Build-A-Bear Workshop 2009 Annual Report Download - page 22

BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K
A continued decrease in the customer traffic generated by the
shopping malls in which we are located, which we depend
upon to attract guests to our stores, could adversely affect our
financial condition and profitability.
While we invest heavily in integrated marketing efforts and
believe we are more of a destination location than traditional
retailers, we rely to a great extent on customer traffic in the
malls in which our stores are located. In order to generate
guest traffic, we generally attempt to locate our stores in
prominent locations within high traffic shopping malls. We
rely on the ability of the malls’ anchor tenants, generally large
department stores, and on the continuing popularity of malls
as shopping destinations. We cannot control the development
of new shopping malls, the addition or loss of anchors and
co-tenants, the availability or cost of appropriate locations
within existing or new shopping malls or the desirability,
safety or success of shopping malls. In addition, customer mall
traffic may be reduced due to a loss of consumer confidence
because of the economy, terrorism or war. If we are unable
to generate sufficient guest traffic, our sales and results of
operations would be harmed. A significant decrease in
shopping mall traffic could have a material adverse effect
on our financial condition and profitability. For example, the
slower economy has caused us to slow our growth plans.
If we are unable to generate interest in and demand for our
interactive retail experience, including being able to identify
and respond to consumer preferences in a timely manner, our
financial condition and profitability could be adversely
affected.
We believe that our success depends in large part upon
our ability to continue to attract guests with our interactive
shopping experience and our ability to anticipate, gauge
and respond in a timely manner to changing consumer
preferences and fashion trends. We cannot assure you that
our past success will be sustained or there will continue to be
a demand for our “make-your-own stuffed animal” interactive
experience, or for our stuffed animals, animal apparel and
accessories. A decline in demand for our interactive shopping
experience, our animals, animal apparel or accessories, or a
misjudgment of consumer preferences or fashion trends, could
have a negative impact on our business, financial condition
and results of operations. For example, in 2008 we
announced plans to close the Friends 2B Made concept. The
closure was completed by the end of the fiscal 2009 third
quarter with pre-tax charges totaling $3.9 million. In addition,
if we miscalculate the market for our merchandise or the
purchasing preferences of our guests, we may be required to
sell a significant amount of our inventory at discounted prices
or even below costs, thereby adversely affecting our financial
condition and profitability. For example, in 2007, we
wrote-off $1.6 million, net of tax, of inventory, including
excess Shrek®merchandise.
Our future growth and profitability could be adversely
affected if our marketing and online initiatives are not
effective in generating sufficient levels of brand awareness
and guest traffic.
We continue to update and evaluate our marketing initiatives,
focusing on brand awareness and rapidly changing consumer
preferences. We may not be able to successfully engage
children in our virtual world website, buildabearville.com, and
achieve high enough traffic levels nor be able to leverage the
site to drive traffic to our stores. Our future growth and
profitability will depend in large part upon the effectiveness
and efficiency of our marketing programs and future
marketing efforts that we undertake, including our ability to:
• create greater awareness of our brand, interactive
shopping experience and products;
• identify the most effective and efficient level of spending
in each market;
• determine the appropriate creative message and media
mix for marketing expenditures;
• effectively manage marketing costs (including creative
and media) in order to maintain acceptable operating
margins and return on marketing investment;
• select the right geographic areas in which to market;
• convert consumer awareness into actual store visits and
product purchases; and
• reach a level of engagement on the virtual world website
with large numbers of unique visitors with frequent
visitation that drives visits to our retail stores resulting in
purchases.
Our planned marketing expenditures may not result in
increased total or comparable store sales or generate
sufficient levels of product and brand name awareness.
We may not be able to manage our marketing expenditures
on a cost-effective basis.
If we are not able to reverse or significantly reduce negative
comparable store sales trends, our results of operations and
financial condition could be adversely affected.
Our comparable store sales for fiscal 2009 declined 13.4%
following a 14.0% decline in fiscal 2008, a 9.9% decline in
fiscal 2007, a 6.5% decline in fiscal 2006, and a 0.2%
decline in fiscal 2005. We believe that the decrease in fiscal
2009 was primarily attributable to the continued economic
recession and dramatic decrease in consumer sentiment and
the decline in North American shopping mall traffic. We
believe that the decrease in 2008 was primarily attributable
to the economic recession and decrease in consumer wealth,
a continued decline in shopping mall customer traffic and
changes in media strategies, online entertainment, children’s
media consumption and play patterns. We believe that the
decrease in 2007 was primarily attributable to a decline in
shopping mall customer traffic and consumer spending on
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