Lush founder predicts The Body Shop will survive, but many shops will close
Three months ago, the German private equity firm Aurelius was celebrating the acquisition of The Body Shop and pledging to "return it to its former glory".
Since then, the majority of The Body Shop’s operations in mainland Europe and part of the business in Asia have been sold off for an undisclosed sum to an unnamed buyer.
Today, the UK business finds itself bust and in administration - no longer able to pay its bills as they fall due.
A source close to Aurelius explains that The Body Shop has proved to be in far worse financial shape than was clear last November when the takeover was agreed and that trading over Christmas was dismal.
Both of these things are plausible - The Body Shop’s troubles date back years not months - although Aurelius has not provided any details.
Aurelius bought The Body Shop as part of an "accelerated sales process".
The previous owner, Natura, a Brazilian company which bought The Body Shop from L’Oreal for £880 million in 2017, was keen to sell.
We don’t know how the eventual deal between Aurelius and Natura was structured.
The agreement valued The Body Shop at £207 million but this is not the cash sum that Aurelius paid and it included an earn out clause of £90 million which would only apply if the company went on to hit certain performance targets.
Suffice to say, it hasn’t. A judge has now appointed FRP Advisory to take control of the business and decide on the best way forward.
In a statement, FRP says they “will continue to trade the business in administration, ensuring customers will be able to continue to shop in store and online”.
Plan A will be to find a buyer willing to take on all 199 UK shops and the 2000 staff. But such an outcome seems highly unlikely.
The most recent set of accounts show that The Body Shop’s sales in the UK dropped by 30% during 2022 to £197 million. The Body Shop group made a loss of £71 million.
But we don’t know how loss-making the UK business is currently or how much debt it has.
Mark Constantine, who used to supply The Body Shop and went on to found its rival Lush, thinks the business will survive administration but that just over half of the UK shops are likely to close.
He points out that another business Aurelius owned, Lloyds Pharmacy, ended up being liquidated last month after Aurelius parcelled-up the pharmacies and sold them to other companies.
"So it’s anyone’s guess what will happen with The Body Shop," Constantine told ITV News.
"I don’t believe The Body Shop has a future as online only," he added.
A source close to Aurelius has confirmed to me that the private equity firm has security over a "small" part of The Body Shop’s debt.
This matters because it means that, during the insolvency process, Aurelius will be classed as a creditor and will be able to influence what happens next.
One possible outcome is that the administrator restructures the business by cutting costs (renegotiating contracts with landlords, closing shops and making staff redundant) and then hands it back to Aurelius.
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