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* This case was developed by Professor Alan B. Eisner, Pace University; Professor Helaine J. Korn, Baruch College–City University of New York; graduate student Lucia Vojtkova; and Professor Dan Baugher, Pace University. Material has been drawn from published sources to be used for class discussion. Copyright © 2011 Alan B. Eisner.

Case 31 Build-A-Bear Workshop * including the Juvenile Diabetes Research Foundation, pro- grams to stop cyber-bullying, and programs supporting domestic pets, youth education, autism, and marine mam- mals affected by oil spills to name a few. 5 Build-A-Bear extended its charities internationally as well by providing support for children and families affected by the earth- quake in Haiti in 2010 and contributing to Japan earth- quake relief efforts in 2011. “People have been asking me for years how we will maintain our teddy bear culture as we grow,” said Maxine Clark. “I think the answer is simple. It’s about teddy bears and it’s about heart. And it’s about being good people and good bears. The language of teddy bears is understood in every country and by all ages.” 6

After a decade of existence, Build-A-Bear Workshop was ranked no. 94 in Fortune ’s “100 Best Companies to Work For” list in 2009 and moved up to no. 80 in the 2010 list. “We are honored to be included for the second con- secutive year on the FORTUNE ‘100 Best Companies to Work For’ list. Build-A-Bear Workshop was founded 13 years ago on a simple but powerful idea: to create a suc- cessful company with heart. Our associates’ spirit, dedica- tion, hard work and commitment have made us the world’s leading interactive retail-entertainment brand. Every asso- ciate is able to participate in making Build-A-Bear Work- shop the best place to work and play,” said Maxine Clark in 2010. “We’ve accomplished so much in such a short period of time by putting the heart—and the fun—back into retail.” 7

However, not everything looked so rosy in Bear- ville; the company financials looked quite grizzly. Like all retailers, Build-A-Bear was greatly affected by shift- ing markets and the fluctuating economy in 2009–2010. Although the firm announced significant improvement in fourth quarter 2010, the year-end results showed decreased revenue (see Exhibits 1 and 2 ). Ms. Clark announced at the end of 2010, “We drove double digit increases in our e-commerce sales in the fourth quarter and the year. We have begun working with an outside consulting firm to review our supply chain, logistics and other expense areas and expect to generate savings in the latter half of fiscal 2011. We are also working with the consultants to identify opportunities for revenue growth. With a strong balance sheet that includes no debt, no bor- rowings on our credit facility and $59 million in cash at year end, we believe we are well positioned to capitalize on growth opportunities in the year ahead.” 8 However, her announcement seemed in stark contrast to what the stock market suggested in February  17, 2011, when Build-A- Bear Workshop Inc. topped the list of “Biggest Percent- age Price Decliners” among common stocks on the New York Stock Exchange. 9 The analysts questioned whether Build-A-Bear had reached its potential and what new products and strategies the company could offer to step up its financial performance.

By 2011, Build-A-Bear Workshop had continued to reinvent itself by introducing new stuffed animal charac- ters, wardrobes, and accessories. The company tried to keep its products fresh and interesting by launching temporary themed product lines and opening pop-up stores to lure the customers to revisit Bearville (what the company affection- ately called its stores). In May 2010 Build-A-Bear created a one-month zoo novelty themed product line. The inter- active entertainment retailer of customized stuffed animals provided “zoorrific” fun for guests. Families could find a new collection of furry friends plus zoo-themed activities in stores and at buildabearville.com , where guests could receive exclusive virtual zoo rides. Seven different furry animals, a giraffe, tiger, flamingo, leopard, monkey, panda, and parrot, were included in the collection. 1 Similarly, April 2010 saw a “fairytales come to life” theme. The stores were transformed into enchanted palaces where every guest was treated like royalty and given a free crown. After recit- ing the royal promise, guests could dress up new animals, like Enchanted Pony and Enchanted Dragon, or add vari- ous enchanted theme accessories, such as a knight costume, gold wings, a castle, and so on. “Build-A-Bear Workshop has always been a magical place for families, where imagi- nation and adventure come to life,” said Maxine Clark, Build-A-Bear Workshop founder and chief executive bear. “Our whimsical furry friends, enchanted store experience, and online fun fairytale-themed adventure provide our Guests with endless ways to play happily ever after.” 2

