The Body Shop plans to close nearly one-third of its stores in Canada and is seeking protection from its creditors, just weeks after its U.K.-based parent company also began restructuring under its new owners, German private equity firm Aurelius Investment.
On Friday, The Body Shop Canada Ltd. filed a “notice of intention” under the Bankruptcy and Insolvency Act with the Ontario Superior Court. The process will “provide additional breathing room while it evaluates its strategic alternatives and implements certain restructuring initiatives,” the company wrote in a press release on Friday.
The Body Shop operates 105 stores across Canada, 33 of which will immediately begin liquidation sales. The Body Shop has more than 700 employees in Canada. The press release did not specify how many jobs would be cut as part of the restructuring.
While all of the Canadian stores remain open, the e-commerce site ceased operations on Friday. The Body Shop will no longer sell gift cards in Canada and will not accept existing gift cards – a move that will mean a loss for customers still holding on to holiday gifts. The Canadian stores are also no longer accepting returns, even for purchases made before the restructuring began.
As of Feb. 26, The Body Shop Canada owed more than $3.3-million to its creditors, according to documents filed with the Office of the Superintendent of Bankruptcy Canada on Friday.
Also on Friday, The Body Shop US Ltd. immediately ceased operations and closed all of its stores in the U.S.
The cosmetics retailer – known for its fragrant mall stores and products promising cruelty-free standards and natural ingredients – has lost considerable value in recent years. Aurelius acquired The Body Shop last November for £207-million, or roughly CAD$350-million, just a fraction of the €1-billion that Brazil-based company Natura paid to acquired the retailer from French cosmetics giant L’Oréal in 2017.
In its announcement of the acquisition last November, the private equity firm wrote that “despite the challenging retail market there is an opportunity to re-energise the business to enable it to take advantage of positive trends in the high-growth beauty market.”
The Body Shop had grown to be a sprawling business, with more than 900 corporate-owned stores and roughly 1,600 franchised locations across 89 markets at the time of the deal, and roughly 7,000 employees at the time of the acquisition.
Earlier this year, Aurelius sold off underperforming stores in most of Europe and in parts of Asia.
Then in mid-February, the chain collapsed into administration under the UK’s insolvency laws, a process that allows companies to restructure or sell a business. The news came as a surprise to the executives running the North American business, according to a memo sent to U.S. employees on Friday, which was obtained by The Globe and Mail.
“The UK Administration was commenced without any advance notice to, or pre-filing discussion with, the Company, its officers or directors,” said the memo from The Body Shop’s North American human resources director, Jennifer Wale.
At the time, the administrators, FRP Advisory, said publicly that the process would only affect the business in the UK. But funding for the North American business was “immediately cut off, with no advance notice,” the memo said. Because The Body Shop’s accounts were managed by the international parent company, cash from the Canadian and U.S. businesses were “swept” into a centralized account on a daily basis, and funding was provided to run the operations on an “as-needed basis,” according to the memo.
Before the commencement of restructuring in the UK, the parent company had not fully paid its vendors, according to the memo, and the administrators have returned none of the funds that were swept just before the filing. On Feb. 23, the administrators communicated that they would not return the funds or make further cash advances, the memo said. As a result, the North American operations have been racking up debt.
“Aurelius remained silent in the face of all urgent requests from the Company, even though aware of catastrophic consequences for North America,” the memo said.
The result is that The Body Shop does not have sufficient liquidity to continue operating in the U.S., according to the memo, sent to staff whose jobs were cut on Friday.
British media reported this week that 75 stores in the UK would close and 40 per cent of head office staff would face layoffs as part of the restructuring there.
The Body Shop has recently been diversifying its business in Canada, launching a partnership with Loblaw Cos. Ltd. last summer to sell its products in dozens of Shoppers Drug Mart locations across the country, as well as through the Shoppers e-commerce portal. The move marked the first time the brand had expanded its sales beyond its own stores in Canada. The company will now be unable to continue with that deal.
The Body Shop was founded in the U.K. in 1976 by Dame Anita Roddick, focusing on ethical production and sustainability. The retailer first expanded into Canada in 1980, and remained family-owned until 2006, when French cosmetics giant L’Oréal acquired it for £652-million. Ms. Roddick died in 2007. L’Oréal then sold the business to Natura, which also owned the Aesop skincare and beauty brand.
While The Body Shop was a pioneer in marketing its products as ethical and sustainable, the retailer faced intense competition over the years as more skin-care and beauty brands sought to win over shoppers with similar claims. Retailers such as Shoppers Drug Mart and Sephora also compete in e-commerce with dedicated sections on their website for customers to find products with natural ingredients and recyclable or refillable packaging.
Canadian store locations going into liquidation:
Atlantic Canada: Corner Brook Plaza (Corner Brook), Champlain Place (Dieppe), McAllister Place (Saint John), Mayflower Mall (Sydney), Truro Mall
Ontario: Bayview Village (Toronto), Dufferin Mall (Toronto), The Shops at Don Mills (Toronto), Toronto Pearson Airport Terminal 1, 1952 Queen St. E. (Toronto), Rideau Centre (Ottawa), Carlingwood Mall (Ottawa), Place d’Orleans, Cataraqui Town Centre (Kingston), Lynden Park Mall (Brantford), Stone Road Mall (Guelph), Fairview Park Mall (Kitchener), Timmins Square, Lambton Mall (Sarnia), Lansdowne Place (Peterborough)
Manitoba: Shoppers Mall (Brandon)
Saskatchewan: Lawson Heights (Saskatoon), Midtown Plaza (Saskatoon), Cornwall Centre (Regina), The Centre (Saskatoon)
Alberta: Lloyd Mall (Lloydminster), Londonderry Mall (Edmonton), Sunridge Mall (Calgary), Medicine Hat Mall, Park Place (Lethbridge)
B.C.: Semiahmoo (White Rock), Hillside Shopping Centre (Victoria), Village Green (Vernon)
Editor’s note: A previous version of the story incorrectly stated The Body Shop US Ltd. commenced Chapter 7 bankruptcy proceedings on Friday. The company ceased U.S. operations and closed all of its stores in the U.S. This version has been updated.
Susan Krashinsky Robertson