing inputs, managing human resources and providing technological edge. The five generic primary activity categories of the value chain are Porter, 1985: 39–40: a) Inbound Logistics – related to receiving, storing and distributing inputs to the product. b) Operations – activities related to changing inputs into final product. c) Outbound Logistics – Activities related to gathering, storing and physically distributing the products to buyers. d) Marketing and sales – activities prompting the buyers to buy the product via links provided. e) Activities related to service providing to increase or maintain the value of the product. All these activity categories become a template for recognising important value activities, providing a basis for comprehending and creating competitive advantage from the point of view of the company as a whole. This understanding of the value chain can help in recognition of strategic improvement needs and opportunities but not in particularly reorganising of business processes. Gereric activities from a competitive advantage view can expand and include many organisational functions. Likewise, an individual function can perform activities not related to the competitive advantage perspective, which is clearly visible in the difference between primary and support activities. Thus, a company’s value chain is engrossed firmly in the system of interlinked value chains Porter, 1985: 34. The system might be including value chain of suppliers of raw material and different distributional channels before being embedded into the buyer’s value chain. In totality, the system becomes a chain of consecutively interlinked primary activity chains that slowly change raw materials into the readymade product valued by the buyer (Stabell et al, 1998: 413-437). Support activities-The generic support activity categories of the value chain are: a) Procurement – Activities carried out to purchase inputs used in the value chain. b) Technology development – Activities widely classified into efforts to improve product and process. c) Human Resource Management – Activities related to recruiting, hiring, training, developing and rewarding staff. d) Firm Infrastructure -- It includes general administration, planning, finance, accounting, legal, government affairs, and quality management. The support categories are not directly and distinctly related to the value creation logic of far-linked technology but they are related as much to other primary value creation logics. Porter has not outwardly spoken for his categories of support activities and the classification seems to follow realistically the conservative functional organisation of a company, where support categories perform those functions not listed in the primary activity categories of the value chain configuration (Stabell et all, 1998: 413-437). In figure 1 of the value chain diagram above, Porter has used the word ‘margin’ for the remainder balance after deducting the cost of carrying the value activities from the total value. Value here implies to be the price, the customer is ready to pay for a particular offer Macmillan et al, 2000. ‘Added value’ is another word used by other writers to replace ‘margin’. Further, the analysis follows a complete survey of how each component of value chain might help in adding value to the company, separating it from other competitors. It is interesting to note that manufacturing companies mostly use the value chain tool in comparison to their services providing associates Ghamdi, 2005. The Body Shop International plc – an international retailer of toiletries and cosmetics, has recorded a wonderful growth throughout the company’s geographical expansion. Having belief in the capabilities of its management and knowing well the needs of the customers, its competitive strategy has been to tread the central path in the initial stage of growth. Caren Kaplan in “A World without Boundaries” The Body Shop Trans/National Geographics -- has widely quoted Anita Roddick, company’s founder. To get raw material at reasonable cost from foreign lands like Nepal, Mexico and Guatemala, she reached those lands, saving costs spent on middlemen and directly talked to the harvesters who grew the herbs and other raw material, used in making cosmetics and body shop products. “For an entrepreneur such as Anita Roddick, the founder of The Body Shop, a world without boundaries signifies the freedom to imagine a link between European merchant/explorers and present day multinationals; free trade without middlemen means liberation…“A world without boundaries”…(Kaplan, 1995: 45-46). If we have a look at the body shop suppliers and its supply chain management latest performance of 2006, the company is determined to come upto the expectations of the customers for quality products, adding value by maintaining strong dedicated relations with its suppliers, resulting in better than before on-time and in-full supply of branded products. Its quality rejects have decreased and further improvised on-time and in-full delivery of new product development. The body shop direct cost on research and development in the year 2006 is £5.1m, which was £4.6m previous year. The value of Inventory at the year end in 2005 was £62.1m, which has decreased to £54.8m in the current year. The supply chain performance data shows total number of products with Community Trade content including the accessories, gifts and ingredients after the implementation of SAP to 765, which was 550 in the previous year. Terms of payment are settled in advance at the time of agreement of transaction. The company’s inbound logistics with suppliers, particularly Community Trade ingredient Aloe Vera supplied from Guatemala and sourcing of hair core accessories and gifts from Community Trade suppliers of India, Nepal, Bangladesh and Mauritius, provide strength to its inbound logictics – the primary activity category of value chain. The specialty of the body shop business practices lies in its ethical trade practices – be it its membership of Ethical Trade Initiative (ETI) and Supplier Ethical Data Exchange SEDEX. Wood products were sourced from FSC certified sources, which increased from 49% in 2005 to 65% in 2006 (Company Annual Report, 2006). Operations – changing inputs into final products, another primary value chain