New Build-A-Bear CEO upbeat on turnaround, future

2014-01-19T00:15:00Z 2014-02-13T09:56:10Z New Build-A-Bear CEO upbeat on turnaround, futureBy Kavita Kumar kkumar@post-dispatch.com
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Its sales have been on a mostly downward spiral since peaking in 2007. And it’s only reported one (barely) profitable year in the previous four years.

So a lot of people have been asking Sharon Price John, the chief executive of Overland-based Build-A-Bear Workshop Inc., why she took this job a little more than six months ago.

In a passionate pitch to wary investors last week, John said she believes in the strength of the brand and sees a comeback in the near future. In fact, she said, the company has already begun to show some improvement.

“What was attractive to me was that successful past,” she said at a presentation at the ICR Xchange conference in Orlando, Fla. “I think what you have to look at is can that successful past be repeated? ... I hear a lot about, ‘Is this a flash in the pan? Was this a fad? What happened?”

What happened, in part, was the recession. But on top of that, she said the company was slow to respond to the “new economy.”

While many retailers began curtailing their discounts as the economy began to improve, Build-A-Bear continued to offer heavy promotions, she said. But last year, the company reduced discounts by 30 percent as part of a multi-year turnaround strategy launched by the board in 2012.

“They’re not coming in because the bears are cheap, guys,” she said. “They’re coming in because they want to have this experience.”

In addition, the chain with a little more than 400 company-owned and franchised stores has been pruning its portfolio. It is in the process of closing about 60 underperforming stores over the span of two years.

It has also been shrinking the size of stores, ramping up television advertising, and updating some of its stores to enhance its bear-making stations with more cutting edge technology to appeal to today’s kids who are more accustomed to tablets and smartphones.

John said all of these efforts are already beginning to pay off. Preliminary results for fiscal year 2013, which ended Dec. 28, revealed relatively flat sales at $372 million despite having 28 fewer stores. The company is expected to report its net income and other results on Feb. 14.

While about 22 percent of its North American stores were unprofitable in 2012, that percentage dropped to 10 percent last year, according to the Florida presentation. And Build-A-Bear’s sales per square feet went up 9 percent last year to $380, the first such increase in several years. (In 2008, its sales per square feet was $445.)

Investors have begun to take notice. Build-A-Bear’s stock has risen 89 percent in the last 12 months to $8.45. But the share price remains well below its high of $36.90 reached in January 2005.

“We still have a long way to go,” John said. “But if we can get North America moving in the right direction, we can get this thing fixed.”

Jason Long, a St. Louis-area retail consultant with Shift Marketing Group, said that while Build-A-Bear’s sales have stabilized, they’re still not anywhere close to pre-recession levels. And he noted the company will continue to have to grapple with declining shopper traffic to malls, which is where most of Build-A-Bear’s stores are located.

“Frankly, they’ve got some work to do,” he said. “I feel like the brand is a little stale.”

But he praised the company for its use of licensed brands, tapping into pop culture phenomenon such as My Little Pony and the musical group One Direction and suggested they could do even more with that.

Closing the least productive stores and reducing discounts is a good start, Long added. But he said he’d like to hear more from John about her vision for future growth opportunities.

John did provide some hints. She sees potential for the brand to open more shop-within-a-shop stores such as it did last year at the FAO Schwartz flagship store in New York. She also is interested in licensing the Build-A-Bear brand to other firms and doing select wholesale of pre-made plush.

“And once we get the mothership moving in the right direction, it gives us a tremendous opportunity to move internationally in a way we have not,” John said. “We’re not in China and we’re not effectively in South America.”

Ken Crawford, portfolio manager with Argent Capital Management in Clayton, said his early read on John so far has been relatively positive, especially since she took over at a time when the company is trying to right-size itself.

“The business on the margin needed to be improved — that’s not the most fun way to say hello to everyone,” he said.

And he praised her transparency. After all, investors don’t like surprises.

“She has given a road map for people to track Build-A-Bear’s progress,” he said. “That map instills some degree of confidence.”

AN AMERICAN CLASSIC

Before she stepped down as chief executive last year, the company’s founder, Maxine Clark, had made the new store prototype with more technologically enhanced bear-making stations a linchpin of the turnaround efforts.

The first such store opened at West County Center in fall 2012. The company has since rolled out elements of it to an additional 30 or so locations with plans to expand it further this year.

Company officials have said sales at those remodeled locations have exceeded expectations. But some analysts initially wondered about the costs of the enhancements.

In her presentation last week, John did not emphasize those redesigns, Rather, she just alluded to them in passing, perhaps raising some questions about how prominent those remodels will be in the company’s strategy going forward.

A company spokeswoman said John was not available for an interview.

Chris Byrne, a toy expert and content director for TimetoPlayMag.com, said that emphasis on updating the experience in the stores with more modern technology was a move in the right direction. After all, that in-store experience of making a bear is what sets Build-A-Bear apart from other children’s retailers.

“They can’t compete on price,” he said. “If somebody wants a My Little Pony stuffed toy, they can get one for $20 or less” at another store.

At the end of the day, it comes down to the product and the experience, he said. So the challenge is to keep it exciting and communicating who they are to a new generation of young families who may not be as familiar with the concept. The brand still has potential, he added.

“It’s become an American classic in a relatively short period of time,” he said.

That was exactly John’s main point. The brand is strong, she repeated many times. And the core model, she said, isn’t any less relevant today than it was 15 years ago.

She offered charts and graphs showing research that Build-A-Bear stacks up favorably — and often better than — its competitors such as American Girl and the Disney Store on various metrics such as consumer recognition, trust, and emotional connection.

So to her, that means the brand still has an “incredible opportunity.”

“People love our core concept,” John told analysts. “They remember this for life. We are not just another toy at the bottom of the toy box.”

Kavita Kumar covers retail and consumer affairs for the Post-Dispatch. She blogs on Consumer Central. Follow her on Twitter @kavitakumar.

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