This article first appeared in The Edge Malaysia Weekly on February 26, 2024 - March 3, 2024

InNature Bhd managing director Datin Mina Cheah-Foong is confident that The Body Shop (TBS) brand will persevere despite the brand’s owner, German private equity firm Aurelius, having recently put The Body Shop UK — the home market — into administration to facilitate a restructuring of the business.

InNature is the franchisee of the business in Malaysia, Vietnam and Cambodia.

“[What] went into administration are the UK stores, the UK retail operating arm and the UK [head] office,” she tells The Edge in an interview, moving to assure the public that TBS’ business in Malaysia is not affected.

Aurelius-owned The Body Shop International Ltd (TBSI) owns and operates the business in the UK and several other European markets, as well as in Singapore, Japan, Hong Kong and Australia, among others. In most Asian markets, including Malaysia and the Middle East, the business is run by franchisees. InNature gets its products from TBSI.

The Feb 13 move by Aurelius to put the UK business into administration sent InNature’s stock plummeting 13.6% to a record low of 28.5 sen apiece the next day, making for a rude Valentine’s Day surprise as investors worried about the potential impact on InNature.

The share price recovered the following day, but swung between gains and losses over the next few days on unusually heavy volumes, as gloomy news reports on the developments trickled out from the UK. Sniffing out a bargain, Prudential plc — through its investment funds — scooped up 1.5 million shares, or a 0.21% stake, which resulted in its re-emerging as a substantial shareholder of InNature, with a 5.14% stake.

The share price closed flat from a week ago at 30 sen on Feb 23, for a market capitalisation of RM204.9 million.

Last week, the administrator, FRP Advisory, announced that it would close up to half of the 198 TBS stores in the UK and cut the size of the head office — a move that would lead to hundreds of job losses. The cuts will help “re-energise” the brand, it added. “It is expected that at the conclusion of the restructuring, more than half of The Body Shop’s 198 UK stores will remain open.”

TBSI employs around 2,200 people in the UK, including 750 staff in the head office.

Shortly after the UK, TBS business in Germany also entered administration and Belgium is expected to be next.

“Clearly I’m concerned, but more than that, I’m saddened by what is happening. The Body Shop UK is really going through a tough time now, and because it is the home market, it makes it very difficult for everybody who is associated with TBS,” Cheah-Foong says when asked if she is concerned about the recent developments.

She says some customers in Malaysia are even under the false impression that TBS may be closing down as a result of the developments in the UK. “But we are an entirely separate business. However, because we also operate TBS stores, I can understand where the concerns are coming from in terms of the supply chain.”

Cheah-Foong says TBSI has assured her that it has secured supplies until past 2025.

“They have been at pains to assure us that the supply chain is going. And, as I have mentioned before, because of the [Houthi attacks on ships] in the Red Sea, we had earlier made a decision to increase our [product] orders.

“So right now, in Malaysia, I have got 9.8 months’ cover, out of which 70% is of my top 200 stock keeping units (SKUs), my bestsellers. In Vietnam, I have 11 months’ cover, of which 81% is of my top 200 SKUs; and in Cambodia, which is a very small business, I’ve got 14 months’ cover as I order less frequently there, of which 82% is of my bestsellers,” she shares. “So far, we have locked in our 2024 orders. Of everything that I’ve ordered, they are able to fulfil 86% to 88% of my orders.”

Asked if FRP Advisory had been in contact with InNature, she said, “No. [However], as administrators, they are [seeing to] the warehouse in the UK [from where InNature gets its stock] as well. I’ve got my shipments coming right until July. So, I guess they will be contacting me in the next couple of weeks.”

It is unclear how quickly the administration process in the UK will go, but “for us, it’s business as usual”, Cheah-Foong says. “We’ll have to wait and see if they make good on their promises [on supplies]. But so far, there has been no impact [on InNature] and I am sitting on a good quantity of stocks.”

She expects the TBS brand to stay alive in the UK. “I am confident that the brand will [continue] to exist. There is a lot of value in the brand, and a lot of value in some of the retail stores. I hope that The Body Shop UK will come out of it slimmer and stronger and tougher than before. [Right now], there is a lot of fat in the business.”

Aurelius is the UK business’ main secured creditor, which means it is first in line to receive payments as The Body Shop UK is restructured. 

Asked for her view on how things may pan out in the UK, Cheah-Foong says; “I think The Body Shop UK will come [out of this]. Aurelius will take a lower number of stores and I think they will continue [with the business].”

The global head franchise markets, such as Malaysia, are profitable for Aurelius. The firm bought the TBS business from Brazillian cosmetics giant Natura last November in a £207 million deal. In 2022, the UK business posted a £71 million loss compared with a £10 million profit the year before.

“Aurelius has told us themselves that the head franchise business is where they are getting profits. So, there is comfort in that. We are generating profits for TBSI, while Europe [as a whole], Japan, China, are not,” Cheah-Foong says.

She adds, candidly: “My worst fear would be, after they clean up internally, they might want a share of our business. But this is all speculation.”

InNature’s 10-year franchise contract with TBSI ends in June 2029, after which it has a five-year option to renew it.

According to Cheah-Foong, based on data out of Asia-Pacific over the last six weeks, the TBS store in KLCC was the top-performing store in the region, while the Mid Valley store was the third best.

InNature has no plans to open new TBS stores this year, she says, pointing out that the retail industry as a whole in Malaysia has yet to fully recover from the impact of the Covid-19 pandemic. Consumer sentiment remains weak and tourists — a segment that used to contribute about 25% of the group’s business — have yet to come back in full force.

“We are looking to develop our e-commerce business and our social media business … that’s what we are focusing on,” Cheah-Foong says.

In Malaysia, the group now has 76 stores, compared with 89 in 2019, and in Vietnam, 36, compared with 34 in 2019. In Cambodia, it has increased to three from just one.

Last year, it opened a store in TRX in Kuala Lumpur, which is “doing well”, she says. 

The group’s net profit for the nine months ended Sept 30, 2023 fell 60.02% to RM5.88 million from a year ago, as revenue dropped 9.56% to RM98.2 million.

It is expected to release its final-quarter earnings on Feb 28.

Cheah-Foong, together with her husband Datuk Simon Foong and their two sons, collectively hold about 70.6% in InNature via four private companies. 

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