Continuing its strategy of product revitalization, in September 2010 Build-A-Bear introduced Star Wars prod- ucts, including a Star Wars bear, Star Wars theme song sound chip that could be added to any animal, and Princess Leia, Han Solo, Darth Vader, and Jedi Knight costumes. 3 The year 2010 was also the year of pop-up stores for Build- A-Bear, when the company took advantage of the holiday season and opened 10 pop-up stores in time for the Christ- mas season. This expansion made the experience of Build- A-Bear Workshop available to many holiday shoppers and gave consumers a chance to make great personalized gifts with an extensive assortment of the latest holiday animals, fashions, and accessories. The pop-up stores provided the company with a great opportunity to attract customers to Bearville, because there would be a natural increase in mall traffic and consumers would be focused on gift spending. 4

Build-A-Bear continued its year-long series of chari- table activities and events across the nation. The company had successfully projected the image of a socially conscious firm by reaching out to a wide range of organizations,

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C260 Case 31:: Build-A-Bear Workshop

Fiscal Year

2010 2009 2008

Revenues:

Net retail sales $387,163 $388,552 $460,963 Franchise fees 3,043 3,353 4,157 Commercial revenue 11,246 4,001 3,196 Total revenues 401,452 395,906 468,316 Costs and expenses:

Cost of merchandise sold 239,556 247,511 270,918 Selling, general, and administrative 163,910 161,692 185,608 Store preopening 708 90 2,410 Store closing — 981 2,952 Interest expense (income), net (250) (143) (799) Total costs and expenses 403,924 419,746 461,089 Income before income taxes (2,472) (23,840) 7,227 Income tax expense (2,576) (11,367) 2,663 Net income $104 ($12,473) $4,564 Earnings per common share:

Basic $0.01 ($0.66) $0.24 Diluted $0.01 ($0.66) $0.24 Shares used in computing common per share amounts: Basic 18,601,465 18,874,352 19,153,123 Diluted 19,034,048 18,874,352 19,224,273 Source: Build-A-Bear Workshop Inc. Form10-K reports.

Exhibit 1 Income Statements

January 1, 2011 January 2, 2010

Assets

Current assets: Cash and cash equivalents $58,755 $60,399 Inventories 46,475 44,384 Receivables 7,923 5,337 Prepaid expenses and other current assets 18,425 19,329 Deferred tax assets 7,465 6,306 Total current assets 139,043 135,755

Exhibit 2 Balance Sheets (in thousands of dollars, except share and per-share data)

(continued )

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Build-A-Bear Background It all started on a simple idea that Maxine Clark heard over 30 years ago from Stanley Goodman, former CEO of May Department Stores, “Retailing is entertainment and the store is a stage—and when the customers are happy, they spend more money.” On the basis of this idea, Build- A-Bear Workshop brought the teddy bear alive and was the only global company that offered an interactive make- your-own-stuffed-animal retail-entertainment experience. Inspired by Goodman’s statement, Clark brought the brand

experience to the toy industry in 1996 and established Build-A-Bear headquarters in St. Louis, Missouri. 10 Clark created a custom-teddy-bear empire built with “heart” and was personally involved in setting the strategic agenda, building the organization, and maintaining the strate- gic leadership. As the former president of Payless Shoe Source, Clark based the Build-A-Bear concept on two of the hottest trends in retailing—entertainment and custom- ization. Her years of retailing experience paid off and gave Clark unique insights into creating her own successful

January 1, 2011 January 2, 2010

Property and equipment, net 88,029 101,044 Goodwill 32,407 33,780 Other intangible assets, net 1,444 3,601 Other assets, net 14,871 10,093 Total Assets $275,794 $284,273 Liabilities and stockholders’ equity

Current liabilities: Accounts payable $36,325 $32,822 Accrued expenses 15,488 11,185 Gift cards and customer deposits 28,880 29,301 Deferred revenue 6,679 8,582 Total current liabilities 87,372 81,890 Deferred franchise revenue 1,706 2,027 Deferred rent 28,642 34,760 Other liabilities 361 816 Commitments and contingencies Stockholder’s equity: Preferred stock, par value $0.01, Shares authorized:

15,000,000: No shares issued or outstanding at January 3, 2009 and December 29, 2007

— —

Common stock, par value $0.01. Shares authorized: 50,000,000. Issued and outstanding: 19,478,750 and 20,676,357 shares, respectively

196 204

Additional paid-in capital 76,582 80,122 Accumulated other comprehensive (loss) income (9,959) (6,336) Retained earnings 90,894 90,790 Total stockholders’ equity 157,713 164,780 Total Liabilities and Stockholders’ Equity $275,794 $284,273 Source: Build-A-Bear Workshop Inc. Form10-K reports.

