Build-A-Bear Workshop 2009 Annual Report Download - page 25

BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K
vendors. The pricing of our products in our stores may also be
affected by changes in foreign currency rates and require us
to make adjustments which would impact our revenue and
profit in various markets.
We rely on a few vendors to supply substantially all of our
merchandise, and any disruption in their ability to deliver
merchandise could harm our ability to source products and
supply inventory to our stores.
We do not own or operate any manufacturing facilities. We
purchased approximately 80 % of our merchandise in fiscal
2009, approximately 81% in fiscal 2008 and approximately
82% in fiscal 2007, from three vendors. These vendors in turn
contract for our orders with multiple manufacturing facilities
located primarily in China for the production of merchandise.
Our relationships with our vendors generally are on a
purchase order basis and do not provide a contractual
obligation to provide adequate supply or acceptable pricing
on a long-term basis. Our vendors could discontinue sourcing
merchandise for us at any time. If any of our significant
vendors were to discontinue their relationship with us, or if the
factories with which they contract were to suffer a disruption
in their production, we may be unable to replace the vendors
in a timely manner, which could result in short-term disruption
to our inventory flow as we transition our orders to new
vendors or factories which could, in turn, disrupt our store
operations and have an adverse effect on our business,
financial condition and results of operations.
Our profitability could be adversely affected by high
petroleum products prices.
The profitability of our business depends to a certain degree
upon the price of petroleum products, both as a component of
the transportation costs for delivery of inventory from our
vendors to our stores and as a raw material used in the
production of our animal skins and stuffing. For example, our
results in fiscal 2008 and 2007 were impacted by significant
increases in fuel surcharges due to higher petroleum products
prices. We are unable to predict what the price of crude oil
and the resulting petroleum products will be in the future. We
may be unable to pass along to our customers the increased
costs that would result from higher petroleum prices.
Therefore, any such increase could have an adverse impact
on our business and profitability.
We may not be able to operate our European company-
owned stores profitably.
In April 2006, we acquired The Bear Factory Limited, a
stuffed animal retailer in the U.K. owned by The Hamleys
Group Limited, and Amsbra Limited, our former U.K.
franchisee. Both The Bear Factory and Amsbra had losses in
2006, 2005 and prior fiscal years. In 2007, we terminated
our French franchise agreement and opened our first
company-owned stores in France. Although we have realized
benefits from these operations as part of our larger company,
we may be unable to continue to do so on a consistent basis.
In particular, we face business, regulatory and cultural
differences from our domestic business, such as economic
conditions in the U.K. and France, changes in foreign
government policies and regulations in the U.K. and France
and potential restrictions and costs to convert and repatriate
currency, as well as other risks that we may not anticipate.
We also face difficulties realizing benefits in the U.K. and
France because we have less brand awareness than in the
U.S., face higher labor and rent costs, and have different
holiday schedules.
Our leases in the U.K. and Ireland also typically contain
provisions requiring rent reviews every five years in which the
base rent that we pay is adjusted to current market rates.
These rent reviews require that base rents cannot be reduced
if market conditions have deteriorated but can be changed
“upwards only”. We may be required to pay base rents that
are significantly higher than we have forecast. For example,
past rent reviews have resulted in increases as high as 40% in
select locations within the U.K. Additionally, leases in France
may require us to pay an entry fee to the landlord or make
key money payments to secure lease assignments from current
tenants. French leases also are subject to annual indexation
increases that are typically tied to French economic metrics.
As a result of these and other factors, we may not be able to
operate our European store locations profitably. If we are
unable to do so, our results of operations and financial
condition could be harmed and we may be required to record
significant additional impairment charges.
Portions of our business are subject to privacy and security
risks. If we improperly obtain, or are unable to protect,
information from our guests, in violation of privacy or security
laws or expectations, we could be subject to liability and
damage to our reputation.
In addition to serving as an online sales portal, our website,
buildabearville.com,features children’s games, e-cards and
printable party invitations and thank-you notes, and provides
an opportunity for children under the age of 13 to sign up,
with the consent of their parent or guardian, to receive our
online newsletter. We currently obtain and retain personal
information about our website users. In addition, we obtain
personal information about our guests as part of their
registration in our Find-A-Bear identification system. Federal,
state and foreign governments have enacted or may enact
laws or regulations regarding the collection and use of
personal information, with particular emphasis on the
collection of information regarding minors. Such regulations
include or may include requirements that companies establish
procedures to:
• give adequate notice regarding information collection
and disclosure practices;
• allow consumers to have personal information deleted
from a company’s database;
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