Saturday, December 15, 2012

Struggles at Build-a-Bear

The Wall Street Journal reports that Build-A-Bear, the once high-growth retailer, has begun a search for a successor to founder and CEO Maxine Clark.  The company has struggled recently, even closing some locations.   What happened to this retailer, which had been growing rapidly and profitably several years ago?

Build-A-Bear offered a unique retail concept.  It truly provided an "experience" for the customer, not just a set of products.  In that sense, it should have been insulated a bit from the pressures that other children's toy retailers faced from internet retailers such as Amazon.  However, I think Build-A-Bear's growth strategy had some weaknesses that are not uncommon in retail.  First, it grew very rapidly, opening stores in malls throughout the nation.  However, the appeal of Build-A-Bear was, in part, because it was a destination.  You don't go to such a store on numerous repeat occasions.  You go rather infrequently - special occasions mostly, like birthdays and holidays.  When you have so many stores, it's hard to support them all given that you don't have customers coming back again and again each month.

Second, Build-A-Bear didn't innovate enough with regard to the store experience.  Children did not see or do unique things over the years; they were doing precisely what they had been doing on prior occasions.  That inability to innovate the experience meant that repeat visits were increasingly unlikely.

Third, the tie-ins to movies such as Smurfs are great; they produce a surge in sales.  However, you have to pay royalties on those products, and then you face the challenge of continuing to grow revenues after those movie promotions have ended. 

Finally, the company didn't generate enough of a powerful razor-and-blades business model to truly drive the type of profitability that they hoped to achieve. Compare them to American Girl.  In that case, young girls play with those dolls often, and they come back to the stores, catalog, or online store to buy new accessories, clothing, and other products that can be used with the dolls.   Build-A-Bear did not have that type of powerful razor-and-blades model.  Yes, kids bought outfits for the bears when they made the bear.  However, children didn't tend to come back often to buy other accessories.  Bears aren't like dolls, after all, in that they aren't played with repeatedly in the same way.  

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