Exhibit 2 Balance Sheets (in thousands of dollars, except share and per-share data) (continued )

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concept for mall-based retailing. 11 Having no children of her own, Clark took every opportunity to interact with her customers, employing both low- and high-tech methods to communicate with Build-A-Bear fans. 12 Weekly store visits and numerous e-mails provided Clark with valuable customer feedback that she put into practice to build a truly customer-centered organization.

Since the opening of the first store in 1996, Build-A- Bear Workshop capitalized on its unique experience and attracted a strong base of loyal customers. The company’s target market consisted mainly of families with children, primarily ages 3 to 12. Build-A-Bear stores also appealed to grandparents, aunts, and uncles of children and to teen girls who occasionally brought along their boyfriends as well. The Build-A-Bear experience was also sought by child-centric organizations, such as scouting organizations and schools, that were looking for interactive entertainment options of the type Build-A-Bear Workshop could provide. Overall, it has been the company’s belief that “our stores, which are primarily located in malls, are destination loca- tions and draw guests from a large geographic reach.” 13

The theme-park-environment stores operated as spe- cialty retailers of plush animals and related products, including approximately 30 styles of teddy bears as well as various clothing, shoes, and accessories for the stuffed ani- mals. Build-A-Bear Workshop stores generated strong sales wherever they opened. The company differentiated itself from the competition with marketing initiatives that facili- tated stronger connections with its customers. 14 Approxi- mately 3,000 square feet in size, every Build-A-Bear store stood out thanks to a highly visual and colorful appear- ance, with custom-designed fixtures featuring teddy bears and other themes relating to the Build-A-Bear Workshop experience.

Build-A-Bear Experience Build-A-Bear Workshop provided a unique and exceptional approach to the entertainment retail industry. The com- pany’s core concept was based on allowing its customers, uniquely termed “guests,” to make, personalize, and cus- tomize stuffed animals of their choosing. The customization feature provided customers with more value than they would receive from mass-produced products. In addition, personal- izing the product stimulated customers’ creativity and gave them a feeling of empowerment. This concept “capitalizes on what we believe is the relatively untapped demand for experience-based shopping as well as the widespread appeal of stuffed animals.” 15 As Maxine Clark pointed out, “We [at Build-A-Bear] don’t think about ourselves as a toy store— we think of ourselves as an experience. Unlike the rest of the industry, Build-A-Bear Workshop sales don’t peak around holidays; they are evenly distributed.” 16

The Build-A-Bear Workshop atmosphere was based on a highly visual environment, with the teddy bear theme carried throughout the store, creating a fantasy land where stuffed animals came to life. “Shopping at one of the Build-A-Bear’s colorful, [brightly] lit stores [was] one part consumption, ten parts entertainment,” 17 and this

entertainment factor provided Build-A-Bear Workshop with a competitive edge in the toy industry.

The culture at Build-A-Bear Workshop encouraged employee contribution and collaboration, and the resulting above-average employee retention rates at Build-A-Bear contributed to the quality of the guest experience, the founda- tion stone of the company’s differentiation. 18 Maxine Clark recognized that Build-A-Bear’s success was largely depen- dent on the support of her employees, also known as “associ- ates.” 19 Therefore, Build-A-Bear was highly selective in the hiring process and ensured that the chosen associates stayed actively involved in what was happening with the company. For instance, fewer than 4 percent of the applicants for store manager were hired in 2008. 20 Build-A-Bear’s excellent cus- tomer service largely contributed to the chain’s overall cus- tomer satisfaction, which was close to 90 percent. 21

The primary role of the associates, also referred to as the “Master Bear Builders,” was to share the experience with the guests and guide them at each phase of the bear- making process. The process itself consisted of eight steps carried out on the Build-A-Bear “assembly line,” which comprised different bear-making stations.

1. At the Choose Me stage, customers were introduced to all the furry characters in the store and would select one, which soon became their new friend. Each store usually carried over 30 different stuffed animals, which varied with the season. The prices of the Build-A-Bear furry friends ranged from $10 to $25.

2. At the Hear Me station, customers could personalize their new friend with a sound selected from several choices, including giggling, barking, meowing, or growling, which would be placed inside their stuffed animal during the stuffing process. Guests could even record their own 10-second Build-A-Sound message for an additional $8.

3. The Stuff Me station allowed customers to stuff their new friend with the help of one of the Master Bear Builders. At this stage, customers would bring their stuffed animal to life by selecting a small satin heart and placing it inside their new furry friend. Each animal was also given a special bar code that would allow it to be reunited with its owner if ever lost.

