Build-A-Bear Workshop 2012 Annual Report Download - page 25

BUILD-A-BEAR WORKSHOP, INC. 2012 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 fail 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 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 decrease our sales and 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.
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
products or services as a violation of their trademark, patent
or other proprietary rights. Defending any claims, even claims
without merit, could be time-consuming, result in costly
settlements, litigation or restrictions on our business and
damage our reputation.
In addition, there may be prior registrations or use of
intellectual property in the U.S. or foreign countries for similar
or competing marks or other proprietary rights of which we
are not aware. In all such countries it may be possible for any
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