Wrong formula?

Photographer: Gareth Cattermole/Getty Images

The Body Shop Got Ethical Consumption Wrong

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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An activist business can be wildly successful for a while, but it gets hard to stand out when everybody else adopts the same values and mantras. That may help explain French cosmetics giant L'Oreal's reported interest in selling The Body Shop after 10 years of owning the revolutionary store chain and product line.

Anita Roddick, a fiery animal-rights activist, environmentalist and champion of every progressive cause, founded The Body Shop almost 41 years ago. The chain grew on Roddick's stringent activism and hippie ethos, which permeated its culture. By the time she and her husband resigned from the company's board in 2001, the company had 1,700 stores in 46 countries, but Roddick thought it "a dysfunctional coffin" that had sacrificed its values to market demands. It was also having business problems because it had expanded too fast and competitors such as Aveda and Lush had seized on "natural beauty" as a great selling pitch. Its formula, as Gadfly's Andrea Felsted noted, is tired.

L'Oreal acquired the company in 2006, and has struggled with it ever since, despite continuing to expand its global presence to more than 3,000 stores. Some customers were disappointed that L'Oreal tested some of its own brand products on animals -- something it claimed it has since stopped doing. But that cannot explain why, years after the stigma of the acquisition should have worn off, The Body Shop's revenue growth has turned negative again lately.

L'Oreal's Body Shop Headache
Quarterly revenue growth in L'Oreal's Body Shop division, percent
 
Source: Data compiled by Bloomberg

The downturn came despite Chief Executive Officer Jeremy Schwartz's attempt to revive the brand's values by doing "something that is today considered totally radical and in 20 years will have become mainstream." That idea has been promoted under the slogan "Enrich Not Exploit," which was registered as a trademark. Schwarz's plan includes a promise to make 70 percent of the company's packaging biodegradable and other, somewhat vaguer commitments such as to "help 40,000 economically vulnerable people access work around the world." 

The plan, which Schwartz claimed came to him in an epiphany during a trip to the Amazon, is based on solid business reasoning. The organic cosmetics market, worth $11 billion in 2016, is expected to double by 2024. A growing number of consumers are looking for "organic" labels when they buy personal care products. Naturalness and sustainability are important to a majority of buyers now, and they can check a product's place on that scale with an app. Fairtrade, the organization that promotes trade as a tool for helping disadvantaged people and communities, reports solid growth in the sales of products it has certified as compatible with its rules. A company with The Body Shop's pedigree on all these issues should be a beneficiary of the trend, as long as it can stay on message.

But Schwartz takes his approach too far. Most label-conscious consumers aren't really diehard activists. This is part of what social scientists call the "ethical consumption gap": People who claim sustainability is important to their purchase decisions often don't put their money where their mouth is. Controversies like the 2014 revelation that The Body Shop's products are sold in duty-free shops in mainland China, where, by law, they can be randomly subjected to animal testing, don't hurt nearly as much as one might think.

The "consumption gap" theory suggests that Roddick's stringency and Schwartz's return to her heritage is holding the brand back where other "natural" cosmetics producers are doing fine. L'Occitane, a "natural" personal care product company, operates unashamedly in China. Animal-rights groups accuse it of testing its products on animals, and l'Occitane vehemently denies it, claiming that it's working from the inside to change Chinese regulations. It's been growing faster than The Body Shop.

Too Many Principles Can Hurt
Semiannual revenues of L'Oreal's Body Shop division and L'Occitane, millions of euros
 
Source: Data compiled by Bloomberg
*L'Oreal reports semiannual results as of 6/30 and 12/31, L'Occitane as of 3/31 and 9/30

First and foremost, the modern consumer is still interested in product quality, and competitors appear to be getting better customer reviews. Whoever buys The Body Shop will have to explain to customers in what way the company's products are better than the growing crop of other "natural," "sustainable" and "ethical" brands.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor responsible for this story:
Therese Raphael at traphael4@bloomberg.net