Ever since the French cosmetics giant L’Or? clinched its $1.2bn (640m) takeover of the London-listed ethical retailer Body Shop International in March, speculation over the execution of its shift into retail has been rife.
Last week, L’Or? chief executive Jean-Paul Agon provided some insight into the strategy when he outlined plans to more than double the size of the Body Shop store network over the next few years.
The company has a presence in over 50 countries, with more than 2,000 stores worldwide. Last year, it added over 80 stores to its network and moved into markets such as Jordan and Russia with franchise operations. Agon harbours ambitious growth targets for the brand, which he says could be rolled out into 100 countries, with over 5,000 stores.
The L’Or? boss appears to have his sights set firmly on the developing world, naming countries such as Brazil, Argentina and Chile as “typical” of potential markets for the brand, which has already extended into India. China is set to follow.
While most analysts agree the tie-up signifies a clear shift into retailing for L’Or?, which has had little experience of running stores, Agon last week argued against this classification on the grounds that it sells only own brands. Verdict Research senior retail analyst Maureen Hinton says that while this is an unusual quality for a retailer, the link gives L’Or? a clear retail presence from which to promote itself.
Despite some reservations over its retail positioning, industry commentators have largely applauded the purchase, which has already boosted sales across a business that had been suffering a slowdown in revenue growth.
Cross-fertilisation Commenting on the deal in a research note released in the wake of L’Or?’s first-half results, UBS analyst Eva Quiroga confirmed the company would exploit opportunities presented by the purchase to extend its penetration into the cosmetics market. She says: “We see substantial synergies going forward as L’Or? benefits from Body Shop’s retail expertise, as well as its positioning in the ‘masstige’ segment, an area that has been expanding in the US while [also] bringing its expertise in production, product development and marketing to Body Shop.”
Hinton believes the company will use its financial muscle and marketing expertise to successfully extend the Body Shop brand that had been “struggling to develop a more contemporary format”.
Following a new model HOQ Consultancy director of sales and marketing Quentin Higham says L’Or? will move away from the franchise model favoured by former owner and founder Dame Anita Roddick, in a bid to exercise greater control. Last year, franchised stores represented 54% of total retail sales for Body Shop.
While L’Or? may lack direct retailing experience, Higham says the company, which spends over $500m (265m) on research and development each year, producing around 3,000 new formulas annually, is a market leader in creating and retailing brands. As a result, he expects the price of Body Shop-branded products to come down as the manufacturer uses its financial clout to negotiate better margins.
As Agon moves swiftly to capitalise on the opportunities for expansion presented by the takeover, he will be keen to show that L’Or? has developed a winning formula to take a prestigious manufacturer into retail.