Build-A-Bear Workshop 2013 Annual Report Download - page 21

their franchised stores. Franchisees may not operate stores in a
manner consistent with our standards and requirements, may not
hire and train qualified managers and other store personnel and
may not operate their stores profitably. As a result, our franchising
strategy may not be profitable to us. Moreover, our brand image and
reputation may suffer. When franchisees perform below expectations
we may transfer those agreements to other parties or discontinue
the franchise agreement. Furthermore, even if our international
franchising strategy is successful, the interests of franchisees
might sometimes conflict with our interests. For example, whereas
franchisees are concerned with their individual business strategies
and objectives, we are responsible for ensuring the success of the
Build-A-Bear Workshop brand and all of our stores.
The laws of the various foreign countries in which our franchisees
operate govern our relationships with our franchisees. These laws,
and any new laws that may be enacted, may detrimentally affect the
rights and obligations between us and our franchisees and could
expose us to additional liability.
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 third party owner of a
national trademark registration or other proprietary right to enjoin
or limit our expansion into those countries or to seek damages for
our use of such intellectual property in such countries. In the event a
claim against us were successful and we could not obtain a license to
the relevant intellectual property or redesign or rename our products
or operations to avoid infringement, our business, financial condition
or results of operations could be harmed. Securing registrations does
not fully insulate us against intellectual property claims, as another
party may have rights superior to our registration or our registration
may be vulnerable to attack on various grounds.
We are subject to risks associated with technology and digital
operations.
Our digital operations are subject to numerous risks, including
risks related to the failure of the computer systems that operate our
websites and mobile sites and their related support systems, point of
sale systems, computer viruses, telecommunications failures, and
similar disruptions. Also, we may require additional capital in the
future to sustain or grow our digital commerce. Business risks related
to digital commerce include risks associated with the need to keep
pace with rapid technological change, Internet security risks, risks
of system failure or inadequacy, governmental regulation and legal
uncertainties with respect to the Internet, and collection of sales
or other taxes by additional states or foreign jurisdictions. If any of
these risks materializes, it could have a material adverse effect on our
business.
We may suffer negative publicity or be sued if the manufacturers of
our merchandise violate labor laws or engage in practices that our
guests believe are unethical.
We rely on our sourcing personnel to select manufacturers with legal
and ethical labor practices, but we cannot control the business and
labor practices of our manufacturers. If one of these manufacturers
violates labor laws or other applicable regulations or is accused
of violating these laws and regulations, or if such a manufacturer
engages in labor or other practices that diverge from those typically
acceptable in the United States, we could in turn experience negative
publicity or be sued.
Our company-owned distribution center which services the majority
of our stores in North America and our third-party distribution
center providers used in the western United States and Europe may
experience disruptions in their ability to support our stores or they
may operate inefficiently.
The 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.
BUILD- A-BEAR WORKSHOP, INC. 2013 FORM 10-K 11