By Roger Hutton
The beauty retailer is far from the only big brand that could be in trouble – and businesses need to be prepared, argues insolvency expert Roger Hutton
The Body Shop was one of the most iconic brands of the ’90s and made environmentalism trendy before anyone had heard of ESG. But now it has collapsed into administration and half of its UK stores are set to close.
None of this should come as a surprise – not only given the business’ run of financial challenges, but perhaps more importantly the economic climate many businesses across the UK find themselves in.
The beauty retailer isn’t the only business on the brink. Currently, businesses are trading against the economic backdrop of tighter lending and higher cost inflation, and it’s not just retailers that are affected.
According to data from The Gazette Official Public Record, a total of 1,641 businesses, 239 of which came from the retail sector, filed for administration last year.
Retail, construction, hospitality, manufacturing, and real estate were the worst-hit sectors, collectively accounting for 59 per cent of the administrations, with retail alone accounting for 19 per cent of administrations in 2023.
Looking at the year ahead those industries will continue to feel the pressure, with additional sectors including hotel, leisure, transport and storage expected to suffer too.
While there are several factors at play, including the continued impact of the pandemic, cost inflation is the major factor here.
In a survey by PwC, 72 per cent of companies predicted negative repercussions on their profits due to rising energy costs.
But with more businesses likely going the way of The Body Shop, it’s important to remember that administration is a rescue procedure and that the closure of a company should always be a last resort.
I’m in administration, get me out of here!
Whether you’re a director, management or even a landlord, it’s important to know where you stand when an administration occurs and how best you can look after your own position.
However, if you do find yourself in that position, instructing a law firm that can help manage both the administration, consequent restructuring and the directors’ personal risk is key.
Look for a legal partner with experience in financial distress and restructuring, as well as those that can support with concerns around personal risks and future roles.
Ultimately, the earlier interventions are taken the more solutions there are. Re-negotiating funding terms, working closely with management to support them through a restructure and working closely with private equity investors to support a business and secure a potential buyer are much easier to do when you have more time to manoeuvre.
Communication is also key, with all stakeholders but especially with staff.
According to the latest company accounts, The Body Shop had 927 administrative staff and 1,641 store workers in 2022; 40% of those roles are now going to be cut, with no timeline yet given for potential redundancies and further closures.
For businesses facing administration, insolvency or any restructuring changes, employers must always consider their workforce. Think about where employees are critical to the business and where rationalisation might save the businesses.
It’s important to be clear and decisive on these issues. Any slip-ups can impact the reputation of the brand which can have ramifications for profit and investors – at a time when pressures are already tight.
Final thoughts
Big household names on the brink shouldn’t raise eyebrows, but it should raise the alarm.
We’re in an economic climate where tighter lending and cost inflation are effecting everyone. Therefore, anyone trading has to be more conservative, constantly assessing where and how they’re making money and which areas draining cash instead, and always ensuring there are proactive steps in place to mitigate risk.
