the body shop Case Study Solution
INTRODUCTION
The body shop is one of the famous international cosmetics brands in the world. The company was established in 1976 in Brighton, and it opened its first overseas franchise in 1978. In 1986, the company listed in London Stock Exchange. It develops and distributes the various beauty and skin care product all over the world. Moreover, the company focus on developing the natural and ethical skin care product that represent originality in the product.
Furthermore, by the end of 2001, the company had expanded its operation up to 2,500 stores across the world. Through the effective strategy implementation, the company had amounted 6,304 employee’s base promoting transparency among its customers. The company started out with 25 products in their catalog, which consists of natural ingredients and hand written labels. Therefore, from its initial position, the company had come up with the long way by diversifying its product portfolio, to enhance its products appeal to customers while maximizing the market share through its brand image.
However, the company had been able to gain a significant share of the market and maintain a strong brand image that attracts the customers and position in the market. Whereas, under the leadership of Anita Rod dick, the company growth was completely ceased in the late 1990’s, where the company growth revenue decreased from 20% in the mid-1990 and 8% in late 1990. This could happen to the arriving of anew competitor, causing the increasing in the level of competition in the market. This could result in decreasing the profitability and revenue generation ability of the company.
On the other hand, the company lost its brand identity in the market, as it created multiple product lines and expanded in almost every mall in the United States as well as in every street corner of Britain.In addition, as the growth rate were declining constant Rod dick stepped down as CEO in 1998 and in her place the company appointed a new CEO Patrick Gournay.
Moreover, despite the primary changes in the management, the company revenue grew only 13%, while the company profit was declined by 21% of the pretax. However, it can be determined that the company was facing tremendous issues, in such way the company had compromised its historic growth ability. Therefore, the company should need to develop new ways and strategies to get the organization profitable again.
ASSUMPTIONS
The assumption of the analysis are given below:
| ASSUMPTIONS | |
| 2002-2004 | |
| Sales Growth | 13.0% |
| Cost of Sales (% of Sales) | 30.0% |
| Dividend Constant | 10.9 |
| Interest Rate | 6% of Debt, EFN, and Excess Cash |
| Operating Expense | 52% of Sales |
| Inventories | 13.7% of Sales |
THE BODY SHOP Harvard Case Solution & Analysis
Under the assumptions mentioned above, the annual sales growth was assumed at 13.0%. However, the cost of sales amounted to 30.0% of the sales revenue. The ordinary dividend remained constant at 10.9, over the next three years period. Moreover, the interest rate assumed at 6% of Debt, EFN, and Excess Cash, while the operating expense was assumed at 52% of the sales revenue. The company inventories amounted to 13.7% of the sales revenue. However, it can be estimated that the company would require 126.8 million to cover its cost of sales in the year 2002. In the same way, it would require 143.3 million and 161.9 million in 2003 and 2004 respectively. The company’s sales turnover was calculated on the prior year’s sales revenue added by the growth in sales. On the other hand, as the sales revenues increases by 13.0% annually, so did the cost of sales, which amounted 30% of sales. It can be evaluated that, if the company were able to cover the cost of sales for the next three years period, it would appear in a result that generating the gross profit amounting of 304.4, 343.9 and 388.6 for the year 2002, 2003 and 2004 respectively. Furthermore, the inventories at 13.7% of sales amount to 57.9, 65.4 and 74.0 for the next three years period respectively. It can be determined that the inventory had increased over the next three years period, which could result in increasing the holding costs of the company.................
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