The Body Shop Llc
AF 495 Case 1
October 20, 2011
Case Analysis: The Body Shop
Since its inception in the 1970s, The Body Shop has experienced phenomenal growth. Specifically, revenue was growing at a rate of more than 20% per year. In the 1990s, the previously experienced revenue growth began to decline rapidly. There were numerous reasons for the steady decline in revenue growth. The two most important of these were a loss of brand image and severe competition from other skin and hair-care companies. The Body Shop expanded too quickly to maintain its previous level of profitability and traditionally recognized brand image. Even after Roddick, the founder and chief executive officer stepped down in 1998 The Body Shop continued to have problems. While revenue began to grow, pretax profit was declining and a new strategy emerged. “The strategy consisted of three principal objectives: to enhance The Body Shop Brand through a focused product strategy and increased investment in stores; to achieve operational efficiencies in our supply chain by reducing product and inventory costs; and to reinforce our stakeholder culture” (Shank and Vaccaro 120). A forecast was produced to evaluate the success of this strategy.
How was the forecast derived? Why were the base case assumptions chosen?
The forecast to evaluate the success of Gournay’s proposed strategy was derived by using the same percentage of sales growth from the 2001 period to extrapolate the next three years of data. By using a percentage of sales growth method I was able to focus on growing each account that is directly related to sales by the same percentage as sales increased. I did not, however, use this method for all of the accounts. Gournay’s strategy hinges upon achieving operational efficiency by reducing product and inventory costs. The primary accounts affected by this strategy are Cost of Goods Sold and Operating Expenses. This forecasting method was chosen because it is equally important to
October 20, 2011
Case Analysis: The Body Shop
Since its inception in the 1970s, The Body Shop has experienced phenomenal growth. Specifically, revenue was growing at a rate of more than 20% per year. In the 1990s, the previously experienced revenue growth began to decline rapidly. There were numerous reasons for the steady decline in revenue growth. The two most important of these were a loss of brand image and severe competition from other skin and hair-care companies. The Body Shop expanded too quickly to maintain its previous level of profitability and traditionally recognized brand image. Even after Roddick, the founder and chief executive officer stepped down in 1998 The Body Shop continued to have problems. While revenue began to grow, pretax profit was declining and a new strategy emerged. “The strategy consisted of three principal objectives: to enhance The Body Shop Brand through a focused product strategy and increased investment in stores; to achieve operational efficiencies in our supply chain by reducing product and inventory costs; and to reinforce our stakeholder culture” (Shank and Vaccaro 120). A forecast was produced to evaluate the success of this strategy.
How was the forecast derived? Why were the base case assumptions chosen?
The forecast to evaluate the success of Gournay’s proposed strategy was derived by using the same percentage of sales growth from the 2001 period to extrapolate the next three years of data. By using a percentage of sales growth method I was able to focus on growing each account that is directly related to sales by the same percentage as sales increased. I did not, however, use this method for all of the accounts. Gournay’s strategy hinges upon achieving operational efficiency by reducing product and inventory costs. The primary accounts affected by this strategy are Cost of Goods Sold and Operating Expenses. This forecasting method was chosen because it is equally important to