4. The furry friend would then be neatly pulled shut at the Stitch Me station.

5. Next, customers could brush their animal at the Fluff Me station to make sure their new friend was well groomed.

6. At Dress Me, customers were able to express the true personality and style of their new best friend by choos- ing from hundreds of outfits and accessories. Build-A- Bear provided the “beary” latest furry fashions, thanks to partnering with fashion leaders such as Limited Too, Skechers, Hello Kitty, Disney, and Harley-Davidson. Build-A-Bear Workshop also licensed a variety of col- lege and university logos that were placed on Tiny Tees shirts, and it sold bear-sized MLB, NBA and WNBA, NFL, NHL, and NASCAR sports stuff.

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7. At the Name Me stage, customers registered their new friend on one of the in-store computers. This informa- tion was used to create a personalized birth certificate and enter their friend in the Find-A-Bear ID program.

8. Finally, customers concluded their bear-making process at the Take Me Home station, where they received their customized birth certificate, and each new furry friend was then placed in its own Cub Condo carrying case. 22

Build-A-Bear Workshop provided a unique shopping experience, as customers created an emotional bond with the toy through the interactive process of bringing it to life. As CEO Maxine Clark commented, “The store offers a total experience from start to finish. It’s about so much more than just coming in and buying an off-the-shelf bear, although you can do that too if you want. But most peo- ple prefer to make their own—even if they have to stand in line to do it. Shoppers are, and typically desire to be, involved in the entire bear-making process.” 23

To emphasize the strength of its brand, Build-A-Bear Workshop instituted the Fur Stuff Club (a loyalty rewards program), 24 as well as a bear identification system that aimed to unite children with their lost Build-A-Bear stuffed animals. 25 The company’s CIO, Dave Finnegan, believed that the “experience starts with the [stuffed animal’s] bar- code.” As customers registered their furry friends at a des- ignated kiosk, each consumer would be prompted to scan the bar code and add his or her name, mailing address, and e-mail address—information that would later be stored in the corporate database. Build-A-Bear also launched an automated Stuff Fur Stuff Club, which served as an elec- tronic history of the guests’ preferences and purchases. The program tracked the purchased products, the fre- quency of the customers’ visits, as well as their response to certain offers. The Stuff Fur Stuff Club encouraged loy- alty and attracted shoppers by awarding them 1 point for every $1 they spent. After earning 100 points, customers would receive a $10 reward. Thanks to the automated pro- gram, the company could analyze purchase patterns and history trends and learn who was redeeming their points and what they were using the points for. 26 Both the bear identification system and Stuff Fur Stuff were differentiat- ing features that allowed Build-A-Bear to recognize and communicate important information to its guests, as well as stay ahead of changing customer preferences. 27

Expansion and Innovation In November 2004 the company expanded the make-your- own concept from stuffed animals to dolls with the open- ing of its first Friends 2B Made stores, where guests could make their own doll friends. By the end of 2006, Build-A- Bear Workshop operated one stand-alone Friends 2B Made store and eight other Friends 2B Made stores adjacent to, or within, Build-A-Bear Workshop stores in the United States. 28

The company also expanded its merchandise assortments by establishing licensing agreements with professional baseball, basketball, hockey, and football teams and with NASCAR.

In 2005 Build-A-Bear Workshop partnered with Ride- makerz, allowing fathers and sons to customize their own toy cars. 29 In the same year, the company introduced Build-A- Bear Workshop On Tour, with a bear-covered mobile trailer that opened up into a complete 800-square-foot Build-A- Bear Workshop store. The On Tour idea was part of the company’s integrated marketing strategy to bring the Build- A-Bear Workshop brand and experience to places other than malls where families go and have fun, such as various sport- ing and entertainment venues across the country. 30

Build-A-Bear Workshop teamed up with Major League Baseball to provide fans across the country with opportunities to support their favorite teams in unique ways. Build-A-Bear opened five Build-A-Bear Workshop ballpark stores across the country. The ballpark stores were open during the teams’ home games and included the same experience and interaction as the mall-based stores, with exclusive animals, outfits, and accessories. Clark also believed that the promotion of Scott Seay in 2006 to presi- dent and chief operating “bear” would allow Build-A-Bear to gain efficiencies throughout the organization. 31

In March 2009 John Haugh joined Build-A-Bear Workshop as president and chief marketing and merchan- dising bear. Prior to joining Build-A-Bear Workshop, Haugh served as president of It’s Sugar LLC, a candy and confectionary retailer. Haugh stepped in at a difficult time to be a retailer, amid the economic recession of 2008–2009. Meanwhile, Tina Klocke was named chief operations and financial bear. Klocke assumed formal responsibility for store operations in addition to her continuing role as chief financial bear.

