Ready, teddy, go: how Build-A-Bear went from mall store to digital brand

The Build-A-Bear brand still holds a fond place in the hearts of many, who may remem­ber con­struct­ing their own stuffed ani­mals at friends’ birth­day par­ties. But a lot has changed in the retail indus­try since the com­pa­ny was found­ed in 1997.

As con­sumer spend­ing has increas­ing­ly shift­ed online, bricks-and-mor­tar stores have often strug­gled to make the leap to ecom­merce. And the chal­lenges fac­ing Build-A-Bear were even more pro­nounced. 

Com­ing into the busi­ness from children’s footwear brand Stride Rite in 2013, CEO Sharon Price John took on the task of mod­ernising the ail­ing com­pa­ny. The year pri­or, Build-A-Bear Work­shop had pre-tax loss­es of over $48m (£43m) and was in a “real­ly chal­lenged sit­u­a­tion”, accord­ing to John.

“Build-A-Bear is not just a bricks-and-mor­tar retail­er, it was pri­mar­i­ly mall-based retail-tain­ment and was known for the phys­i­cal­i­ty of the shop­ping expe­ri­ence,” John says. “Those things, com­bined with the fact that our pri­ma­ry cus­tomers are chil­dren, made it that much more dif­fi­cult to imag­ine the evo­lu­tion of the busi­ness.”

We not only exe­cut­ed an imme­di­ate finan­cial turn­around, we exe­cut­ed a mul­ti-dimen­sion­al busi­ness-mod­el shift

Prop­er­ty vacan­cy rates in malls were high­er than in any oth­er retail area in the US in the fourth quar­ter of 2021 (8.3%) and these shop­ping cen­tres are at a greater risk of fur­ther store clo­sures over the next five years, accord­ing to ana­lysts at UBS. They pre­dict that up to 50,000 Amer­i­can retail stores will pull down their shut­ters by 2026.

For John, these fig­ures high­light the urgent need for every retail­er to think of them­selves as a dig­i­tal com­pa­ny “in some way, shape or form”. She adds: “Every­thing that holds the com­pa­ny togeth­er and makes the com­pa­ny oper­ate has to go through this dig­i­tal trans­for­ma­tion. But for us, being a ver­ti­cal retail­er, we also need­ed to con­sid­er how best to par­tic­i­pate in the grow­ing dig­i­tal econ­o­my. That required us to think entire­ly dif­fer­ent­ly about the brand.”

Shifting the business model

Being a prod­uct that is pre­dom­i­nant­ly aimed at chil­dren – a cus­tomer base with lit­tle online pur­chas­ing pow­er or access to cred­it or deb­it cards – pre­sent­ed anoth­er obsta­cle for Build-A-Bear, as it shift­ed its focus towards ecom­merce. 

John says: “We realised that, not only did we have to rethink the chan­nels where we were par­tic­i­pat­ing, but we also had to think about the expan­sion of our address­able mar­ket and how we could appeal to teens and adults that trans­act online.” 

Accord­ing to John, work­ing in the company’s favour was the strength of the brand, which has estab­lished “deep emo­tion­al con­nec­tions” with its cus­tomers. Build­ing upon this, Build-A-Bear Work­shop sought to expand its range of licensed prod­ucts to appeal to an old­er audi­ence who has grown up with the brand.

These have includ­ed tie-ins with The Matrix, Grem­lins, Dead­pool, Friends and a Grogu soft toy, based on the baby Yoda char­ac­ter from the Star Wars TV show The Man­dalo­ri­an. The lat­ter prod­uct has proved par­tic­u­lar­ly pop­u­lar, gen­er­at­ing a bil­lion impres­sions across social media on its launch.

As a result of these changes in strat­e­gy, 40% of Build-A-Bear Work­shops sales are now made to teens and adults, while the fig­ure pre­vi­ous­ly stood at 25% at the start of John’s tenure. Sim­i­lar­ly, ecom­merce now accounts for 20% of sales, where this was once 5% in 2012.

The diver­si­fi­ca­tion of the busi­ness has includ­ed the devel­op­ment of an out­bound licens­ing arm, which gen­er­ates roy­al­ty rev­enue from licensed prod­ucts, a con­tent cre­ation arm Build-A-Bear Enter­tain­ment, which has a mul­ti-year deal with Sony and a Net­flix film The Hon­ey Girls and even NFTs.

Build-A-Bear Enter­tain­ment has also part­nered with Reese Witherspoon’s pro­duc­tion com­pa­ny Hel­lo Sun­shine to pro­duce a mod­ern retelling of Goldilocks and the Three Bears.

