CASE STUDY 1.1
Build-A-Bear Workshop (BBW): how to manage the global comeback?
In spring 2010 the founder of BBW, Maxine Clark, is enjoying one of the beautiful May days before she will have to pack her luggage for her next trip to Europe, where she will have some further negotiations with some potential master franchisees. The last two years have been difficult for BBW after a financial crisis that hit the whole world in 2008. Maxine still believes 100 per cent in the BBW concept, which takes advantage of the new trend in our experience economy – to let consumers participate in the creation of customer value. However, it seems that the global wave of enthusiasm has been sated, and how can BBW get it back on track again with new international growth as the result?
Background
Build-A-Bear Workshop, Inc. (BBW) – www. buildabear.com – is the leading and only global company that offers a create-your-own animal service in the retailing experience sector.
Founded in 1997, the company currently operates more than 400 Build-A-Bear Workshop stores worldwide, including company-owned stores in the United States, Puerto Rico, Canada, the United Kingdom, Ireland and France, and franchise stores in Europe, Asia, Australia and Africa.
Build-A-Bear Workshop posted total revenue of $468 million in the fiscal year 2008.
Since opening the first store in St. Louis, Missouri in October 1997, BBW have sold over 70 million stuffed animals. BBW have grown their store base from 200 stores at the end of the fiscal year 2005 to 346 as of 3 January 2009 and increased revenue from $362 million in 2005 to $468 million in the fiscal year 2008.
As of January, 2009, BBW employed approximately 1,200 full-time and 4,800 part-time employees.
BBW does not own or operate any manufacturing facilities. Their animal skins, stuffing, clothing and accessories are produced by factories located primarily in China.
The company’s motto is Where Best Friends Are Made. It is headquartered in Overland, Missouri.
How it started
Maxine Clark left Payless ShoeSource in 1996. At that time she was 47 years old and her financial rewards in retailing had been very high. When she left Payless, she could have left retailing or even retired. She had earned enough money to do anything she wanted, even if pay or responsibilities were not comparable. She had the luxury to learn and start up something totally new.
Generally, she was bored by shopping, and she was looking to recreate the excitement and magic that she felt as a child when she visited certain stores. Going shopping was an event. Customers became part of the store, and it was special.
Maxine Clark remembers:
/ like to say the lightbulb went off for Build-A-Bear Workshop one day in the summer of 1996. I was out shopping with my friend Katie, who was 10 years old at the time. We were on a mission to find Beanie Babies, but the store that had promised a new shipment had none left. Katie looked at me and said, ‘These are so easy – we could make them.’ She meant go to my basement and do a craft project, but what I heard was so much bigger and the idea for Build-A-Bear Workshop was born. Source’, http://www.businessweek.com/smallbiz/content/sep 2007/sb20070912_785676.htm?Chan=search.
In the process of developing a retail entertainment concept for children, Clark visited toy factories and children’s retail stores, put together a list of ideas, then consulted the experts: children. Clark consulted first with the children of a friend, then formed an advisory board of 20 children, ages 6 to 14, and showed them three of her ideas. The decision to pursue the Build-A-Bear concept emerged from the board’s enthusiasm, combined with Clark’s personal preference for teddy bears and the high profit margin for stuffed animals.
Clark then hired design consultant Adrienne Weiss Co. of Los Angeles, using 80 per cent of her $750,000 personal savings investment, to develop the Build-A-Bear concept. Clark collaborated with consultants in developing every detail, including
40 PARTI THE DECISION WHETHER TO INTERNATIONALIZE
artwork, employee costumes, store design and company logo. The logo features a teddy bear being measured, stitched, stuffed and groomed. All lettering is similar to children’s printing.
Maxine Clark opened her first Build-A-Bear Workshop concept store in a St. Louis shopping mall (in the USA) in 1997. Sales were near $400,000 in the store in less than four months.
In 1999 the success of the retail concept attracts venture capital for expansion; Build-A-Bear opens ten new stores in United States. The sales in these stores averaged $700 per square foot of retail space, an enormous success in contrast to national mall averages of $350 per square foot. The cost of opening a new store ranged from $500,000 to $700,000, but with annual sales estimated at $2 million per store, Clark easily found capital investment for expansion.
