Vermont Teddy Bear Co

Introduction

In your text read Case 22, "The Vermont Teddy Bear Co., Inc.: Challenges Facing a New CEO" (pages 22-1 through 22-22). Using the case, your readings, the Cybrary and the Internet, develop both an EFAS (External Factors Analysis Summary) Table and an IFAS (Internal Factors Analysis Summary) Table. It is important that you submit with your tables a description of both your environmental and internal scanning process, including what factors you considered and why. Explain the strategic management process within the global environment. Conduct various environmental analyses as they relate to an organization. Describe the role of corporate governance in strategic decision making. The Vermont Teddy Bear Company saw revenue climb 27.4% to $25.6 million. The big segment leaders for the almost $5.5 million increase in revenue are PajamaGram, BearGram, and Calx & Corolla. They posted revenue improvements of $3 million, $2 million, and $680,000 respectively.

External Factor Analysis Summary

Opportunities

Settlement of NY real estate litigation

The Vermont Teddy Bear Company's settlement for their closed down New York retail store is a positive step for the company. In March of 2005, the Company continued its settlement discussions with the Company and on April 27, 2005, the Company entered into final settlement of its litigation relating to a former lease for retail space in New York City. Under the terms of the settlement, the Company paid its former landlord $1.15 million when the settlement agreement was executed, including the release of a $150,000 security deposit previously held by the landlord, and the Company will pay the landlord an additional $1.2 million on or before March 15, 2006, without interest ("Vermont Teddy", 2005). While this negatively affected net income for the third quarter in 2005, it also signals an end to litigation expenses and loss of executive focus due to this issue. It

was a good move to get this over with but it lasted for almost 5.5 years and drained the company of both human and financial resources.

Going Private

Taking the Vermont Teddy Bear Company private was a bold but in the short-term positive move for the company by CEO Elisabeth Robert. Going private will allow the company to focus on execution instead of short-term strategies to pacify Wall Street. Instead of wasting valuable executive time and effort on quarterly financial calls the Vermont Teddy Bear Company is free to follow its long-term plan and execute without the Wall Street push for short term gains. The company wanted to invest in its own infrastructure expansion and improvement but as a public company this would have incurred the wrath of Wall Street. "We were hoping to get [Vermont Teddy Bear] out of the tyranny of quarterly earnings," says founder Chris Covington (Sheahan, 2005). Additionally, the Sarbanes-Oxley Act was set to put tremendous pressure on the company. From both a manpower and financial resource perspective, this Congress enacted law was going to be more than the company could bear (no pun intended). "The prospect of having to enact section 404 [regulations] was onerous on a company like ourselves," says CEO Elisabeth Robert (Sheahan,2006). The sale closed in September of 2005

Threats

800-Flowers

800-Flowers is a huge threat to the long-term health of the company. They have 120 retail outlets compare with 0 for VTB. Additionally they have an affiliate relationship over 40,000 and 1,500 florists nationwide. 800-Flowers has also expanded into several market segments placing them in direct competition with VTB. The Popcorn Factor, Great Food.com, and Cheryl & Co. are under the 800-Flowers umbrella and all compete directly with Tasty Gram.

Negative Consumer Reaction

VTB learned a valuable lesson about consumer and community reaction when for Valentines Day in 2005 the company released a bear in a straight jacket. While the bear was supposed to show that the sender is "crazy about you", some mental heath providers and patients found the bear very offense and called for it to be removed from the market. The company did agree to remove the bear from its product lists but not until after Valentine's Day. As it turned out, this particular product was a top seller for the holiday. This brings a murky point to the surface. At what point to creative genius pose a risk to the company by inciting public angst.

Possible loss of financing

While going public was a great idea according to most, the potential for financing is greatly diminished. As a public company obtaining financing was fairly easy. Banks already knew the companies financial position. As a private company the transparency is no longer there because they do not release financial information. As a result, VTB will have to rely heavily on the Mustang Group that took it private for financing. While that sounds like it should be easy, what happens to the company if the Mustang Group overextends itself or the private equity market dries up? VTB will be forced to look for alternative financing. Because they are a private company the interest rate may be higher and therefore the financing could end up costing more.

Build-A-Bear

Build-A-Bear is moving very fast in the retail industry. The novel thought of a store where children can go and build their own customized bear must be scary for VTB. More importantly Build-A-Bear is aggressively expanding and trying to get into every mall in the country. Currently they have 190 retail stores in the US and Canada and they are expanding internationally into Japan, Denmark, Australia, and France. With revenues of $302 million in 2004 Build-A-Bear is a sleeping giant.

Transportation Costs

With the almost unheard of rise in fuel costs, most transportation companies have had to pass the cost increase on to their customers. This means that every bear shipped out is more expensive to ship; and that expense is going up. At some point VTB may have to raise its prices when it can no longer absorb the increased costs from supplier FedEx.

Internal Factor Analysis Summary