Build-A-Bear Workshop 2011 Annual Report Download - page 17

BUILD-A-BEAR WORKSHOP, INC. 2011 FORM 10-K
All stores outside of the U.S., Canada, the United
Kingdom and Ireland are currently operated by third party
franchisees under separate master franchise agreements
covering each territory. Master franchise rights are typically
granted to a franchisee for an entire country or group of
countries for a specified term. The terms of these master
franchise agreements vary by country but typically provide
that we receive an initial, one-time development fee and
continuing royalties based on a percentage of the franchisees’
stores sales. The terms of these agreements range up to
25 years with a franchisee option to renew for an additional
term if certain conditions are met. All franchised stores have
similar signage, store layout and merchandise characteristics
to our company-owned stores. Our goal is to have well-
capitalized franchisees with expertise in retail operations or
franchising and real estate in their respective country. We
collaborate with our franchisees in the development of their
business, marketing and store growth plans. We review all
franchisees’ orders for merchandise which are made in the
same factories that produce products for our company-owned
stores and advise our franchisees concerning their operational
and business practices in an effort to ensure they are in
compliance with our standards. We expect our current
franchisees to open approximately ten to twelve new stores,
net of closures, in fiscal 2012.
SOURCING AND INVENTORY MANAGEMENT
We do not own or operate any manufacturing facilities. Our
animal skins, stuffing, clothing and accessories are produced
by factories located primarily in China. We purchased
approximately 81% of our inventory in fiscal 2011,
approximately 73% in fiscal 2010 and approximately 80% in
fiscal 2009 from three long standing vendors. After specifying
the details and requirements for our products, our vendors
contract orders with multiple manufacturing facilities in China
that are approved by us in accordance with our quality
control and labor standards. We believe that our supplier
factories are compliant with the International Council of Toy
Industries (ICTI) CARE certification.
The CARE (Caring, Awareness, Responsible, Ethical)
Process is the ICTI program to promote ethical manufacturing,
in the form of fair labor treatment, as well as employee health
and safety, in the toy industry supply chain worldwide. The
program’s initial focus is in China, where 70 percent of the
world’s toy volume is manufactured. In order to obtain this
certification, each factory completed a rigorous evaluation
performed by an accredited ICTI agent. Our vendors can be
used interchangeably as each has a sourcing network for
multiple product categories and can expand its factory
network as needed. 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.
The average time from the beginning of production to
arrival of the products into our stores is approximately 90 to
120 days. Our weekly tracking and reporting tools give us
the capability to adjust to shifts in demand. Through an
ongoing analysis of selling trends, we regularly update our
product assortment by increasing quantities of productive
styles and eliminating less productive items. Our distribution
centers provide further logistical efficiencies for delivering
merchandise to our stores.
DISTRIBUTION AND LOGISTICS
We own our 350,000 square-foot distribution center near
Columbus, Ohio which serves the majority of our stores in the
United States and Canada. We also engage a third-party
warehouse in southern California to service our West Coast
stores. The contract has a one year term and is renewable. In
Europe, we contract with a third-party distribution center in
Selby, England under an agreement that ends in December
2014. This agreement contains clauses that allow for
termination if certain performance criteria are not met.
Transportation from the warehouses to the stores is
managed by several third-party logistics providers. In the
United States, Canada and Europe, merchandise is shipped
by a variety of distribution methods, depending on the store
and seasonal inventory demand. Key delivery methods are
direct trucks through third-party pool points, ‘LTL’ (less-than
truck load) deliveries, and direct parcel deliveries. Shipments
from our third-party distribution centers are scheduled
throughout the week in order to smooth workflow and stores
that are part of the same shipping route are grouped together
to reduce freight costs. All items in our assortment are eligible
for distribution, depending on allocation and fulfillment
requirements, and we typically distribute merchandise and
supplies to each store once a week on a regular schedule,
which allows us to consolidate shipments in order to reduce
distribution and shipping costs. Back-up supplies, such as
Cub Condo®carrying cases and stuffing for the animals, are
often stored in limited amounts at local pool points.
MANAGEMENT INFORMATION SYSTEMS AND TECHNOLOGY
Optimizing technology is a key business strategy. We are
committed to utilizing and leveraging digital advancements to
gain a competitive edge and improve guest experiences. We
regularly evaluate strategic information technology initiatives
focused on competitive differentiation, support of corporate
strategy and reinforcement of our internal support
systems. Most recently, we implemented a new e-commerce
platform which helps propel our largest store into the future.
Our information and operational systems are best in class
and incorporate a broad range of purchased and internally
developed technologies; each are built on a foundation of
sound business processes, support guest relationships,
marketing, financial, retail operations, real estate,
merchandising, e-commerce and inventory management
processes, and deliver solid business results. Our employees
can securely access these systems over a company-wide
network. Sales, daily deposit and guest information are
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