In 2024, it is one of the highest profile examples to date of a retailer filing for bankruptcy, so staff, retail commentators and landlords will be eagerly awaiting what the future holds for The Body Shop in the UK.
Founded in 1974, the chain, known for its cruelty-free and ethically sourced beauty products, is said to have gone through “a prolonged period of financial challenges under its previous owners, coinciding with a difficult trading environment for the retail sector as a whole.”
FRP’s joint administrators will consider all options to find a way forward for the business, which continues to operate 199 stores and employs over 2,000 people. Creditors and employees will be updated in due course.
Insolvency proceedings typically involve finding a buyer for all or part of the business, which may result in all or some of the stores remaining open.
However, if a significant proportion of The Body Shop’s UK stores were to close, this could result in numerous vacancies – a major blow to employees, landlords, customers and shopping centres.
So what impact could the Government potentially have on UK retail? And are there any measures that could help the wider industry, which is struggling under difficult conditions?
Empty shops
While employees and companies wait to see what the insolvency of The Body Shop’s British branch means for them, there are fears that the vacancy rate in city centers and shopping centers will rise sharply again after a certain period of stability.
Lucy Stainton, trading director at the Local Data Company, told the Evening Standard: “If all Body Shop stores were to close, shopping centres would probably be hit the hardest, as 69 per cent of Body Shop stores are located in shopping centres.”
She adds: “However, due to the size of these units, they are more likely to be reoccupied quickly, unlike the larger department stores that have previously closed. With this in mind, although this is undoubtedly another blow to bricks-and-mortar retail and many retail colleagues are unfortunately affected, we expect vacancy rates to hold steady in the most desirable prime locations. However, vacancy rates will continue to fall in the more secondary shopping centres.”
The Local Data Company’s latest Vacancy Monitor, released last month, found that the UK’s overall shop vacancy rate was 14% in the final quarter of 2023. This was unchanged from the previous three months and an increase of 0.2 percentage points on the same period last year.
Jeremy Whiteson, restructuring and insolvency partner at law firm Fladgate, said: “It seems likely that many buyers are simply interested in the brand and stock and will want to convert the business to an online operation or integrate it into a multi-brand retailer such as Next or Frasers.”
Landlords looking for new rentals
As Stainton of the Local Data Company says, if stores were to close, vacancy rates in the most desirable prime locations would likely remain unchanged.
However, some building owners may find it difficult to find new tenants as retailers face other costs, such as higher wages and business taxes, which could make expansion more difficult at present.
A number of landlords, including London-listed property giants, face insolvency if sites are cut, but for these firms, The Body Shop will only represent a small part of their retail portfolio.
At British Land, fewer than five stores are occupied by the chain and The Body Shop currently accounts for less than 0.5% of Landsec’s total rental income.
A Landsec spokesperson said: “We regret that The Body Shop has to file for insolvency. We will work with the insolvency administrators to find the best solution for everyone. We firmly believe in the future of bricks-and-mortar retail and its ability to provide great guest experiences, so our focus, as always, is on creating exciting and diverse destinations.”
Burden of trade tax
While administrators did not mention business tax in their statement, some high street brands are expecting higher bills this year.
According to property consultant Altus Group, current business rates charges on The Body Shop’s store portfolio, corporate offices and warehousing facilities were £7.55 million in the 2023/24 financial year and are expected to rise by more than £360,000 in the year beginning April 2024.
In his Autumn Statement, the Chancellor of the Exchequer announced a support package worth £4.3 billion over the next five years to support small businesses and the high street. However, many commercial properties, including numerous in London, have a rateable value of over £51,000, the threshold for the freeze on the small business multiplier announced by Jeremy Hunt.
The freeze is designed to protect over a million taxpayers from the impact of inflation, but the standard multiplier paid by properties with a rateable value of £51,000 or more will be increased next April by September’s consumer price index (CPI), which will then be 6.7%.
A Treasury spokesman said: “Our decisive action has helped to more than halve inflation over the past year, protecting businesses across the country from the higher costs they would otherwise have faced.”
“We have also exempted a third of all properties from trade tax, while protecting the bills for over a million commercial properties from inflation and reducing taxes on investments.”
But Melanie Leech, chair of the British Property Federation, believes more needs to be done to reduce the tax burden and help businesses.
Leech commented: “It is sad to see yet another iconic British brand go bankrupt. The news once again underlines the need for decisive action from the Government to reduce the crippling business rates burden on our high streets.”
A “nimble” Body Shop UK
The statement announcing the appointment of joint administrators for the British company offers hope for the future.
It states: “The Body Shop remains guided by its ambition to be a modern, dynamic beauty brand that is relevant to customers and competitive over the long term. Creating a more flexible and financially stable UK business is an important step in achieving this goal.”
It is unlikely that we will see the end of the brand
Richard Lim, Retail Economics
According to Richard Lim, managing director of Retail Economics, the brand is facing increasing competition. He says: “The ethical consumer promise has been diluted by the increases of other brands.”
Lim predicts a clear future for The Body Shop in the UK, albeit with a smaller local presence.
“This will undoubtedly leave gaps in the high streets, in areas where footfall is weak. But it is unlikely that we will see the end of the brand. Hopefully the retailer can emerge with a leaner operation, renewed management and investments in digitalisation that will safeguard jobs,” says Lim.
