Vermont Teddy Bear

The Vermont Teddy Bear Co., Inc. (1998):

Challenges Facing a New CEO

Joyce P. Vincelette, Ellie A. Fogarty, Thomas M. Patrick, and Thomas L. Wheelen

"A teddy bear is almost a 100-year-old product that has been made in every conceivable size, style, fabric, and price combined with a saturated market. Yet the teddy bear industry stands as a model of strength and durability. Every year, bear makers create and market hundreds of original models."1

Vermont Teddy Bear Company was founded in 1981 by John Sortino selling hand-sewn teddy bears out of a push-cart in the streets of Burlington, Vermont. Since this time, the company's focus has been to design, manufacture, and direct market the best teddy bears made in America using quality American materials and labor.

Until 1994, Vermont Teddy Bear experienced a great deal of success and profitability. Problems arose in 1995. Since 1995, the company has had two CEOs. It changed its name to The Great American Teddy Bear Company and then changed it back to The Vermont Teddy Bear Company when customers got confused. From its inception, Vermont Teddy had been known for its Bear-Gram delivery service. In 1996, the company decided to shift emphasis away from Bear-Grams to other distribution channels. By 1998, the company decided to renew its emphasis on Bear-Grams. Vermont Teddy has always been proud of the fact that its teddy bears were made in America with American materials and craftsmanship. In 1998, the company changed this philosophy by exploring the offshore sourcing of materials, outfits, and manufacturing in an effort to lower costs.

Elisabeth Robert assumed the titles of President and Chief Executive Officer in October 1997 and began to cut costs and position the company for future growth. According to Robert, there were many reasons to invest in The Vermont Teddy Bear Company. "I believe that there is growth potential in this company. We are going to regain our balance this year. This is a rebuilding year. We are taking key steps to reposition the company. The move offshore is going to provide this company an opportunity to become more profitable. We will gain additional fiexibility with price points. There is opportunity for us to expand from a regional brand to a national brand. While we continue to emphasize the premium teddy bear gift business, we intend to expand into larger markets. There is now a whole new opportunity for us in the corporate incentives and promotions market as well as the wholesale market. We have weekly inquiries from companies who recognize our brands. These companies would love to buy and resell our product or use our product as a corporate gift. Our growth will come not only from expansion of our radio markets but in the corporate and wholesale markets as we use offshore manufacturing alternatives to move to broader price points."2

According to Robert, "our competitors are the people who sell chocolates, fiowers, and greeting cards. We target the last minute shopper who wants almost instant delivery."3 Gift purchases account for 90% of the Company's sales.4 "We thought we were in the teddy bear business," said Robert. "In fact we are in the gift and personal communications business. Our competition isn't Steiff (the German toy manufacturer): it's 1-800 Flowers.5

On one beautiful June day in Vermont, Elisabeth Robert refiected on the enormous tasks to be accomplished. She wondered if she could successfully reposition her company and return it to profitability. Was she making the correct strategic decisions?

This case was prepared by Professor Joyce P. Vincelette, Ellie A. Fogarty, Business Librarian, and Professor Thomas M. Patrick of the College of New Jersey, and Professor Thomas L. Wheelen of the University of South Florida. They would also like to thank Matthew Tardougno for his assistance on this project. This case was edited for SMBP-7th Edition. This case may not be reproduced in any form without written permission of the copyright holder, Thomas L. Wheelen. Copyright © 1998 by Thomas L. Wheelen. Reprinted by permission

HISTORY: WHY A BEAR COMPANY?

The Vermont Teddy Bear Co., Inc., was founded in 1981 by John Sortino. He got the inspiration for the teddy bear business shortly after his son Graham was born. While playing with his son, he noticed that Graham had many stuffed animals, but they were all made in other countries. Sortino "decided that there should be a bear made in the United States."6

He decided to design and manufacture his own premium-quality teddy bears. To turn his concept into reality, Sortino taught himself to sew and enrolled in drawing classes. In 1981, his first creation, Bearcho, was a bear whose thick black eyebrows and mustache resembled those of Groucho Marx. His first bear line included Buggy, Fuzzy, Wuzzy, and Bearazar, the bear with super powers. In 1982, Vermont Teddy Bear Company began limited production of Sortino's early designs using five Vermont homesewers. In 1983, Sortino took his operation to the streets where he sold his handmade bears from a pushcart on the Church Street Marketplace in downtown Burlington, Vermont. Four days later he sold his first bear. By the end of 1983, 200 bears were sold. He concluded from his selling experiences that customers "want bears that are machine washable and dryable. They want bears with joints. They want bears that are cuddly and safe for children. They want bears with personality."7

In 1984, Vermont Teddy was incorporated under the laws of the State of New York and Sortino's pushcart business had turned into a full-time job. To facilitate bear manufacturing, local homeworkers were contracted to produce an assortment of the founder's original designs. Even though the company opened a retail store in Burlington, Vermont, in 1985, the majority of the company's products were sold through department stores such as Macy's and Nieman Marcus during the 1980s. As the retail industry consolidated through mergers and store closings during the late 1980s, Sortino realized that a new market needed to be found for his bears. In search of a new customer base, Sortino turned to a local radio station and began advertising the company's products. This advertising strategy paved the way for the "Bear-Gram," where customers could send the gift of a Vermont Teddy Bear by placing an order through the company's 800 number.

The company initiated its Bear-Gram marketing strategy in 1985 in the Burlington,