The Body Shop International Case

In early 1990’s, The Body Shop International was one of the fastest growing manufacturers and retailers of skin and hair products in the world. In the first half of the 1990’s the company reported an annual growth rate of 20%. However, in the late 1990’s, the company’s revenue slowed to around 8%. With many new companies entering the market, the competition grew stronger and The Body Shop had to come up with a new strategy for how to stay competitive, increase their revenue growth, and to minimize their expenses.

In the year 2000, The Body Shop International faced many financial obstacles that affected its revenue growth and forced the company to turn to financial forecasting to predict future financials. Using financial data from previous years, the company used the percent-of-sale method of forecasting to make predictions. Percent-of-sales forecasting involves forecasting of sales and then forecasting of other financial statements based on their relationship to sales.

The new strategy for The Body Shop International has been focused on product strategy and increased investment in stores. This is to achieve operational efficiencies in the supply chain by reducing product and inventory costs. First, before making a prediction, parameters for future growth must be set. The projection on sales growth is set to 14% annually for years 2002, 2003, and 2004. 41% of sales has been set for the Cost of Goods sold. This decision is based on the average for the past three years minus 1% decrease annually for the next 2 years. Based on the average of operating expenses from the last three years, percent of sales has been set to 51 and the company will decrease its operating expenses by 3% every year after.

By cutting costs in Cost of Goods Sold and Operating Expenses, The Body Shop International will be able to generate excess cash that will be used to pay down the debt that is used to run day-to-day operations. With increased production efficiency, the cost of making hair and skin products will be decreased