Changing Industry Although Build-A-Bear Workshop’s interactive experience was unique in the toy retail industry, this didn’t make the competition any less intense. Kids changed their prefer- ences at a rate so fast that a phenomenon one year could be gone the next year. To compete with others in catching chil- dren’s new preferences and activity time, a specialty retail store such as Build-A-Bear Workshop had to face com- petition from all different directions, including toy manu- facturers like Hasbro and Mattel, which sell their products through giant retail chain stores—Walmart, Toys “R” Us, Target, Kmart, Sears, and other discounted chains. Other competitors included, but were not limited to, American Girl, Vermont Teddy Bear, Russ Berrie, Ty, Fisher-Price, Mattel, Ganz, Applause, Boyd’s, Commonwealth, and Gant. Maxine Clark considered her competition to be every company that tried to attract the customer’s time and entertainment money. 32 As products in the toy industry became more commoditized, many companies searched for new ways to differentiate their offerings beyond simply manufacturing and delivering the toys to the customers. Following the Build-A-Bear example, some of the compa- ny’s main competitors, including Vermont Teddy Bear and American Girl, began initiatives to recast their traditional products and services in ways that would create experi- ences for their customers.

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Vermont Teddy Bear, established in Burlington in 1981, marketed its product as the “only bear made in America and guaranteed for life.” Struggling to find customers in the local area, the company developed the unique “Bear-Gram” concept of mailing customized teddy bears to visiting tour- ists. The new concept had huge success, and the company experienced tremendous growth. In 1993 the Vermont Teddy Bear Company hit number 58 on the Inc. Magazine list of the fastest-growing private companies in the United States. Because the customers received their furry friends through the mail, Vermont Teddy Bear needed to find innovative ways to create an experience for the bear owners. To involve customers in the bear-making process, the company invited all of its fans to regularly scheduled Vermont Teddy Bear plant tours. Each tour featured many fun activities for the young visitors and their friends and families, including a lunch at the Hungry Bear Café or a visit to the Bear Shop, the Bear Museum, and the Vermont Teddy Bear Hospital. The company also created a “wow!” experience for the recipients of its teddy bears thanks to its unique packaging. The gift box included an airhole for the bear and a warning not to turn the box upside down lest the bear get a headache, as well as a sweet treat and a personalized card with a color- ful drawing of the headquarters and all the employees’ first names. In the Vermont Teddy Bear locations, bear counsel- ors assisted customers in selecting and personalizing their bears. The company also let its customers be creative by cus- tomizing a teddy bear look-a-like that captured the personal- ity and appearance of someone special to them.

Another Build-A-Bear competitor, American Girl Inc., also decided to move to a new level in provid- ing value for its customers. Founded in 1986, American Girl specialized in manufacturing high-end dolls, books, and magazines for young girls. Since it was acquired by Mattel Inc. in 1998, American Girl started a rapid retail expansion and concentrated on further product develop- ment. To create additional customer value, American Girl took steps to develop new engaging experiences between the dolls, the girls, and their families. In 2005 the com- pany opened its first American Girl (AG) Places, in New York, Los Angeles, and Chicago, providing visitors with a unique retail experience through which they could engage in many exciting activities and bond with their new doll friends. Every AG Place included a theater showing a live play concentrated on the doll collection, a café for grown- up dining experiences or birthday parties, and a doll hair salon or a photo studio. Encouraged by the success of the AG Places, in 2007 American Girl opened two American Girl Boutique and Bistros, in Dallas and Atlanta. These new locations were the company’s latest way to connect with girls by allowing them to celebrate special times with their families and friends in a fun and casual environment. According to Ellen L. Brothers, the president of American Girl and the executive vice president of Mattel, the com- pany became much more than a place that sells dolls. “It’s the place where imaginations soar—from boutiques to special events, from the café to the theater and beyond.” 33

Changing Market While providing unique experiences for the customers became an important competitive advantage in the toy industry, there were also other factors shaping the competi- tive environment that required attention. While the Internet had helped bolster the retail toy industry, it had also intensi- fied competition dramatically. The Toy Industry Association reported that increasingly popular electronic gadgets, video, and online games, such as the Nintendo Wii game console and the www.webkinz.com online community, could easily attract children’s attention and thus reduce the time kids spent with their plush animals. This shift has changed the focus of some companies, such as Hasbro, which turned to the web to bring attention to new editions of its board games Monopoly and Trivial Pursuit. 34 Furthermore, accord- ing to the technology-loving experts, electronic toys had the potential to provide the best educational applications, thanks to interactive displays of pictures, lights, and sounds. Electronic toys were deemed to be very helpful when teach- ing young children about cause and effect and hand-eye coordination—two important behavioral learning skills. 35

