Build-A-Bear Workshop 2011 Annual Report Download - page 25

BUILD-A-BEAR WORKSHOP, INC. 2011 FORM 10-K
We may suffer negative publicity or a decrease in sales or
profitability if the non-proprietary toy products we sell in our
stores do not meet our quality standards or fails to achieve
our sales expectations.
We expect to expand our product assortment to include
interactive toy products manufactured by other toy
companies. If sales of such products do not meet our
expectations or are impacted by competitors’ pricing, we may
have to take markdowns or employ other strategies to
liquidate the product. If other toy companies do not meet
quality standards or violate any manufacturing or labor laws,
we suffer negative publicity and not realize our sales plans.
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 company-owned distribution center to service
the majority of our stores in North America, and our third-
party distribution center providers used in the western United
States 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 on the West Coast of the United States and in
Europe. Any significant interruption in the operation of the
distribution centers 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. As a retailer whose signature product
is a stuffed animal that is typically purchased as a toy or gift,
we also compete with toy retailers, such as Wal-Mart,
Toys “R” Us, Target, Kmart 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 electronic toys, internet and
online play. According to Emarketer.com, kids aged eight to
eleven reported that they spend between one and two hours
online each day. We believe our Web site, bearville.com,
competes 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,
bearville.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.
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