In 2003 BBW’s international expansion begins with new locations in Canada and England. Although Clark intended to take the company global from its inception, concrete plans did not begin to take shape until late 2002. In November 2002 Build-A-Bear signed a franchise agreement with Japan, held by Tech R&DS Co. Ltd. The company also began a search for locations in the United Kingdom. These new countries for BBW were chosen in response to requests from customers who had visited stores while in the United States or had visited the company’s website. A high number of addresses in the Find-A-Bear ID database for these countries indicated strong interest in the Build-A-Bear concept.
Customers’ retailing experience
A Build-A-Bear Workshop store is an average of 3,000 square feet. Every element of the store design was intended to delight children under the age of 12.
Guests who visit Build-A-Bear Workshop stores enter a teddy bear-themed environment. They will be met by store associates, known as master Bear Builder associates, who share the experience with guests at each of the phases of the bear-making process, which consists of eight stuffed animalmaking stations: Choose Me, Hear Me, Stuff Me, Stitch Me, Fluff Me, Dress Me, Name Me and Take Me Home. To attract their target guests, BBW has designed their stores to provide a ‘theme park’
Build-A-Bear
destination in the mall that is open and inviting with an entryway that spans the majority of their storefront and highly visual and colourful teddy bear themes and displays.
At Choose Me, guests are introduced to all the furry characters in the store and then select one, which soon becomes their new friend. There are more than 30 varieties of stuffed animals including teddy bears, bunnies, dogs, kitties and more. Build-A-Bear Workshop stuffed animals are very affordable, ranging in price from $10-25.
At Hear Me, guests may select from several sound choices to place inside their stuffed animal to further personalize their new friend. The sound chip is inserted safely inside the new friend during the stuffing process. Guests can record their own 10-second Build-A-Sound message. Pre-recorded sounds include giggles, growls, barks, meows and other animal sounds, as well as messages such as ‘I Love You’ or songs like ‘Take Me Out To The Ballgame*.
At Stuff Me, with the help of master Bear Builder associates, guests fill their new friend with stuffing for just the right amount of huggability. A very special step that is unique to Build-A-Bear Workshop also happens at this station. Each guest selects a small satin heart – a Build-A-Bear Workshop trademark, adds to it his or her own love and wishes, and carefully places it inside their new furry friend. This process brings the furry friendship to life (see picture below).
At Stitch Me, the last seam is neatly pulled shut, nearly completing each new best friend. Before
CHAPTER 1 GLOBAL MARKETING IN THE FIRM 41
Build-A-Bear
stitching the furry friend, the master Bear Builder associate inserts a barcode, allowing it to hopefully be reunited with its owner if ever lost and returned to Build-A-Bear Workshop. Thousands of furry friends have been reunited through our exclusive Find-A-Bear® ID programme. The barcode also generates a unique code on the birth certificate so guests can bring their new friend to life online for free at buildabearville.com to continue their friendship adventure when they get home.
At Fluff Me, the guest brushes the animal to make sure their new friend is well groomed and huggablel
At Dress Me, guests may dress their new friend in the beary latest furry fashions. The bear apparel boutique features clothes and accessories for all occasions. Build-A-Bear Workshop® even has its own fashion expert mascot, ‘Pawlette Coufur’, Fashion Advisor to the Furry Famous. Build-A-Bear Workshop works with a variety of partners, including Hello Kitty, Disney and Harley-Davidson.
At the Name Me the guests answer several questions about their new bear friend, including the birth
date and of course, its name. The furry friend is then entered into the Find-A-Bear ID programme and this information is used to create a personalized birth certificate for the furry friend.
Finally, at the Take Me Home station, the guests receive their customized birth certificate and a special Stuff Fur Stuff® club membership, a rewards programme for our guests. Instead of a traditional shopping bag, each new furry friend is then placed in their very own ‘Cub Condo* carrying case, which is designed as a handy travel carrier and new home.
The duration of a guest’s experience can vary greatly depending on their preferences. Most guests choose to participate in the full animal-making process and all eight stations, a process which BBW believe averages 45 minutes to complete. Because customers are involved with creating their purchase, they remember it vividly and tell lots of other people about it. Almost half of our new customers heard about the store from a friend or family member.
Guests can continue the fun with their bear friends when they get home and sit at their computer. At buildabearville.com, guests can bring their new furry friend to life online for free by using the code found on their birth certificate. They create a unique online character and play games to earn Bear Bills, which can be used to purchase more clothes, furniture for their Cub Condo houses and other items. Guests can also trade items with other citizens in the world. Membership to the site is free and does not expire.