According to leading market research company The NPD Group, U.S. retail sales of toys generated $21.87  billion in 2010, in which online/Internet sales grew 22 percent from 2009, while the sales of plush toys were flat, at $1.73 billion. 36 Build-A-Bear Workshop recognized the need to infuse more technology into its product line offerings to stay ahead of its competitors. One way in which Build-A- Bear attempted to expand on technology was by offering a technology-based platform for its customization experience through the introduction of a Build-A-Bear video game for Nintendo DS. The Nintendo DS simulation, a game in which players could customize a digitized bear (or charac- ter) on screen, attempted to re- create the in-store experience by reproducing the process of shopping and creating a bear in a Build-A-Bear Workshop as a video. Through the use of a touch screen, wireless technology, enhanced graphics, and innovative control mechanisms, the game simulated the same bear-building process as the one in the stores. The game featured eight different characters to be played with and cared for, as well as a kitchen and a dining room to pre- pare meals for the video characters. The users could also design the room of their favorite character. 37

Maxine Clark stated that 80 percent of the custom- ers were repeat guests who planned their visit in advance, which meant people who had visited the stores loved them. 38 Build-A-Bear Workshop’s special mix of products and highly interactive, theme-park-like environment inside the malls were what kept customers coming back and were the key components in the franchises’ rapid success. But declining comparable same-store sales meant that sales based on the repeat customers were not enough. To attract more people to its stores, the company organized Build-A- Party events for kids’ birthday parties and scout outings. The company stayed true to its differentiation strategy by not following the example of its competition, which often used markdowns to sell products. Instead, Build-A-Bear

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Workshop tried to increase its brand awareness as an expe- rienced retailer by allocating large portions of its budget to national television advertising, direct mail, and other types of publicity (4.2 percent of total revenues in 2010). 39

At the same time, there was only so much the com- pany could do when most of its stores were inside malls, where traffic was declining partly because of the rising price of gasoline and the weak economy. To cope with this issue, Build-A-Bear Workshop had already tried to explore other options such as opening new stores outside the malls and relying more on the online storefront and licensing.

Besides its dependency on mall traffic, Build-A-Bear Workshop also faced constraints that were related to chil- dren’s ages and preferences. Even as management was strategically trying to lure more customers to the stores, the company was facing a generation of kids that got older younger. The “kids getting old younger (KGOY)” phenom- enon was noted on the Toy Industry Association’s website: “Kids are seeking more sophisticated entertainment . . . and doing so at younger and younger ages.” Tastes were matur- ing and becoming more sophisticated at a younger age, reducing the available time slot for products designed for children. The KGOY generation was familiar with what technology could offer. Given that children ages 1 to 14 were the recipients of approximately 80 percent of Build-A- Bear’s stuffed animals, the Wellbeing study of kids ages 8 to 15 revealed valuable information for the company. Accord- ing to the findings of the study, announced on Nickelodeon and MTV in November 2006, children throughout the world were growing up younger and appeared to be experienc- ing higher levels of stress in their daily lives. Despite their young age, kids already felt pressure to succeed. Thus, get- ting a good grade in school was their top priority. Those who were growing up in an environment with more news media outlets generally felt less safe regardless of where they came from in the world. 40 All the findings related to age compres- sion were based on the current generation of children and therefore could be valuable to the toy industry if translated into business-specific strategies. In other words, with the kids’ concerns and priorities on the table, what could Build- A-Bear do to make its brand more appealing to them?

The Toy Industry Association’s report contained another interesting finding related to the age factor: The heart of the toy industry belonged to kids seven and under. This segment accounted for over 60 percent of total indus- try dollar volume, and the reason was simple: These chil- dren had more time to spend with toys because they faced fewer school hours, had less homework, and were not as diverted by youth electronics and video games. 41 Con- sidering the new trends in children’s preferences, should Build-A-Bear Workshop look into having multiple strate- gies targeting different age groups?

