Build-A-Bear Workshop 2009 Annual Report Download - page 27

BUILD-A-BEAR WORKSHOP, INC. 2009 FORM 10-K
We may not be able to operate successfully if we lose key
personnel, are unable to hire qualified additional personnel,
or experience turnover of our management team.
The success of our business depends upon our senior
management closely supervising all aspects of our business, in
particular the operation of our stores and the design,
procurement and allocation of our merchandise. Also,
because guest service is a defining feature of the Build-A-Bear
Workshop corporate culture, we must be able to hire and
train qualified managers and Bear Builder associates to
succeed. The loss of certain key employees, in particular
Maxine Clark, our founder and Chief Executive Bear, as well
as other members of our senior management, our inability to
attract and retain other qualified key employees or a labor
shortage that reduces the pool of qualified store associates
could have a material adverse effect on our business,
financial condition and results of operations. We generally do
not maintain key person insurance with respect to our
executives, management or other personnel, except for limited
coverage of Ms. Clark, which we do not believe would be
sufficient to completely protect us against losses we may suffer
if her services were to become unavailable to us in the future.
We rely on a single company-owned distribution center to
service the majority of our stores in North America, and our
third-party distribution center providers used in Canada and
Europe may perform poorly.
The efficient operation of our stores is dependent on our
ability to distribute merchandise to locations throughout the
United States, Canada and Europe in a timely manner. We
have a 350,000-square-foot distribution center in Groveport,
Ohio. We rely on this company- owned distribution center to
receive, store and distribute merchandise for the majority of
our North America stores. We rely on third parties to manage
all of the warehousing and distribution aspects of our business
in Europe and a portion of our operations in Canada. Any
significant interruption in the operation of the distribution
center due to natural disasters and severe weather, as well as
events such as fire, accidents, power outages, system failures
or other unforeseen causes could damage a significant
portion of our inventory. These factors may also impair our
ability to adequately stock our stores and could increase our
costs associated with our supply chain.
Our market share may be adversely impacted at any time by
a significant number of competitors.
We operate in a highly competitive environment
characterized by low barriers to entry. We compete against a
diverse group of competitors. Because we are mall-based, we
see our competition as those mall-based retailers that compete
for prime mall locations, including various apparel, footwear
and specialty retailers. We also compete with toy retailers,
such as Wal-Mart, Toys “R” Us, Target, Kmart and Sears and
other discount chains, as well as with a number of
manufacturers that sell plush toys in the United States and
Canada, including, but not limited to, Ty, Fisher Price, Mattel,
Ganz, Russ Berrie, Applause, Boyds, Hasbro,
Commonwealth, Gund and Vermont Teddy Bear. Since we
offer our guests an experience as well as merchandise, we
also view our competition as any company that competes for
our guests’ time and entertainment dollars, such as movie
theaters, restaurants, amusement parks and arcades. In
addition, there are several small companies that operate
“make your own” teddy bear and stuffed animal experiences
in retail stores and kiosks. Although we believe that currently
none of these companies offers the breadth and depth of the
Build-A-Bear Workshop products and experience, we cannot
assure you that they will not compete directly with us in the
future.
Many of our competitors have longer operating histories,
significantly greater financial, marketing and other resources,
and greater name recognition. We cannot assure you that we
will be able to compete successfully with them in the future,
particularly in geographic locations that represent new
markets for us. If we fail to compete successfully, our market
share and results of operations could be materially and
adversely affected.
We also believe that there is an emerging trend within
children’s play patterns towards internet and online play.
According to Emarketer.com, kids aged 8 to 11 reported that
they spend between one and two hours online each day. In
2007, 24% of US child and teen Internet users will visit virtual
worlds. By 2011, an estimated 53% will do so. Therefore, we
believe we compete with other companies and internet sites
that vie for children’s attention in the online space including
webkinz.com, clubpenguin.com and neopets.com. A growing
number of traditional children’s toy and entertainment
companies have also developed their own virtual world online
play sites including Barbie.com®and McWorld. We cannot
assure you that children’s preferences for our products will
remain strong or that our on line Web site for children,
buildabearville.com, will be successful in attracting children to
our brand. If children decide to engage with other products or
Web sites, our sales will be negatively impacted and our
results will be materially impacted.
We may fail to renew, register or otherwise protect our
trademarks or other intellectual property and may be sued by
third parties for infringement or, misappropriation of their
proprietary rights, which could be costly, distract our
management and personnel and which could result in the
diminution in value of our trademarks and other important
intellectual property.
Other parties have asserted in the past, and may assert in the
future, trademark, patent, copyright or other intellectual
property rights that are important to our business. We cannot
assure you that others will not seek to block the use of or seek
monetary damages or other remedies for the prior use of our
brand names or other intellectual property or the sale of our
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