Loblaw Companies’ (CA:L) Shoppers Drug Mart will start selling beauty brand The Body Shop’s products at 25 Shoppers locations across Canada and Shoppers’ online site, expanding to 50 stores in 2024. 

That Aug. 28 announcement coincided with a U.S. filing by Body Shop parent Natura & Co. (US:NTCO) that it is exploring strategic alternatives for the Body Shop, including its sale. 

The news is good for Shoppers customers, who can now buy Body Shop products at some of the drug store chain’s stores in Canada; a first for the once-iconoclast social enterprise, which, until now, had only sold its products at its own stores and online site. 

“We’re noticing a trending increase in body care purchases in Canada, and we are intentionally welcoming The Body Shop products to our lineup because we know it’s what our customers are looking for,” The Globe and Mail reported the comments of Gwennaëlle Varnier, vice-president of prestige beauty at Shoppers.

In 2013, Loblaw paid $12.4 billion in cash and stock for Canada’s largest drugstore chain. While it might seem outlandish, buying Body Shop could make sense for the company. 

Here’s why. 

Precedent for an Acquisition

In 2022, Shoppers acquired Lifemark Health Group for $845 million in cash. Lifemark is a provider of physiotherapy clinics across the country. You can see them in strip malls and retail centers owned by Choice Properties (CA:CHP), Loblaw’s former parent. Loblaw’s parent, George Weston (CA:WN), now controls the real estate investment trust.

So, there is precedent for making a significant acquisition like Body Shop. 

It would also fit nicely into Shoppers' move to sustainable beauty. On Aug. 10, Shoppers announced new products for its Quo Beauty private label cosmetics brand that have reduced amounts of plastic packaging. Over the next month, it will introduce more than 40 products with sustainable packaging. 

“We know the beauty industry contributes to the plastics problem in Canada and we’re leading the way with implementing solutions,” says Kelly Jessop, Senior Vice President, Merchandising, Shoppers Drug Mart.

The Body Shop has always tried to be environmentally friendly. So, the partnership with Shoppers makes sense. 

Somewhere, the late Anita Roddick, the founder of The Body Shop, is smiling.

What Would The Body Shop Cost Shoppers?

In the second quarter, the Body Shop’s revenues were $163.7 million (CA$223.1 million), 12% lower than a year earlier. In the first six months of 2023, the Body Shop’s revenues were 1.65 billion Brazilian reals (CA$460.0 million) with an adjusted EBITDA of 95.1 million reals. 

Annualize both of these numbers, and you’re looking at revenues of $920 million and adjusted EBITDA of $53.0 million for an EBITDA margin of 5.8%.

Natura acquired the Body Shop from L’Oreal (US:LRLCY) in 2017 for approximately $1.1 billion . L’Oreal sold the Body Shop because it was its least profitable business. Little has changed for Body Shop in that regard. 

In 2022, Body Shop lost 370.9 million Brazilian reals on 4.41 billion Brazilian reals in revenue.

JPMorgan analysts have said the Body Shop’s value is approximately 2.5 billion Brazilian reals, or about $515 million. 

“We do think a potential sale of The Body Shop would be positive for Natura & Co,” analysts at Itau BBA wrote, “because it could improve Natura's bottom line in the years ahead,” Reuters reported. 

Shoppers and Loblaw could easily afford The Body Shop. The question is whether it makes sense. 

According to Natura’s 2022 annual report, The Body Shop had 716 employees in Canada at the end of the year, the highest number of any country where it does business. That’s more than 12% of the brand’s employees worldwide. 

As for store locations, the Body Shop has more than 2,500 stores worldwide, operating in 70 countries, with 123 in Canada. 

If Shoppers ever wanted to expand beyond Canada, The Body Shop would be an excellent way to pave the way.