Build-A-Bear Workshop 2014 Annual Report Download - page 17

4. Driving more profitability: We intend to continuously improve
our value engineering initiatives to further optimize product
margins while implementing new systems that facilitate sales
growth, increase eciency and improve long term profitability.
We expect to strategically expand our profitability by prioritizing
incremental growth initiatives, like those discussed above,
that leverage existing infrastructure, are primarily royalty-
based, and/or allow for discrete pricing and are therefore
comparatively margin-accretive.
Merchandise Sourcing and Inventory Management
Our retail stores oer an extensive and coordinated selection of
merchandise, including over 30 dierent styles of animals to be
stued, sounds and scents that can be added to the stued animals
and a wide variety of clothing, shoes and accessories, as well as other
brand appropriate toy and novelty items. We believe we comply with
governmental toy safety requirements specific to each country where
we have stores.
Our stued animal skins and clothing are produced from high
quality man-made materials or natural fibers such as cotton, and
the stung is made of a high-grade polyester fiber. We believe all of
our products in our stores and through our Web sites meet Consumer
Product Safety Commission requirements including the Consumer
Product Safety Improvement Act (CPSIA) for Children’s Products.
We also comply with American Society for Testing and Materials
(ASTM), EN71 (European standards) and Canadian specifications for
toy safety in all material respects. Our products are tested through
independent third-party testing labs for compliance with toy safety
standards. Packaging and labels for each product indicate to our
guests the age grading for the product and any special warnings in
accordance with guidelines established by the Consumer Product
Safety Commission. We believe that our supplier factories are
compliant with the International Council of Toy Industries (ICTI) CARE
certification or with other third party social compliance programs.
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. In order to obtain this certification,
each factory completed a rigorous evaluation performed by an
accredited ICTI agent.
The average time from product conception to the arrival of the
products into our stores is approximately twelve months, including
approximately 90 to 120 days from the beginning of production to
in-store delivery. 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
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.
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 contract with 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 2019. This agreement contains clauses that allow
for termination if certain performance criteria are not met.
Transportation from the warehouses to our 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 are grouped together by shipping route 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 or twice 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 stung for the animals, are often
stored in limited amounts at local pool points.
Employees
As of January 3, 2015, we had approximately 900 full-time and
3,400 part-time employees in the United States, Canada, the United
Kingdom and Ireland. The number of part-time employees at all
locations fluctuates depending on our seasonal needs. None of our
employees are represented by a labor union, and we believe our
relationship with our employees is good.
Competition
We view the Build-A-Bear Workshop store experience as a distinctive
combination of entertainment and retail with limited direct
competition. Because our signature product is a stued animal, we
compete with toy retailers, such as Wal-Mart, Toys “R” Us, Target,
Kmart and other discount chains. Since we develop proprietary
products, we also compete indirectly with a number of companies
that sell stued animals in the United States, including, but not
limited to, Ty, Fisher Price, Mattel, Ganz, Applause, Boyd’s, Hasbro,
Commonwealth, Gund and Vermont Teddy Bear. Since we sell a
product that integrates merchandise and experience, we also view
our competition as any company that competes for family time and
entertainment dollars, such as movie theaters, amusement parks
and arcades, other mall-based entertainment venues and online
entertainment. Being a mall-based retailer, we also compete with
other mall-based retailers for prime mall locations, including various
apparel, footwear and specialty retailers.
BUILD-A-BEAR WORKSHOP, INC. 2014 ANNUAL REPORT 5