As a result, Build-A-Bear Work­shop post­ed one of its best quar­ters at the start of the year, record­ing a gross prof­it of $70m and, over the trail­ing 12 months, has a turnover of $440m. This means the busi­ness is on track to record its high­est rev­enues since 2008.

“We not only exe­cut­ed an imme­di­ate finan­cial turn­around,” John says. “We exe­cut­ed a mul­ti-dimen­sion­al busi­ness-mod­el shift, mov­ing from a retail­er that hap­pened to have built a pow­er­ful brand, to a brand­ed intel­lec­tu­al prop­er­ty com­pa­ny that just hap­pens to have ver­ti­cal retail as one of its rev­enue streams.”

How Build-A-Bear has gone digital

John describes her­self as “a change agent” and drew on her pri­or expe­ri­ence in the toy indus­try as she trans­formed Build-A-Bear Work­shop. “There is a process for change, but it’s about human psy­chol­o­gy more than any­thing else,” she adds.

The con­cern­ing finan­cial sit­u­a­tion the busi­ness found itself in at the start of her tenure worked in John’s favour in this regard. “It can be hard­er to get organ­i­sa­tions to evolve and change when noth­ing is dis­cernibly wrong,” she says. “But when you’re on a chal­leng­ing path, as Build-A-Bear was, with eight years of declin­ing prof­itabil­i­ty and a real­ly tough year pri­or to me start­ing, it’s eas­i­er to express the neg­a­tive poten­tial out­come if change doesn’t hap­pen.”

There is an opti­mism that Build-A-Bear Work­shop can con­tin­ue on this growth path, despite the cur­rent eco­nom­ic head­winds. “Nothing’s reces­sion proof but there are some cat­e­gories that tend to be more reces­sion-resis­tant than oth­ers and the toy mar­ket is one of those,” John says.

She believes that the busi­ness’ recent prof­its were sep­a­rate from any Covid-relat­ed bounce­back. Instead, she claims that the finan­cial results have been due to “the fun­da­men­tal changes that we’ve made through dig­i­tal trans­for­ma­tion and the evo­lu­tion of our retail foot­print”. Some 35% of Build-A-Bear stores are now based in tourism and hos­pi­tal­i­ty loca­tions, rather than the tra­di­tion­al malls. 

John also points to the Birth­day Treat Bear pro­mo­tion as one of its meth­ods for keep­ing prod­ucts afford­able. The birth­day pro­mo­tion links the price of the soft toy to the age of the child it’s being bought for. If a child turns four, their par­ents can come into the store and buy a ted­dy bear for $4. “It can be a very approach­able pur­chase for almost any socio-eco­nom­ic stra­ta,” John adds.

The pro­mo­tion does have an addi­tion­al ben­e­fit for the busi­ness. Get­ting the dis­count­ed rate is depen­dent on sign­ing up to Build-A-Bear’s loy­al­ty pro­gramme. John describes this as a “reverse acqui­si­tion cost” – the younger they are, the less they pay, but the longer the cus­tomer is part of its data­base. “This means we have an oppor­tu­ni­ty to engage with that con­sumer for more years, cre­at­ing longer life­time val­ue,” she adds.

When­ev­er any­one finds out I’m the CEO of Build-A-Bear Work­shop, it rarely goes with­out a smile, a sto­ry and usu­al­ly a hug

Cap­i­tal­is­ing on this cus­tomer data is the next stage of the company’s dig­i­tal trans­for­ma­tion. The loy­al­ty pro­gramme has 20 mil­lion first-par­ty data points but there is a need to add ana­lyt­ics to improve the cus­tomer expe­ri­ence. 

John says she’s agnos­tic to how peo­ple engage with the brand, whether it’s watch­ing The Hon­ey Girls fea­ture film, host­ing a Build-A-Bear birth­day par­ty or down­load­ing its app. But she adds: “It’s our job to assure con­sumers that if you engage in one area of the busi­ness, we can use your pref­er­ences to serve up some­thing else that you like in a dif­fer­ent area.”

Although many of these changes behind the scenes may have gone unno­ticed by the wider busi­ness world, John is proud of what her team has achieved. As the com­pa­ny moves into the dig­i­tal age, she is deter­mined that the brand holds firm to its her­itage. She says: “Build-A-Bear is icon­ic, multi­gen­er­a­tional, high­ly trust­ed and, from my per­son­al expe­ri­ence, it’s beloved. When­ev­er any­one finds out I’m the CEO of Build-A-Bear Work­shop, it rarely goes with­out a smile, a sto­ry and usu­al­ly a hug.”

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