In what is one of the most high-profile examples of a retailer entering administration so far in 2024, employees, retail commentators and landlords will eagerly wait to hear what the future holds for The Body Shop in the UK.
The chain, founded in 1974 and known for its cruelty-free and ethical beauty products, is said to have faced "an extended period of financial challenges under past owners, coinciding with a difficult trading environment for the wider retail sector".
The joint administrators at FRP will consider all options to find a way forward for the business- which continues to trade from its 199 stores and has over 2000 staff- and will update creditors and employees in due course.
During an administration process typically a buyer is sought for all or part of a firm, which can result in all or some shops remaining open.
However, in a scenario where a significant chunk of The Body Shop's UK stores were to close that could leave a raft of empty spaces, in a blow to employees, landlords, consumers and shopping destinations.
So what impact could the administration potentially have on the UK retail bricks and mortar sector? And are there any measures that could help the wider industry which is grappling with challenging conditions?
Empty stores
Fears that high street and shopping mall vacancy rates are set to spike following some stability have emerged as staff and businesses wait to see what comes from the administration of the UK arm of The Body Shop.
Lucy Stainton, commercial director at the Local Data Company, told the Evening Standard: “If all Body Shop stores were to close, shopping centres are likely to face the biggest impact with 69% of Body Shop stores located in shopping centre locations.”
She adds: “However, the size of these units makes them more likely to be reoccupied quickly, unlike the larger format department stores that have closed previously. With this in mind, despite this undoubtedly being a further blow to the physical retail space, with many retail colleagues sadly affected, we would anticipate vacancy rates to hold up well in the most sought after prime locations with more secondary shopping centres seeing a further impact to their vacancy rates.”
The Local Data Company’s most recent vacancy monitor published last month found that the overall store vacancy rate in Great Britain was 14% in the final quarter of 2023. That was unchanged from the prior three months and a 0.2 percentage points rise from the same period a year earlier.
Jeremy Whiteson, restructuring and insolvency partner at law firm Fladgate, said: “It seems likely that many buyers will simply be interested in the brand and stock, shifting the business to an online operation or to be integrated into a multi-brand retailer such as Next or Frasers.”
Landlords look to re-let
As the Local Data Company’s Stainton says, in the event of shop closures vacancy rates would likely hold up well in the most sought after prime locations.
But for some building owners finding new tenants could be tough, as retailers face other costs, such as higher wage and business rates bills, that could make expansion more tricky right now.
A number of landlords are exposed to the administration if sites are axed, including London-listed property giants, although for these firms The Body Shop will only be a small part within their retail portfolio.
British Land has less than five stores used by the chain while the The Body Shop currently makes up less than 0.5% of Landsec’s overall rent roll.
A spokesman at Landsec says: “We’re sorry to hear The Body Shop has gone into administration. We will work alongside administrators to find the best solution for everyone. We believe strongly in the future of physical retail and its ability to offer guests great experiences so our focus, as always, is on creating exciting and varied destinations.”
Business rates burden
While the administrators did not mention business rates in their statement, a number of High Street brands are expecting higher bills this year.
According to real estate advisors Altus Group the current business rates bill for The Body Shop’s store portfolio, corporate offices and warehouse facilities was £7.55 million during the 2023/24 financial year, and it was set to rise by more than £360,000 in the year from April 2024.
In the Autumn statement the Chancellor announced a package of support worth £4.3 billion over the next five years to support small businesses and the High Street. However many non-domestic properties, including scores in London, have a rateable value of more than £51,000, the threshold for the freeze to the small business multiplier announced by Jeremy Hunt.
The freeze is aimed at protecting over a million ratepayers from the impact of inflation, but the standard multiplier — paid by properties with a rateable value of £51,000 or more — will be uprated by the September CPI reading of 6.7% next April.
An HM Treasury spokesman says: “Our decisive action helped to more than halve inflation last year, which is protecting businesses around the country from higher costs that they would otherwise have faced.
“We have also taken one third of properties out of paying business rates altogether, whilst protecting bills for over one million business properties from inflation and cutting taxes on investment.”
But Melanie Leech, who leads the British Property Federation, thinks more needs to be done to address the rates burden and help businesses.
Leech comments: "It is sad to see yet another iconic British brand fall into administration. The news reinforces once again the need for decisive government action to reduce the crippling business rates burden on our high streets.”
A more ‘nimble’ Body Shop UK
The statement announcing the appointment of joint administrators to the UK company points to hopes for the future.
It said: “The Body Shop remains guided by its ambition to be a modern, dynamic beauty brand, relevant to customers and able to compete for the long term. Creating a more nimble and financially stable UK business, is an important step in achieving this.”
It’s unlikely we'll see the end of the brand
The brand has faced increased competition, according to Richard Lim, chief executive of Retail Economics. He says: “The ethical consumer proposition was diluted by other brands raising their game.”
Lim anticipates a definite future for The Body Shop in Britain, but one with a smaller bricks and mortar footprint.
“This will undoubtedly leave gaps on the high street in areas suffering from lacklustre footfall. But it's unlikely we'll see the end of the brand. Hopefully, the retailer can emerge with a leaner operation, reinvigorated management and investment in digital that safeguards jobs,” says Lim.