Beyond bringing their new friend to life online for free, guests are rewarded for in-store purchases. When they make a clothing or accessory purchase in store or at www.buildabear.com, they receive a receipt code. The code gives them virtual store credit to use at the Bear Boutique in Build-A-Bearville, which is the only place to find exclusive virtual fashions and furniture items for their virtual furry friends.
To provide the fun of making a furry friend to groups – birthday parties, scout troops, company outings and family reunions – Build-A-Bear Workshop offers a Build-A-Party® programme. This exclusive service allows guests to plan and customize their own party with preselected animals, clothes and accessories.
Overall, BBW believe they are strongly positioned to lead in this retail space with over 70 million stuffed animals sold and over 24 million households in their online database.
On average each customer spends approximately $50 in the BBW store (including web-sales afterwards).
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Customer feedback drives the business
BBW’s primary audience is e-mail-savvy; the company relies heavily on electronic communications. So, Maxine Clark’s e-mail inbox fills up with 4,000 notes per month, most of them from customers.
Those voices have created most of the company’s new products. Some customer suggestions: add a black Labrador as a product. The company did. In its first six months, it sold 100,000 units. The company had already been offering shoes to go with each animal. Why not add socks, a customer suggested. Shortly thereafter, the company did. Another customer suggested party rooms for birthdays and get-togethers, which the company began to offer in selected stores in 2002.
Every e-mail writer receives a personal response from Maxine Clark or one of the company’s executive team. Maxine Clark stays close to customers with a ‘Cub Advisory Board’, a group of 20 boys and girls 8-17 years old who review new products and suggest additional ones. It meets with Clark and her team three or four times per year.
BBW involvement in cause marketing
BBW believes in the teddy bear philosophy of being good people and good bears. Throughout its 11 -year history the company has given guests a voice to support causes that are important to them, helping children, families, animals and the environment. Since the company’s inception, BBW has donated over $20 million to these causes.
One of these partnership is with the World Wildlife Fund (WWF), offering a series of WWF co-branded plush animals in stores. In 2000 Build-A-Bear Workshop introduced the giant panda, the first in a series of co-branded stuffed animals. Since then, a new furry friend has been launched each year, many representing animals in danger around the world. In addition to the giant panda, Build-A-Bear Workshop has sold the Bengal tiger, leopard, lion, polar bear and the giraffe. Each WWF bear animal comes with a collector’s medallion featuring the WWF official panda logo and a numbered Certificate of Authenticity, further enhancing its value to the collector.
In 2006 BBW announced that it had given $1 million to the WWF through the sales of its WWF Collectibear stuffed animal series. For each plush animal sold one dollar goes to WWF to protect and conserve wildlife around the world.
In 2009 Build-A-Bear Workshop® continued its partnership with the WWF by introducing the newest member of the WWF Collectibear® series.
Starting 28 August, make your own WWF Gray Wolf ($25) at Build-A-Bear Workshop stores or buildabear.com®. In the United States and Canada $1 from the sale will be donated to WWF to help protect endangered animals and their habitats.
BBW retail store base, international expansion and franchise strategy
The BBW retail segment includes the operating activities of company-owned stores in the United States, Canada, the United Kingdom, Ireland and France.
The table lists of BBW’s 346 company-owned stores in the United States, Canada, the United Kingdom, Ireland and France as of 3 January 2009.
Company-owned stores Number of stores (January 2009)
United States 271
Canada 21
United Kingdom:
England 42
Scotland 6
Wales 1
Northern Ireland 1
Ireland 1
France 3
346
—
In 2003, BBW began to expand the Build-A-Bear Workshop brand outside of the United States, opening company-owned stores in Canada and our first franchised location in the United Kingdom. As of 3 January 2009, there were 62 Build-A-Bear Workshop franchised stores located in the following countries:
Country
No. stores
Japan 10
South Africa 9
Denmark 8
Australia 6
Thailand 6
Singapore 5
Germany 4
Russia 4
Norway + Sweden 3
Benelux* 3
Other 4
Total 62
* Benelux includes Belgium, the Netherlands and Luxembourg.
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All stores outside of the US, Canada, the United Kingdom, Ireland and France are currently operated by third-party franchisees under separate master franchise agreements covering each country. Master franchise rights are typically granted to a franchisee for an entire country or group of countries for a specified term. The terms of these master franchise agreements vary by country but typically BBW receives an initial, one-time franchise fee and continuing royalties based on a percentage of sales made by the franchisees’ stores. The terms of these agreements range up to ten years with a franchisee option to renew for an additional term if certain conditions are met.
