Build-a-Bear Workshop’s Challenge
Can an Early Innovator in Personalized Retail Experience Recapture Its Momentum?
By Patricia B. Seybold, CEO and Sr. Consultant, July 8, 2010

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© 2010 Build-A-Bear Workshop, Inc.

Illustration 1. Build-A-Bear Workshop specializes in their special “build your own” animal experience in the store. You can also buy its stuffed animals online, which is what some repeat customers and collectors do. Accessories are the biggest sellers online.

NETTING IT OUT

Build-A-Bear Workshop pioneered in creating a unique, personalized retail experience when it launched in 1997. The brand experience is very evocative. Kids enjoy the fun of creating their own stuffed animals in Build-A-Bear’s fun, playful environment. Like many mall-based retailers, Build-A-Bear Workshop has now expanded to close to 400 retail stores worldwide.

Customers get involved in the emotional experience and typically upsell themselves, adding recorded messages, and selecting clothing for their furry friends, typically walking the price of their teddy bear or bunny from $16 to $35.

Build-A-Bear has also invested in both a loyalty program and an online virtual world—Buildabearville—both encourage ongoing interaction with the brand before and after the first initial purchase.

Yet, Build-A-Bear’s same store revenues have been declining not just during the recession but starting even before. So, the question is: what’s wrong with this picture? Are stuffed animals passé? What could this well-loved brand do to stimulate retail and online sales?

BUILD-A-BEAR’S SLIDE: IS IT THE ECONOMY OR IS THEIR FORMULA PASSÉ?

This Spring, I attended MIT’s Smart Customization conference and had the opportunity to hear a presentation by Dorrie Krueger, Managing Director of Build-A-Bear Workshops. I have always been impressed by the evocative stories that retail executives tell about Build-A-Bear and this talk was no exception. This toy store chain ranks ninth among toy retailers in North America, according to Playthings Magazine.

Build-A-Bear Workshop Store

© 2010 Build-A-Bear Workshop, Inc.

Illustration 2. Build-A-Bear Workshop store decked out for the Easter Holidays. The stores are designed so that you know you’ve entered a special place once you go in. The environment and the people are fun and engaging. Watching kids have fun is a seductive experience!

Although the MIT conference focused on how to profit from selling customizable goods and services, most of Dorrie’s talk focused on how Build-A-Bear creates a differentiated retail experience with a very loyal part-time workforce of mostly teenaged girls. The company is understandably proud of having been cited as one of the top 100 best places to work in North America for two years in a row. And, as a repeat customer, I’ve enjoyed the unique in-store experience and high touch service each time I’ve visited with a child in tow.

A year ago, I also heard a great presentation from David Finnegan, Build-A-Bear’s Chief InBearmation Officer about the development of its Buildabearville.com virtual world, which launched in 2007.

So, when I checked the retailer’s finances, I was disconcerted to discover that Build-A-Bear lost money in 2009 and that comparable store sales have been falling steadily for the past six years. The retailer’s revenues per square foot have dropped from a high of $615 in 2004 to its current $358. Gross margins have slid from 49.5 percent in 2004 to 35 percent in 2009.

Of course, the company’s annual report paints an upbeat picture. At fiscal year end, there was no debt on the balance sheet, close to $60 million in cash, and same store sales were beginning to pick up slightly in the first quarter of 2010. Belt tightening delivered earnings of $.09 per share in Q1 2010 compared to a loss of $.04 per share last year. In response to the global recession, Build-A-Bear has slowed its expansion in North America and cut overhead costs by $25 million. The company continues to plan to expand globally, primarily through franchisees and by targeting upscale oil-rich consumer economies in the United Arab Emirates and Bahrain.

Build-A-Bear now has 345 stores in North America, the UK and Ireland, and 64 franchised stores in 13 countries in Europe, Asia, Australia, Africa, the Middle East and Mexico. Total revenues in 2009 were $394.4 million, with a net loss of $12.5 million for the year or $.10 loss per share. So revenues average about $1 million per store.

How Do You Keep a Brand Experience Fresh and Engaging?

Since all of us are custodians of brand experiences that wax and wane in our customers’ perception, I thought it might make an interesting case study to take a look at Build-A-Bear’s current retail formula, come up with our own prescriptions and then watch what Build-A-Bear’s management team does over the next year or so.

IS AN EVOCATIVE RETAIL EXPERIENCE ENOUGH TO TURN BUILD-A-BEAR AROUND?

The In-Store Build-A-Bear Experience

Although the company is 13 years old, the Build-A-Bear retail experience has won the hearts and loyalty of three generations of stuffed animal buyers—kids, parents, and grandparents. Since 1997, Build-A-Bear Workshop, Inc. has pioneered an experiential retail formula and built a strong, evocative brand experience.

I’ve enjoyed taking my grandchildren to Build-A-Bear stores at a number of malls around the country to select, stuff, and personalize their own stuffed animals. It’s a pleasant way to spend an hour with a child, and you come away with nice memories and a huggable toy that is special because your child helped to create it, dressed it, and named it.

The in-store experience of building your own stuffed bear, puppy, duck, dinosaur, or zebra (or any of 30 animals or characters) is a well-designed, high-touch, and caring experience. First, the child selects which animal they want to create and picks the “skin” out of a bin. Then they select a small satin covered heart that will be placed inside their stuffed animal along with whatever special wish they want to add.

If they want to, they can also record a message the animal will say when you squeeze its paw. Then they move on to the stuffing station where a personable store associate (usually a wonderful young woman with a great sense of humor) helps the child blow stuffing into their animal.

The associate quickly stitches up the toy, and then your child is ready to browse and select clothing and accessories to dress up their new pet. (The costs begin to mount up!)

Finally, your child sits down in front of a special computer to give his or her new friend a name and print out its birth certificate. This registers your pet (and provides Build-A-Bear with the buyer’s complete profile information). The value you get for providing accurate information is the promise that if your toy is lost, Build-A-Bear will be able to return it to you. This seems to mitigate customers’ privacy concerns. And, in fact, Build-A-Bear claims to have reunited over 5,000 customers with their lost toys.

The new stuffed animal and its birth certificate are then put into a cardboard “home” for your child to carry, while mom, aunt, or grandma pays at the cash register.

This report continues...

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