Financials and the Future The early years of Build-A-Bear Workshop were marked with great success. The company’s physical locations grew from 150 stores at fiscal year-end 2003 to 344

company-owned stores in the United States, Canada, the United Kingdom, and Ireland by 2010. Due to this expansion, Build-A-Bear Workshop saw an increase in its revenues from $301.7 million in fiscal year 2004 to $437.1  million in 2006. Its compound annual revenue growth rate reached 20.4 percent, and its net income jumped from $18.5  million in fiscal year 2004 to $29.5 million in 2006, ultimately resulting in a compound annual net income growth rate of 26.5 percent. 42

Because new stores generated much higher sales per square foot, part of the company’s growth came from opening up more stores. New stores typically paid for themselves in their first year of operation, and comparable same-store sales began to decline in the second and third years. Before 2009, Build-A-Bear Workshop had planned to open 25 to 30 new stores per year so that 75 percent of the U.S. population would be within 30 miles of a Build-A-Bear Workshop. In addition, the company signed licensed product agreements with leading manufacturers to use the Build-A-Bear Workshop brand to develop prod- ucts for retailers. Internationally, the company’s expansion plan was to have well-capitalized franchisees with retail or real estate expertise. Build-a-Bear Workshop operated 290 stores, primarily in major malls, throughout the United States and Canada, 54 stores in the United Kingdom and Ireland, and an Internet store (see Exhibit 3 ). 43

Unfortunately, the initial successful performance did not last. Build-A-Bear Workshop’s comparable-store sales declined steadily from 2004 to 2008 and more so during the economic recession of 2009–2010. 44 As of 2010, new- store development was placed on hold until the economy had a chance to recover from the recession.

Because Build-A-Bear Workshop could not effi- ciently capitalize in the market, there was speculation on Wall Street that the firm’s current cash flow could sup- port a buyout price much higher than its present value. One of the potential buyers might have been Disney, which already had a partnership with the company and could leverage the Build-A-Bear brand to promote Disney mov- ies and TV shows. To evaluate alternative strategies that could increase its share value, possibly including the buy- out option, Build-A-Bear Workshop hired the investment bank Lehman Brothers, but the findings of the analysis have yet to be released. 45

Clark, who was aware of the strategic challenges that Build-A-Bear was facing, was optimistic about the future and stated, “We [at Build-A-Bear] believe that through our highly profitable business model and unique retail- entertainment concept, we will continue to grow total reve- nues, increase net income, and generate excess cash flow.” 46

Had Build-A-Bear Workshop reached a mature stage in the domestic market, as indicated by its slower comparable- store sales and decreases in profit? To sustain its domestic market position in such a dynamic competitive industry, Build-A-Bear Workshop will have to continue building on its creativity and boost innovation in its offerings, such as the temporary themed product lines and seasonal pop-up stores.

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As Maxine Clark said, “Ray Croft didn’t invent ham- burgers. Howard Schultz didn’t invent coffee. And Oprah didn’t invent talk shows. They just invented how to do it and how to do it better.” Clark would have to invent a way to turn the Build-A-Bear experience into a lasting legend. Despite the grizzly financials, Clark remained upbeat about the future of Build-A-Bear. Only time will tell whether Build-A-Bear will grin and bear it.

Endnotes 1. Build-A-Bear Workshop Inc. 2010. Press release:

Explore the wild side of Build-A-Bear Workshop. Business Wire, May 28. phx.corporate-ir.net/phoenix. zhtml?c = 182478&p = irol-newsArticle&ID = 1432265 .

2. Build-A-Bear Workshop Inc. 2010. Press release: Fairytales come to life at Build-A-Bear Workshop. Business Wire, April 06. phx.corporate-ir.net/phoenix. zhtml?c = 182478&p = irol-newsArticle&ID = 1409941 .

3. Build-A-Bear Workshop Inc. 2010. Press release: Build-A-Bear Workshop introduces out of this world Star Wars products. Business Wire, Sep- tember 21. phx.corporate-ir.net/phoenix. zhtml?c = 182478&p = irol-newsArticle&ID = 1473280 .

4. Build-A-Bear Workshop Inc. 2010. Press release: Build-A-Bear Workshop to open pop-up stores in time for the 2010 holiday season. Business Wire, September 17. phx.corporate-ir.net/phoenix. zhtml?c = 182478&p = irol-newsArticle&ID = 1472604 .

5. See Build-A-Bear Workshop press releases at phx. corporate-ir.net/phoenix.zhtml?c = 182478&p = irol-news . The charities mentioned are from various press releases from 2009–2011.

6. Build-A-Bear Workshop Inc. 2007. Press release: Build-A-Bear Workshop surpasses $10 million mark in charitable giving as it cele-bear-ates 10th birthday. Business Wire, January 30. phx.corporate-ir.net/phoenix. zhtml?c = 182478&p = irol-newsArticle&ID = 955609 .

7. Build-A-Bear Workshop Inc. 2010. Press release: Build-A-Bear Workshop named one of For- tune’s “100 Best Companies to Work For.” Busi- ness Wire, January 21. phx.corporate-ir.net/phoenix. zhtml?c = 182478&p = irol-newsArticle&ID = 1377527 .

