Strategic Management Amazing Robert Julian Robert Grove Mike Reid Kate Willett Strategic Management Class Project1

Looking to purchase Build-A-Bear Profitability of new acquisition Potential for growth Return on investment 2

Mission At Build-A-Bear Workshop®, our mission is to bring the Teddy Bear to life. An American icon, the Teddy Bear brings to mind warm thoughts about our childhood, about friendship, about trust and comfort, and also about love. Build-A-Bear Workshop embodies those thoughts in how we run our business everyday Objectives Increase Store & Online Traffic Improve Product Offerings Across the Board Add Revenue From Experiential Product Ranges Zhu Zhu Pets to All Company Owned Stores Increase Membership in BuildaBearville.com Help to Engage Guests w/ Brand Influence Additional Purchases Focus On Strategic Cost Reductions Open 1 New-Format Store Relocate 1 Store in North America & Open 2 New Locations in Europe 3

Since 1997 Over 30 Million Donated Huggable Heroes World Wildlife Fund A Champion Fur Kids 4

5 Founded – 1997 – Maxine Clark 1 st Location – St. Louis $400,000 in Sales in 4 Months 1999 Retail Success Attracts Venture Capitalists 10 New Stores Open “Retail Innovator of the Year” 2003 – International Expansion 2006 – Acquire “The Bear Factory” Began Operating its Flagship Store in London Million Bears Sold 400 Stores Mainly in Malls 5 in MLB Stadiums Entered Video Game Market – Nintendo DS Tie-In Stuffed Animals Shrek, The Cat in the Hat, Happy Feet, ect. Happy Meals at McDonald’s 2010 Zhu Zhu Pets Electronic Hamsters Similar to Webkinz Forbes 100 Best Companies To Work For

Specialty Teddy Bear Business Observations Highly customizable products Highly interactive experience High end market Majority of stores in high end malls 6

Not in great shape Negative operating income in fiscal 2010 and 1 st quarter 2011 Price per share declined by $24/share in past 3 years Failure to profit from Ridemakerz, LLC. Investment “Major restructuring of operations” Also closed Friends 2B Made line (dolls) However, expanding vertically Zhu Zhu pets, Bearville.com 7

1: Product innovation Larger merchandise stores and limited edition products 2: Individual product integration and marketing Each new product launch has unique marketing campaign and promotions/special offers 3: Compel customers to return to store Increase incremental purchases 4: Grow e-commerce sales Increase engagement in virtual world 5: Continue to develop new opportunities and revenue streams outside current store base 8

9

Performance Metrics Debt to Equity Ratio = 0 Return on Average Equity (4 th qt. 2010) = 5.52% 0.06% in fiscal 2010 Return on Average Equity (1 st qt. 2011) = 21.59% Observations Operates under no debt Allows them to stay alive in poor performance Ridemakerz, LCC. failure had huge impact 10

Consumer Services Industry Sells products directly to the consumer, as opposed to the “capital goods” industry, which manufactures goods for sale Ex. Not un-processed wheat Consumer Services Retail General Retailers Specialty Retailers 11

Applause LLC The Boyds Collection LTD. Enesco Group, Inc. Maine Bear Factory Russ Berrie & Company Ty, Inc. Vermont Teddy Bear Company 12

Product Customizable teddy bear Customizable stuffed animals Zhu Zhu Pets Services Experience based shopping Group parties Online interactive games/services 13

14

Strengths Account of Directors Degree of Independence Varying Backgrounds Weakness Chairman is also the CEO Age Variance 15

16 External FactorsWeightRating Weighted ScoreComments Opportunities Children aged 8 to 11 spend 1-2 hours online daily More Bearville.com users International customized teddy bear market Great opportunity for company growth Partnerships with companies such as Disney Partnerships allow for the creation of trademarked products Threats "Make you own" teddy bear mall kiosks Well positioned due to branding Several other online virtual worlds (i.e. Webkinz.com) Many other online competitors Compete with huge toy retailers (i.e. Toys R' Us) Customers may elect to purchase a ready made product Total Scores

