The Body Shop Australia in ‘crisis’ as parent company files for bankruptcy

The Body Shop operates about 100 stores in Australia and is said to be the most profitable international arm of the stricken business. However since the UK parent entered bankruptcy last month, the Australian subsidiary – and others around the world – have become creditors and their access to funds has been cut off.

The Guardian has quoted sources explaining that the money earned by the key overseas businesses during the peak trading period in November and December was paid into a global account, based in the UK – “a practice termed ‘cash pooling’”. As a result, global subsidiaries are struggling to pay suppliers for services rendered during that peak. The cash pooling ceased when the business entered into administration.

The newspaper said it understands “the future of the chain is hanging in the balance as it struggles to cover large debts”. Some 20 stores in New Zealand are also affected, managed by the Australian business.

“Sources said the profitable business could cover its day-to-day expenses from cashflow but would need additional funds to cover debts to suppliers such as logistics firms, warehouses and marketing agencies for services during its busy Christmas season,” The Guardian reported.

Retail Gazette reported that the Australian business has “unsustainable levels of debt” and will require new funding.

Last weekend, The Body Shop in the US filed for Chapter 7 bankruptcy, a process that allows it to sell assets to settle debts. All 50 outlets were closed with 400 jobs on the line, while the Canadian business has closed 33 of its 105 stores.

The global Body Shop business was sold by Brazilian corporation Natura & Co by a pan-European investment firm Aurelius for £207 million ($402 million at today’s exchange rate) last November, with settlement in January. Aurelius has since sold the business to Alma24, a company controlled by Friedrich Trautwein, who Retail Gazette describes as “a close associate” of Aurelius and who has previously helped shut down “unwanted businesses”. Alma24 called in FRP Advisory as administrators, a process that left Aurelius as The Body Shop’s largest creditor.

Aurelius retains the brand rights to The Body Shop which places it in a unique position to reclaim the business from administrators – presumably without the debt.

Other bidders have expressed an interest in acquiring the famous ethical beauty brand. They include Doug Putman who bought and rescued the HMV music retail business, which is now reopening stores, including an Oxford Road flagship.

FRP has already closed 82 The Body Shop stores in the UK and is attempting to sell the business as a going concern.

The Body Shop’s businesses in Germany, Belgium, Denmark and Ireland have all been placed into insolvency, however, franchised Asian operations are believed to still be operating.

The brand was founded in 1976 by the late Dame Anita Roddick who sold the business to L’Oreal in 2006 for £652 million, which later onsold it to Natura in 2017 for £880 million.

This article was first published by Inside Retail.