8. Build-A-Bear Workshop Inc. 2011. Press release: Build- A-Bear Workshop, Inc. reports significant improvement in fiscal 2010 fourth quarter and full-year results. Business Wire, February 17. phx.corporate-ir.net/phoenix. zhtml?c = 182478&p = irol-newsArticle&ID = 1529994 .

9. Wall Street Journal. 2011. Build-A-Bear Workshop, Princeton National Bancorp: Biggest price decliners (BBW, PNBC). March 17. online.wsj.com/article/SB10001424052 748704657704576150551956521540.html .

10. Clark, M. 2007. Build-A-Bear’s founder shares her story. BusinessWeek Online, September 17. www.businessweek. com/smallbiz/content/sep2007/sb20070912_785676.htm .

11. PR Newswire. 2006. Leading entrepreneur shares secrets of success in innovative new book.” April 20.

12. Tsiantar, B. 2005. Not your average bear. Time, July.

Fiscal Year

Store Data 2010 2009 2008 2007 2006

Number of stores at end of period North America 290 291 292 272 233 Europe 54 54 54 49 38 Total stores 344 345 346 321 271 Square footage at end of period North America 841,600 846,373 856,504 810,208 712,299 Europe 77,870 77,520 77,520 70,577 56,701 Total square footage 919,470 923,893 934,024 880,785 769,000 Average net retail sales per store $1,030 $1,044 $1,329 $1,576 $1,761 Net retail sales per gross square foot, North America

$356 $358 $445 $516 $573

Consolidated comparable-store sales change

(2.0%) (13.4%) (14.0%) (9.9%) (6.5%)

Exhibit 3 Store Data

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13. Build-A-Bear Workshop Inc. 2011. Form 10-K, filed March 17. This statement has appeared in numerous previously SEC filings and in the company profile; see phx.corporate-ir.net/phoenix.zhtml?c = 182478& p = irol-homeprofile .

14. Ibid. 15. Ibid. 16. Conley, L. 2005. Customer-centered leader: Maxine Clark.

Fast Company, October 1. 17. Mithers, C. L. 2003. A bear of a business. Ladies Home

Journal, November. 18. Build-A-Bear Workshop Inc. 2006 annual report, Form

10-K: 7. 19. Ibid.: 14. 20. Build-A-Bear Workshop Inc. 2008 annual report, Form 10-K. 21. Howell, D. 2000. Retailers attribute success to out-of-box

innovations. DSN Retailing Today, October 2: 4–58. 22. Build-A-Bear Workshop Inc. 2006 annual report. 23. Wilson, M. 1998. This bear market toys with success.

Chain Store Age, January: 50–53. 24. Build-A-Bear Workshop Inc. 2006 annual report. 25. Imbs, C. 2004. Maxine Clark: A beary good idea. St. Louis

Commerce, July. 26. Amato-McCoy, D. M. 2007. Levels of loyalty. Chain Store

Age, April: 51–53. 27. Build-A-Bear Workshop Inc. 2006 annual report: 9. 28. Build-A-Bear Workshop Inc. 10-K reports. 29. Kaufman, J. 2007. After Build-A-Bear, build-a-toy-car.

New York Times, May 29.

30. Build-A-Bear Workshop Inc. 2005. Press release, January 10.

31. Build-A-Bear Workshop Inc. 2006 annual report. 32. Logue, A. C. 2005. Warm, fuzzy and business savvy. NYSE

Magazine, October–November. 33. www.americangirl.com . 34. New Media Age (London). 2005. October 20: 18. 35. toy-tma.com . 36. NPD Group. 2011. Press release, January 27. 37. www.estarland.com/index.asp?page = NintendoDS&prod

uct = 29856 . 38. Clark, M. 2006. Build-A-Bear chief Maxine Clark

discusses changing the retail industry. Webster University’s School of Business & Technology Newsletter, Summer.

39. Build-A-Bear Workshop Inc. 2010 Form 10-K. 40. Feely, P. 2005. The toy industry and youth marketing

today: Going beyond “KGOY.” Toy Industry Association, April 10.

41. Ibid. 42. Build-A-Bear Workshop Inc. 2006 annual report, Form

10-K: 4 43. Build-A-Bear Workshop Inc. 2010 Form 10-K. 44. Ibid. 45. BusinessWeek Online. 2007. Build-A-Bear brings out the

bulls. June 29. 46. M2PressWIRE. 2007. Build-A-Bear Workshop, Inc.

announces it is evaluating strategic alternatives for enhancing long-term shareholder value. June 28.

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