17 Internal FactorsWeightRating Weighted ScoreComments Strengths "Limited Edition" animals released monthly Customers have a reason to keep coming back 238 U.S. trademark registrations Creates a very unique customer experience All store locations are leased Some contain minimum annual sales termination provisions Extensive training for all associates Well-tuned bear-building process and great guest experience Weaknesses All international locations are franchised Possibility of a different customer experience 80% of inventory is purchased by 3 vendors Vendors' prices have a large impact on annual profits Expensive specialty product Some consumers could be unable to purchase products Total Scores1 3.29

18 SW OT Strengths "Limited Edition" animals released monthly 238 U.S. trademark registrations All store locations are leased Extensive training for all associates Weaknesses All international locations are franchised 80% of inventory is purchased by 3 vendors Expensive specialty product Opportunities Children aged 8 to 11 spend 1-2 hours online daily International customized teddy bear market Partnerships with companies such as Disney Threats "Make you own" teddy bear mall kiosks Several other online virtual worlds (i.e. Webkinz.com) Compete with huge toy retailers (i.e. Toys R' Us)

19 Strategic FactorsWeightRating Weighted ScoreShortIntermediateLongComment S1 "Limited Edition" animals released monthly XX Keeps customers coming back S2 Extensive training for all associates X Best customer experience W2 80% of inventory is purchased by 3 vendors X Possible issue with cost of materials O1 Partnerships with companies such as Disney X More options for consumers T1 Compete with huge toy retailers (i.e. Toys R' Us) XX Cheaper, faster alternative available Total Score1 3.65

Economic recession Product relevance Public vs. private ownership International presence in growing economies Focus on core competencies Reduced mall traffic 20

Core Competencies Children’s Hospital Mobile party units Additional sales strategies Host parties Additional trademarked bears/animals Expand Bearville virtual world 21

Mobile Units $80,000 Initial Investment $300 Profit Margin Per Party 2 Parties per Week Pay-Off Period – 2.56 Years Annual Profitability - $31,200 per unit 5 Year ROI – 87.5% 10 Year ROI – 275% Mobile Units Add revenue Create brand awareness Expand party aspect of the company Control Average 2 parties per week Employees are educated & interactive Product quality is comparable to in-store product 22

Implementation 5,000,000 Investment Goal of 20% Conversion rate 2,000,000 Visitors per month Average ticket: $40.00 Pay-Off Period – 1 year Annual Profitability - $2,576,000 Evaluation and Control Projected 50 Million hours of brand engagement More educational games to gain Parental Approval Introduce different levels of Membership User information can be registered and tracked 23

Initial Investment $ 750,000.00Furry Friends Sold Since Inception 90,000,000 Operating Expenses Years in Operation 13 Franchise Fee $ 48,301.59Average Number Sold Annually 6,923,077 Rent (Annual) $ 24,000.00Total Number of Stores (C.O.&F) 407 SG&A $ 402,727.27Average Number Sold Per Store 17,010 Store Preopening Costs $ 177,000.00Average Price Per Friend$40 Annual Salary for Employees $ 80,000.00Total Average Sales from Friends $ 680, Total Operating Expenses $ 732, Total Investment $ 1,482,028.86Total Investment $ 1,482, Total Average Sales from Friends $ 680, Years10 YearsChildren's' '07-08 Inpatients 24,460 Investment Gain $ 963, $ 3,409,971.14Average Price Per Friend $ 40 Total Investment $ 1,482, Selling Average (Assumption)50% ROI-35%130%Average Annual Sales from Friends $ 489,200 Years to Break Even

Not to buy. Fad company Minimal firm assets Nothing to liquidate Leased locations Already peaked Minimal potential to grow 1 year negative net income 2 year negative operating income Declining stock price – 3 years 25

26