The Body Shop’s Bankruptcy: Impact of ESG implementation?

The Body Shops (or abbreviated as TBS) is a cosmetics company founded by Dame Anita Lucia Roddick or known as Anita Roddick in 1976 in Brighton, England.

The Body Shops (or abbreviated as TBS) is a cosmetics company founded by Dame Anita Lucia Roddick or known as Anita Roddick in 1976 in Brighton, England. Since its founding until the point of bankruptcy, TBS has never compromised on the values of justice, especially for the environment and society. This is stated in Anita’s own values as an activist who cares about the environment, women and children. These values have been translated by Roddick in the founding of TBS to this day.

Throughout her life, Anita was involved in activism and campaigns for environmental and social issues; including involvement with Greenpeace and The Big Issue (one of the UK’s major high street newspapers). The presence of TBS seems to open the eyes of the suitability of sustainability values for producers, consumers and investors. During her life’s journey, she has traveled to Israel, South Africa and Tahiti, giving her inspiration to create the composition for her TBS beauty products. This makes TBS a product whose composition is proven, even though it is natural, TBS does not produce instant results (FT, 2023).

TBS is known as a beauty brand that offers hair and skin care products that come in refillable packaging, are free from animal testing, use natural ingredients, and are sold honestly rather than seeking fame. These values are embedded in the development, promotion, pricing and distribution channels of TBS in its business operations chain. One of TBS’s well-known global campaigns is “Free Animal Testing” where TBS is fully committed to avoiding testing samples of their products on animals (“cruelty free”). Apart from that, several TBS product catalogs use natural ingredients or “vegan ingredients” and do not use animal ingredients.

In relation to environmental sustainability, TBS actively promotes sustainability with the “Refill Bottle” program, where the program invites TBS consumers to refill TBS products that have run out, without buying new bottles. The aim of this program is to reduce single-use plastic waste by using aluminum bottles. This is in line with the principle of “Green Investment” where the focus on the environment is the spearhead of the company’s activities. This program is available in all TBS outlets throughout the world, including in various big cities in Indonesia. From a social perspective, TBS promotes the values of justice including gender equality, eliminating domestic violence and bringing awareness and funding to the HIV crisis.

On the governance side, in 1987, TBS introduced “Community Trade”, a program that allows them to purchase the best natural ingredients available, cultivated and harvested by knowledgeable local farmers. Additionally, as they continually seek out small-scale farmers, rural cooperatives, and even tribal settlements, more than 25,000 farmers around the world receive fair wages and see their living standards improve. This shows TBS’s commitment to a fair supply chain where marginalized communities are empowered.

TBS’s overall campaigns, programs and good practices are known as Triple Bottom Line or companies that pay attention to People, Planet and Prosperity in company activities. The “Triple Bottom Line” concept was formalized by the United Nations Global Compact in 2004 through the application of Environment, Social and Governance (ESG) principles which have become a reference for companies throughout the world. In principle, the “Triple Bottom Line” is a way to operate and measure the success of their environmental activities. It redefines success in financial metrics. Meanwhile, ESG is a measurement, especially by third party investors and the capital market, of the procedures and ways a company operates for the purpose of public accountability and sustainable investment opportunities (MaDesign, 2023).

This principle is a ‘qibla’ for companies in implementing sustainability goals, especially in their operations, more comprehensively. These 3 principles also become standards and matrices for investors in determining their investments in the ESG capital market. This capital market creates a “listing” for investors to determine their investment in companies with the best sustainable principles. TBS is listed as having been listed on Bursa Malaysia and the London Stock Exchange in the ESG investment category (TheEdge, 2020).

Since its inception, The Body Shop has fully implemented these three principles. For example, in the environmental aspect, using vegan and animal testing-free products, in the social aspect, TBS carries out many campaigns to oppose injustice and inequality, especially for women. In terms of corporate governance, TBS empowers minority groups and micro and small businesses in its company supply chain, globally. All of this makes TBS a company that is highly dedicated to ESG, making profits and receiving awards as a company with “B Corp” certification as a company that can balance environmental and profit goals (BusinessInsider, 2019).

Recently in 2024, TBS announced they would completely close their store operations in the United States, close 33 of their 105 stores in Canada, close 75 of their 198 UK stores and close other TBS stores worldwide. This announcement follows the inclusion of their status as “insolvent” in the UK – one step before the bankruptcy announcement (TheGuardian, 2024). This bankruptcy announcement will impact nearly 2,000 TBS workers worldwide. This announcement follows TBS experiencing a decline in sales for four consecutive quarters, and TBS is now implementing cost savings initiatives to mitigate these losses, one of which is by closing their stores.

TBS’s bankruptcy process is not a simple matter that can be linked to their good ESG performance. The application of the concept of sustainability in company performance and investment is an important aspect of the company, and the company’s sales performance is another aspect of the business. Even though implementing the concept of sustainability is very important in companies, which of course requires quite a lot of money, the function of adapting and being agile to market trends and demands is also something that is worth paying attention to.

Taking a case of Indonesia’s TBS, they said that, as far as today, TBS in Indonesia is not impacted by their ‘parent companies’ in the US or UK. CEO of The Body Shop Indonesia Suzy Hutomo stated that The Body Shop Indonesia (TBS Indonesia) will continue to exist in Indonesia despite the bad news about The Body Shop’s business in the US (CNN, 2024). This is in part due to TBS Indonesia, which is under “Global Head Franchise”, operates independently. This system is different from TBS International in Europe, the US and UK. TBS Indonesia also admitted that they maintain the authentic values of Anita Roddick, founder of TBS, so that it continues to grow. Even this statement is so business pragmatic, but we can’t deny that, TBS Indonesia’s away from the global bankruptcy is due to their business model itself.

The changing business competition landscape, especially since TBS’s early days, should be a concern that needs to be taken seriously. The emergence of new competitors such as Axiology Beauty, Aveda or L’occitane in the sustainable market where TBS was previously the market leader has increasingly shaken its position in the beauty product market throughout the world. The products released by these competitors are actually able to be offered at more competitive prices than those offered by TBS. In addition to these competitive prices, TBS’s emerging competitors spend more of their revenues on marketing (3% compared to 6%) than TBS does.

Another business step that was quite a blunder made by TBS was when the company was bought by L’Oreal and Natura.Co as the parent company. These two brands are considered controversial for TBS because they both carry out product trials on animals – something that is very different from TBS’s principles. As a result, this company is not capable enough to carry out maneuvers that are in line with the company’s internal values and principles effectively. TBS lost its authenticity, including how this company could be more competitive and quickly adapt to changing market trends and competitors. Thus, the application of sustainability values (“sustainable and green paradigm”) in companies should still reflect adaptive business capabilities and not eliminate the authentic values that have been brought, even since the company was founded.

Muwalliha Syahdani
Muwalliha Syahdani
Master Student at International Relations Department, Universitas Gadjah Mada. His study concentrates on: Science, Technology and Art in International Relations (STAIR) and Southeast Asia dynamics.