Revenue from international franchise fees was $3.6 million for fiscal 2008 – it represents less than 1 per cent of the total revenues.
Competition
Because BBW is mall-based, BBW see their competition as those mall-based retailers that compete for prime mall locations, including various apparel, footwear and specialty retailers. BBW also competes with toy retailers, such as Wal-Mart, Toys fl Us, Target, Kmart and Sears and other discount chains, as well as with a number of companies that sell teddy bears and dolls in the United States and elsewhere, including, but not limited to, Ty, Fisher Price, Mattel, Ganz, Russ Berrie, Applause, Boyd’s, Hasbro, Commonwealth, Gund and Vermont Teddy Bear. Since BBW sells a product that integrates merchandise and experience, BBW also view their competition as any company that competes for guests’ time and entertainment dollars, such as movie theatres, amusement parks and arcades, other mall-based entertainment venues and online entertainment.
BBW is aware of several small companies that operate ‘make your own’ teddy bear and stuffed animal stores or kiosks in retail locations, but BBW believes none offer the breadth and depth of the Build-A-Bear Workshop experience or operates as a national or international retail company.
BBW also believes that there is an emerging trend within children’s play patterns towards Internet and online play. According to Emarketer.com, kids aged 8 to 11 reported that they spend between one and two hours online each day. In 2007, 24 per cent of US child and teen Internet users will visit virtual worlds. By 2011, an estimated 53 per cent will do so. Therefore, BBW believes they can compete with other companies and Internet sites that vie for children’s attention in the online space including webkinz.com, clubpenguin.com and neopets.com.
Until now, Build-A-Bear Workshop is the only virtual world with real world retail stores. A growing number of traditional children’s toy and entertainment companies have also developed their own virtual world online, including Barbie.com, be-bratz.com and virtualmagickingdom.com.
BBW’s marketing strategy
While BBW offers consumers an interactive and personalized experience, their tangible product is stuffed animals, including our flagship product, the teddy bear, a widely adored stuffed animal for over 100 years. According to data published by the Toy Industry Association and The NPD Group, sales of the traditional toy market were $22.2 billion in the United States (excluding video games) in 2008 with plush and doll sales having a combined 20 per cent share of the traditional toy market. According to further data provided by The NPD Group, worldwide toy sales topped $71.96 billion dollars in 2007. In 2008, Playthings Magazine ranked BBW as the tenth largest toy retailer in the United States for 2007 based on sales.
The overall BBW strategy is directly connected to the customer contacts in the BBW store area. In contrary to normal personnel in stores, the BBW shop assistants are trained more to be ‘entertainers’ (providing an experience to the children) than being traditional shop selling assistants.
BBW’s pricing strategy
Unlike other mall-based retailers that frequently use markdowns or sale events to drive sales, BBW uses value-added marketing to raise brand awareness and drive traffic to our stores and makes limited use of markdowns.
BBW’s advertising strategy
BBW employs a variety of different marketing tools and programmes to drive traffic to their stores and raise brand awareness. BBW use television advertising that targets both children and adults to keep their experience and BBW products at top of mind. Periodically BBW features specific new product introductions and promotions as a call-to-action to visit their stores. BBW also uses radio, print and online advertising integrating their message across various touch points to maximize their reach to new and existing guests. BBW leverages the database from their Stuff Fur Stuff club loyalty programme with over four million active members in their direct mail
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PART I THE DECISION WHETHER TO INTERNATIONALIZE
I BBB financial situation 2006-2008
BBW 2008 US$ (millions) 2007 US$ (millions) 2006 US$ (millions)
Total revenues 467 474 437
Less costs:
Variable costs (materials etc.) 270 259 228
Selling, general, administrative 186 177 159
Other costs 6 16 21
Net income (net profits) 5 22 29
Source’. BBW’s 10K report.
I Retail sales per gross square foot (only BBW stores in North America)
Fiscal 2008 US$ Fiscal 2007 US$ Fiscal 2006 US$
Net retail sales per gross square foot
Store age 5 years 448 517 577
Store age 3-5 years 455 537 556
Store age 3 years 432 497 592
All comparable stores 445 516 573
Source’. BBW’s 10K report
and e-mail programs and provide information and e-commerce on their website, www.buildabear.com.
BBW have developed licensing and strategic relationships with some of the leading retail and cultural organizations in North America and Europe. We believe that our guest base and our position in our industry category makes us an attractive partner and our customer research and insight allows us to focus on strategic relationships with other companies that we believe are appealing to our guests.