activity of the body shop, has touched new highs by maintaining the pace of geographical expansion of its operations. The Body shop decision to enter the US market was very well planned keeping in view the failure of other UK companies to footstep firmly on USA grounds. Anita Roddick’s business practices were guided by “feminine” principles. Acknowledging that the US “has traditionally been the graveyard of British retailers”, she entered the geographical market of US after opening 200 stores in 33 countries of the world Roddick, Body and Soul:131. Presentally, the body shop owns 444 stores in Americas, 305 stores in the UK and Republic of Ireland, 779 stores in Europe, Middle East and Africa, 605 stores in Asia Pacific, which ia an ample proof of its geographical expansion world wide (Company Annual Report, 2006: 25) Another feather in the cap of the body shop has been introduction of SAP technology, which has facilitated outbound logistics by stock forecasting, enabling the company to react smoothly to changes in demand for its products. The company gained long-term competitive advantage over its competitors by practising community trade programs, running campaigns against domestic violence in Canada and creating social awareness against experimenting the products on animals. It took great concern in reducing waste by practising ‘recycling’ of bottles and containers, used for packaging its products. All these measures added value to its product range. Knowing well that its target audience are young women, it has strived to increase its customer base by reaching to adult segment of its customers without compromising on values and by not playing with customers’ fears, treading on realistic grounds that personality and health are above perfection and typical beauty. To be dedicated to its customers, the company has introduced a Copy Approval System (CAS) to check that its promises match with its commitments; priciples and practices are identical, correct and relevant to its corporate image. The body shop has endeavored to provide value for money to its existing and new customers – the strategy with an objective, called ‘masstige’, providing new products prepared with natural herbs, outsourced by community trade program for its intelligent customers. The company believes in developing a rapport with its customer – basically working women and runs campaigns to impress the adult, independent, self-conscious women. The company’s stores are always within easy reach of its customer, be it a store, The Body Shop at Home, or an e-commerce option. To serve its customer in the best possible way, it is conducting global customer surveys. New changes in leadership and outsourcing of manufacturing process has enabled the corporate leadership to focus on improving marketing as well as logistics and products. The sales performance of the company in Store Sales segment till 25 Feb, 2006 has been +6%, The Body Shop at Home +14%, Total Retail Sales +7% and Comparable Store Sales has shown +4% increase – mapping all the geographical locations. (Company Annual Report & Accounts, 2006: 19). The body shop human resource management has been one of rewarding the talent and retaining it in the company for better customer satisfaction. The company looks after its work force well. Salaries are market competitive. The recruitment process is neutral, with no favouritism. A new development programme “Inspire the Customer” has been launched for store employees and The Body Shop at Home consultants. Communication with the employees about the performance of the company via face-to-face dialogue, the Intranet and ‘Body Talk’ – a publication, is made to be in touch (Company Annual Report & Accounts, 2006: 21). The body shop new management team under the leadership of its present CEO – Peter Saunders, Executive Chairman – Adrian D P Billamy, along with Anita Roddick , now its Non-Executive Director and others, is providing firm infrastructure in support activities in the fields of general administration, planning, finance, accounting, legal, government affairs, and quality management after the acquisition of the company by L’Or´eal. The sell-off of the body shop was a major change that will bring the added value of bonding with more than 100 years old brand -- L’Or´eal. It is the belief of the body shop management that L’Or´eal will further brighten the prospects of the body shop group on a stand alone basis and the interests of the body shop group employees and its social values will be safe under L’Or´eal – an international cosmetic brand. References: Electronic Book: Kaplan, Caren 1995, A World Without Boundaries: The Body Shop’s Trans/National Geographics, Social Text, No. 43, pp. 45-66, viewed 28 November 2006, Article in Electronic database: Reimann, Bernard C, 1989, Sustaining Competitive Advantage, Chairman & Professor Department of Management and Labor Relations, Cleveland State University, Planning Forum, viewed 28 November 2006, Journal article: Stabell, Charles & Fjeld, 1998, ‘Configuring value for competitive advantage: on chains, shops and networks’, Strategic Management Journal, vol. 19, no. 5, pp. 413-437, viewed 28 November 2006, Company reports: The Body Shop International plc, Annual Report and Accounts 2004, viewed 28 November 2006, The Body Shop International plc, Annual Report and Accounts 2005, viewed 28 November 2006, The Body Shop International plc, Annual Report and Accounts 2006, viewed 28 November 2006, Websites Recommended Cash Offer by J P Morgan Cazenove Limited on behalf of L’Or´eal for The Body Shop International PLC, viewed 28 November 2006, The Body Shop, Policy on External Marketing and Claims, June 2006, viewed 28 November 2006, < http://www.thebodyshopinternational.com/NR/rdonlyres/008B062F-EAF2-477A-A254-35CC5948EE75/0/Policyonexternalmarketingandclaimslayout.pdf> The Body Shop International plc, June 2006, Board changes and Delisting, viewed 28 November 2006, < http://www.thebodyshopinternational.com/NR/rdonlyres/3453E918-ED01-4222-9CA3-C7B7726DE596/0/CLIENT81151656945446_lgTheBodyShopDelistingandBoardChanges.pdf> What is value chain analysis? What are the main aspects of value chain analysis? How to write good value chain analysis of a company? Where to find information for value chain analysis? viewed 28 November 2006, Read More