Build-A-Bear Workshop 2011 Annual Report Download - page 13

BUILD-A-BEAR WORKSHOP, INC. 2011 FORM 10-K
GROWTH STRATEGY
Our growth strategy is to improve the productivity of our
company-owned store base and to expand the reach of the
Build-A-Bear Workshop brand internationally.
Our concept is a unique combination of experience and
product, both of which are keys to our growth. In terms of
product innovation, we believe that the focus on larger, limited
edition animal introductions that launch approximately once a
month creates a sense of urgency to shop and drives traffic to
our stores, increases conversion and improves sales. We plan
to further increase conversion and average transaction value
by offering additional toy products and other branded products
that are in demand with our core demographics yet consistent
with our brand attributes of creativity and imaginative
play. We will use our national multi-media marketing programs
to increase store traffic by promoting our interactive experience
and seasonal product launches and to increase shopping
frequency with guests that are members in our loyalty
program. We believe our signature store experience is a
competitive advantage and the full integration of product,
marketing and operations enhances our guests’ brand
interaction. We will continue to grow online engagement at
bearville.com, as well as grow our e-commerce business. We
also plan to drive sales increases related to gift-giving
occasions, such as birthdays and Christmas, by promoting our
products and gift cards.
We expect to build the appeal of our stores and improve
our store productivity and profitability by closing select stores,
relocating and downsizing other stores and remodeling and
opening select stores in a new design. We believe that we
can optimize stores in multi-store markets with fewer locations
that have higher sales volumes. In fiscal 2012, we plan to
close 15 to 20 stores in accordance with natural lease events
such as expirations and lease termination options, primarily in
multi-store markets, transferring a percentage of sales to other
stores in the same markets. We also expect to relocate and
downsize ten to fifteen stores within existing malls which we
anticipate will lead to higher productivity metrics in these
locations. We expect to open four to six new stores in
North America and Europe, compared to opening three new
stores in 2011 in North America and five new stores in 2011
in Europe. In 2012, we also plan to introduce a new store
design which we believe will enhance our store experience
and better showcase our products. We expect that a total of
approximately five of the new stores and relocations will be in
this model. We believe the market potential for Build-A-Bear
Workshop stores in North America is approximately 300 to
325 locations and approximately 70 stores in the
United Kingdom and Ireland.
We lease all of our store locations. The majority of our
store leases contain provisions for base rent plus percentage
rent based on sales in excess of an agreed upon minimum
annual sales level. A number of our leases include a
termination provision which applies if we do not meet certain
sales levels during a specified period, typically in the third to
fourth year and the sixth to seventh year of the lease, at either
the landlords’ options or ours. Many of our initial leases have
expiration dates in the next 18 to 24 months as well as other
more recent leases that have termination or “kick out” options
in the same time period. The terms of new leases may have
financial increases reflecting current market conditions and if
we execute termination rights, we may have expenses and
charges associated with those closures.
In addition, we currently operate Build-A-Bear Workshop
stores in non-traditional retail locations including six
temporary locations, three Major League Baseball®ballparks,
one store located in the Saint Louis Zoo, one store at the
St. Louis Science Center and one store located in an airport.
Build-A-Bear Workshop stores are also operated by third
parties under licensing agreements. For example, Landry’s®
Restaurants operates Build-A-Bear Workshop stores within
select Rain Forest Café®and T-Rex Café™locations.
We believe that there is continued opportunity to grow
our Build-A-Bear Workshop concept and brand outside of
North America, the United Kingdom and Ireland primarily
through franchise agreements. Our goal is to have franchisees
that are well capitalized and bring extensive retail and/or real
estate experience. As of December 31, 2011, our franchisees
operated 79 Build-A-Bear Workshop stores in 14 foreign
countries under master franchise agreements on a
country-by-country basis. We expect our franchisees to open
approximately ten to twelve new stores in fiscal 2012, net of
closures, under existing franchise agreements. We believe
there is a market potential for approximately 300 international
stores outside North America, the United Kingdom and
Ireland, which we expect to be primarily operated through
new and existing franchise agreements. Although we expect
to continue to open international stores primarily through
franchise agreements, we may open additional company-
owned stores outside of the United States, Canada,
Puerto Rico, the United Kingdom and Ireland, as our
international plans adjust to meet a variety of market
conditions in additional countries.
We believe there are also growth opportunities to sell
Build-A-Bear Workshop products in other retail stores. Over
the past 15 years, we have established our store as a place
where children can have a hands-on experience, express their
creativity and use their imagination. We believe our brand is
one that parents value and trust and kids love. We believe
that our expertise in product development and the reputation
and quality of our brand will drive sales of plush and other
branded products in locations other than our own stores. We
expect to be able to leverage our extensive guest database to
market new products and build demand for them.
In fiscal 2003, we began testing in certain markets a
proprietary collection of Friends 2B Made®make-your-own
dolls and related products. In the fiscal 2008 third quarter,
we announced plans to close the Friends 2B Made
concept. The closure plan affected our nine Friends 2B Made
store locations, Friends 2B Made fixtures within approximately
50 Build-A-Bear Workshop stores, and the concept’s Web
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