How Body Shop Canada is coping after filing for creditor protection and the failure of its parent company

The bath pillows really shouldn’t be here.

Normally, this shelf at The Body Shop in Toronto’s Eaton Centre would be stocked with other products – shower gels perhaps, or hand creams. But with an estimated US$85-million retail value worth of inventory stuck in a U.S. distribution centre, and The Body Shop Canada Ltd. facing an existential crisis, the stores that remain after a recent spate of closings are not doing business as usual. And when staff need to keep things looking stocked, a forest-green basket of pillows does the trick.

“We’re not empty-shelves, because we’re faking it,” said district manager Sandra Castro during a recent visit to the Eaton Centre location. “But we’re very low.”

The Body Shop Canada filed for protection from its creditors in early March – shortly after its U.K.-based parent company also began restructuring under its new owners, German private equity firm Aurelius Investment, and on the same day the U.S. ceased operations and closed all its stores. Since then, The Body Shop has shut down 33 locations in Canada, suspended all e-commerce sales, and laid off roughly 220 employees. No further cuts are planned, according to court documents.

For staff at the 72 stores still standing, it has been a strange time. In the weeks after the news broke, they saw a flood of customers. Some came for the deals, expecting liquidation prices (although discounts were more modest at stores that were not closing.) Others came for the nostalgia, not having stepped foot in a Body Shop for so long that they were asking about discontinued fragrances such as Oceanus and Dewberry. And some loyalists came to stock up on their favourite products in case the whole business went kaput. Eaton Centre store manager Cecelia Butler recalls watching some shoppers sweep an entire shelf full of products into their baskets.

“We saw, I swear, more sales and more people than Boxing Day and Black Friday,” Ms. Butler said. The difference was, on those holidays, Ms. Butler would temporarily hire roughly three times her usual staff to handle the rush. In March, amid a cash crunch, there was no staffing up. “I had to close the gate, and there was a lineup.”

The traffic and sales exceeded the company’s expectations, and as a result, the Canadian business is now in a “strong” liquidity position, according to court documents filed in early April. That marks a sharp turnaround from the month prior, when The Body Shop Canada faced a “liquidity crisis” it attributed to the parent company having withdrawn cash from its account, but halting all payments to its suppliers.

But there was a fly in the fair-trade ointment. All those sales left the Canadian stores “at imminent risk of running out of core merchandise in the coming weeks,” according to an affidavit sworn on April 8 by Jordan Searle, general manager for The Body Shop in North America. Mr. Searle declined to provide further comment for this story.

To get inventory moving to Canada, the company has had to establish new relationships with shipping and warehousing providers, and has been working on purchasing products that were owned by the U.K. parent company, and were already on boats shipping to the U.S. or held at U.S. ports by a brokerage company that was owed payment for its services. It has been in discussions about buying inventory held in the distribution centres in both the U.K. and the U.S.

The Body Shop Canada had also paid for some inventory that had been stopped at the border and returned to the U.S. distribution centre before the company filed for creditor protection, and made its own arrangements to complete delivery of those products. New shipments began arriving in stores in Canada in late April.

“There was nothing for weeks,” Ms. Castro recalls. “Behind the scenes, they’re working tirelessly to get those wheels moving and that product coming in. It is coming, albeit slowly.” Staff have been so excited to finally see new shipments that they have been taking selfies with the products, said Kat Edwards, manager of The Body Shop store in Oshawa, Ont.

All of these efforts have been complicated by the fact that operations at the U.S. distribution centre have been halted under The Body Shop’s Chapter 7 bankruptcy proceedings in the United States.

Even as they start to come in, some products are going fast. Ms. Butler had a shipment of Vitamin E cream on a Tuesday recently that was sold out by Wednesday evening. Other items such as Ginger Scalp Care Shampoo, Hemp Hand Protector cream, Vitamin C serums and anything in the citrusy Satsuma line have frequently been out of stock. In order to keep the stores operating, the company will need to find ways to bring in more inventory.

In early April, the U.K. administrators issued a “statement of proposals” saying they expect to put forward to creditors an arrangement that would allow the company to be “rescued and exit from administration.” They added, however, that a sale of the parent company was possible if creditors do not agree to such a plan. The U.K. administrators, FRP Advisory, did not respond to a request for comment.

Meanwhile, The Body Shop Canada has also been exploring a possible sale, and there are parties who “have expressed interest in the Canadian business,” Mr. Searle wrote in the affidavit. He did not specify who the interested buyers are, but the company is in continuing talks about a sale.

It would not be unheard of for a retailer to sell just one region’s operations related to a global brand. For example, Fairfax Financial Holdings Inc. FFH-T purchased the Canadian unit of Toys’R’Us for $300-million in 2018, the year after the U.S. parent company filed for bankruptcy south of the border. (In 2021, Fairfax then sold the business to Putman Investments Inc., run by Doug Putman, who also owns HMV Retail Ltd. in the U.K. and Sunrise Records.)

“We see that quite a bit, actually, where the parts of a company are bought by different people, especially if they’re regional,” said Liza Amlani, founder of consulting firm Retail Strategy Group. The Body Shop Canada could hold on to the same product suppliers in such a scenario, she added. “They may need to rewrite some of those contracts because it might be tied to whoever owns the parent company. But for the most part, the product assortment, and where the product is made, could remain the same.”

For staff at the stores, the future of the Canadian business is a constant focus.

“We’ve been anxious,” said Ms. Edwards, and ensuring they are coping with the stress has been a priority for managers. Staff have had to address an onslaught of concerns and questions from customers, both on the phone and in person. The Body Shop has been in Canada since 1980, and there are shoppers who have developed an attachment to the brand. Some of the interactions have been intense, with employees comforting customers in tears.

“One in Kingston, we had to get her a chair and a glass of water,” said national retail manager Marcy Jonker.

While the news has been negative, the interest it sparked in the brand could be an opportunity to win back customers who have not visited The Body Shop in years, said retail consultant Ms. Amlani – and to introduce the products to younger shoppers. That’s a group the company will need to win over, assuming it is able to restructure and survive.

“We’re not hoping; we’re just saying it’s going to happen,” Ms. Castro said. “Everything feels good. There is no reason for us to believe that we’re not going to make it out.”