BBW financial results
The last three years main financial results of BBW indicate that problems are coming up.
Same-store sales is Wall Street’s favourite metric for evaluating retailers. Wall Street will take one look at this trend, punish the stock, and move on in search of the next big thing. But could it be that a business still has value despite the pressure on same store sales that we see above? After all, same-store sales is but one metric.
For example, if costs are dropping faster than sales, there are still profits to be made. Unfortunately,
Build-A-Bear’s full-year operating margins as a percentage of sales have actually been in decline for the last three years.
But consider the level of sales a Build-A-Bear store achieves in its first year. If that number is ridiculously high, then there is room to allow for declines in the next several years while still making comfortable profits. For the sake of comparison, here are Build-A-Bear’s sales per square foot compared with an assortment of successful American retailers. BBW use net retail sales per gross square foot and comparable store sales as performance measures for our business. The following table details net retail sales per gross square foot by age of store for the periods presented.
As seen in Table 2 the sales problems appear to be biggest in the newest stores – at least the percentage drop in retail sales per gross square foot is biggest in stores 3 years.
Since BBW opened its first store more than 10 years ago, it has expanded to most parts of the world, In the following, the expansion to the Northern European market is further explained.
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BBW expands to Scandinavia and Germany
In 2002 the Dane, Seren Nielsen and his daughter experienced the BBW concept for the first time in United States. He was very enthusiastic about the concept and shortly after coming home to Denmark formed a company together with some friends. In 2003 this new company, Choose Holding ApS, bought the franchise rights for Denmark for US$250,000. The first BBW shop opened in Copenhagen in April 2004.
The initial business was to establish five stores in Denmark the first five years, based on the experience in United States, where there is a shop per 1 million inhabitants. However, Choose Holding ApS had established nine stores in Denmark up to August 2009.
In 2005 Choose Holding ApS acquired the franchise rights for Norway and Sweden. The first store in Sweden opened in 2005, and in Norway in 2006.
The group is led by John Kristensen and Soren Nielsen and currently has nine stores in Denmark, two in Sweden and one in Norway.
After the success in Scandinavia, the founders of Choose Holding ApS acquired the franchise rights for Germany for US$750,000. The first two BBW stores opened in Hamburg in 2006 with two further shores in Berlin and Braunschweig. The plan is to open 50 BBW shops in Germany during the next five years. However, the market in Germany is quite different from that in Scandinavia:
• The children using bears are older.
• The parents are more involved in the buying process than the children.
• The dressing in BBW is more relaxed than most Germans are used to – the managers of the German BBW shops are mostly involved with the administrative tasks and not involved with selling and direct contact to customers in the front line -contrary to the traditional BBW way of communicating directly to the customers.
• The slogan ‘Where best friends are made’ did not work in Germany. It had to be adapted to ‘Beste Freunde zum selbermacheri (Best friends to make for oneself).
These differences meant at the German BBW shop did not perform as planned, and the four German BBW shops were taken over by one of the founders of Choose Holding ApS in 2008.
QUESTIONS
1. How would you characterize the current global BBW strategy?
2. Is the headquarters of BBW in the USA following the right mixture of own stores and franchised stores?
3. What would you consider as the main reasons for the BBW failure in Germany?
4. How should BBW manage the global comeback?
Sources: www.buildabear.com (Financial Reports, 10K); http:// www.businessweek.com/smallbiz/content/sep2007/sb20070912_ 785676.htm?Chan=search; http://www.fundinguniverse.com/ company-histories/BuildABear-Workshop-Inc-Company-H istory.html; http://www.fyens.dk/article/948187Business- Fyn—Bjoerne-eventyr-fik-voksevaerk (28.02.2008); http://borsen.dk/investor/nyhed/ 122205/.
CASE STUDY 1.2
Arcor: a Latin American confectionery player is globalizing its business
Arcor (www.arcor.com.ar/eng/) was founded in 1951 to produce sweets. However, in order to tell the company’s history fully we must go back to 1924, the year Amos Pagani, a young Italian immigrant, decided to start a bakery in the Province of Cdrdoba. Today Arcor is still a private company owned by the Pagani family.
In the 1970s and 1980s Arcor transformed itself into a vast industrial complex, showing the way for other companies in the country, and continued to grow both in Argentina and in different countries in the region. Arcor started operations in Paraguay in 1976, in Uruguay in 1979, in Brazil in 1981 and in Chile in 1989.