Build-A-Bear Workshop 2012 Annual Report Download - page 22

BUILD-A-BEAR WORKSHOP, INC. 2012 FORM 10-K
to the payment of an early termination fee. As a result, we
cannot assure you that the landlord will not exercise its right
to terminate this lease.
In addition, most of our other leases will expire within
the next ten years and many of our initial leases are near
completion and do not contain options to renew. We may not
be offered a lease renewal by our landlord, may not be able
to renew leases under favorable economic terms or maintain
our existing store location thereby requiring additional capital
expenditure to move the store location within the mall. Those
locations may be in parts of the mall that have less traffic or
be positioned further from our desired co-tenants and our
ongoing sales and profitability results may be negatively
affected. The terms of new leases may not be as favorable,
increasing store expenses and impacting overall profitability.
If we execute termination rights, we may have expenses and
charges associated with those closures which could negatively
impact our profitability.
Our merchandise is manufactured by foreign manufacturers
and we transact business in various foreign countries;
therefore the availability and costs of our products, as well as
our product pricing, may be negatively affected by risks
associated with international manufacturing and trade and
foreign currency fluctuations.
We purchase our merchandise from domestic vendors who
contract with manufacturers in foreign countries, primarily in
China. Any event causing a disruption of imports, including the
imposition of import restrictions or labor strikes or lock-outs,
could adversely affect our business. The flow of merchandise
from our vendors could also be adversely affected by financial
or political instability in any of the countries in which the
goods we purchase are manufactured, especially China, if the
instability affects the production or export of merchandise from
those countries. We are subject to trade restrictions in the form
of tariffs or quotas, or both, applicable to the products we sell
as well as to raw material imported to manufacture those
products. Such tariffs or quotas are subject to change. Our
compliance with the regulations is subject to interpretation and
review by applicable authorities. Change in regulations or
interpretation could negatively impact our operations by
increasing the cost of and reducing the supply of products
available to us. In addition, decreases in the value of the U.S.
dollar against foreign currencies, particularly the Chinese
renminbi, could increase the cost of products we purchase
from overseas 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 may suffer negative publicity or be sued if the
manufacturers of our merchandise ship any products that do
not meet current safety standards or production requirements
or if our products are recalled or cause injuries.
Although we require our manufacturers to meet our product
specifications and safety standards and submit our products
for testing, we cannot control the materials used by our
manufacturers. If one of these manufacturers ships
merchandise that does not meet our required standards,
we could in turn experience negative publicity or be sued.
Many of our products are used by small children and
infants who may be injured from usage if age grading or
warnings are not followed. We may decide or be required
to recall products or be subject to claims or lawsuits resulting
from injuries. For example, we have voluntarily recalled four
products in the past four years due to possible safety issues.
While the vendors have historically reimbursed us for certain,
related expenses, negative publicity in the event of any recall
or if any children are injured from our products could have a
material adverse effect on sales of our products and our
business, and related recalls or lawsuits with respect to such
injuries could have a material adverse effect on our financial
position. Additionally, we could incur fines related to
consumer product safety issues from the regulatory authorities
in the countries in which we operate. Although we currently
have liability insurance, we cannot assure you that it would
cover product recalls or related fines, and we face the risk
that claims or liabilities will exceed our insurance coverage.
Furthermore, we may not be able to maintain adequate
liability insurance in the future.
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 experience, we must be able to hire and train
qualified managers and Bear Builder associates to succeed.
The loss of certain key employees, 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.
For example, in January 2013, we announced that
Ms. Maxine Clark, our Founder and Chief Executive Bear
(CEB) would be retiring from her position as CEB of
Build-A-Bear Workshop, Inc. and that a search would be
conducted to identify her replacement. Ms. Clark currently
intends to remain with the company until a replacement is
hired and intends to remain on our Board of Directors. The
success of our business depends on our ability to attract a
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