Bouncing back from a public relations setback

The optics couldn't have been worse. Long lines, many snaking for blocks, of upset children and their frustrated parents being turned away empty-handed from some Build-A-Bear Workshop stores after waiting for hours to participate in the company's 12 July 2018 "Pay Your Age Day".

The promotion offered customers a special, birthday-themed teddy bear for the same price as the child's age and was intended as a single-day launch event of a new campaign tied to birthdays, called "Count Your Candles". However, it quickly appeared to turn into a public relations nightmare.

The company estimates 500,000 people showed up for the event at stores in North America and the UK, and queues started forming as early as 5.30am. Twitter users began posting six-hour wait times in some locations and complained of a lack of communication from Build-A-Bear staff.

Videos of chaos at stores began appearing — and going viral — on social media. At shopping centres in both the US and the UK, fire and security authorities began shutting down the events. While none of the stores had run out of supplies, officials said the crowds were becoming a safety hazard.

Police were called at several locations to deal with the large crowds of angry parents.

The BBC reported parents who were saying they were "disgusted" and their children "heartbroken". The headlines were equally brutal on Build-A-Bear, featuring words like "chaos", "disastrous", and "day of mayhem". On both sides of the Atlantic, the shopping centre scenes were a top story on the evening news. Throughout the day and the next morning, Build-A-Bear executives issued several mea culpas and admitted that they had not expected the massive turnout.

Anyone following the story likely assumed that the Pay Your Age Day event was an unmitigated disaster for Build-A-Bear, a marketing stunt gone wrong that would damage the bottom line.

But, despite the brutal news cycle, something unexpected happened. The company "experienced a seismic shift in [our] sales trend ... spurred by our mid-July Pay Your Age Day event", Build-A-Bear CEO Sharon Price John announced in the company's 2018 second quarter earnings call.

"The surge of interest from the promotion helped to drive profitable double-digit sales increases throughout the balance of the quarter and, we believe, will have far-reaching implications across a number of fronts and relationships," Price John added in the 30 August 2018 call.

In fact, the strong sales in the four weeks after the Pay Your Age Day event reversed the downward sales cycle of the previous nine weeks of the quarter, although the quarter still ended on a loss.

Even less obvious, the Pay Your Age Day, and the long-term promotion it was launching, Count Your Candles, may position the St. Louis, Missouri-based company to achieve more meaningful long-term goals.

To participate, guests had to join the company's loyalty club programme, the Bonus Club, a rich source of data that may help fuel growth and stabilise business. By enticing large numbers of guests to come in for their birthdays, Build-A-Bear is able to spread sales activity out over the year, reducing its dependence on the Christmas rush.

By that measure, Pay Your Age Day was an unbridled success: Bonus Club membership increased by 1 million, growing from 5 million to 6 million in the weeks leading up to the event.

That Build-A-Bear weathered the Pay Your Age Day public relations fiasco on a positive note can be attributed to a number of strategic decisions a wide range of teams within the company made before, and after, the event: insightful use of data analytics, long-term cultivation of brand identity loyalty from customers, and the deployment of a rapid crisis response.

In short, while Pay Your Age Day may have been a short-term tactical setback for Build-A-Bear, the event seems poised to be a long-term strategic success.

Retail challenges

The Pay Your Age Day event and the Count Your Candles campaign were explicitly designed to capitalise on the company's competitive strengths, build customer loyalty, and expand the pool of repeat customers. That strategic approach, a collaboration of several departments and based on data analytics, may help insulate the company from long-term fallout of the bad press of Pay Your Age Day.

But beyond a few headlines in July, Build-A-Bear needed a new strategy to address even more fundamental challenges.

The numbers tell a vivid story: Prudent financial management has produced profit, but Build-A-Bear needs more customers buying more stuffed bears. The question then becomes, how do you get people to show up in the shopping centre, where Build-A-Bear stores are located, when they have largely stopped shopping there?

Build-A-Bear, like many retailers, is operating in a tough business environment, both from falling physical store traffic and price competition from online retail giants like Amazon.com. The stores are largely based in shopping centres, which have seen significant drops in foot traffic over the last two decades. The problem is accelerating: In the US, shopping centre foot traffic has declined every month except one since January 2014, with an average monthly decline of 5.3% year over year, according to a 2017 report by financial advisory firm Cowen and Company. In 2017, investment bank Credit Suisse predicted that 25% of US malls would close within five years.

Those challenges are showing up in Build-A-Bear's financials. Although the company has shown a profit over the last four years, growth has declined in six of the last eight years. Revenue fell from $392 million in 2014 to $357 million in 2017.

It's a challenge that Voin Todorovic, Build-A-Bear's CFO, has been addressing for four years. Todorovic and Price John, who took the helm as chief executive in 2013, were brought in to turn Build-A-Bear around. Prior to their arrival, the company had seen eight years of stagnant sales and unprofitability and had lost $49 million in 2012.

Because of the long period of unprofitability, infrastructure investments, particularly in IT, were delayed and limited the company's growth, according to Todorovic. However, Todorovic and Price John focused on increasing the company's margins and did so by 600—700 basis points, Todorovic said.

"Those funds helped us to continue to make investments in rebuilding infrastructure," Todorovic said. "We were able to invest in customer forward-facing technology and data analytics."

Data and the death of a competitor

These investments fit with Todorovic's philosophy that the finance function should "integrate with the rest of the business to drive growth and to enhance the consumer experience and really elevate all functions of the organisation, through extensive analysis and support, to make the best business data-driven decisions".

The Pay Your Age Day one-day event and the ongoing Count Your Candles marketing campaign demonstrate that philosophy in action, born of data the company had been collecting for years at the stores as parents and children checked out their final purchases. Among the main data points were children's birthdays, and what the company discovered shifted its marketing plans.

"One-third of our business is related to birthdays," said Todorovic. "That really gave us insight into how to market and engage with customers."

That relationship gave Build-A-Bear an opportunity to become an experiential part of its customers' identity and may help buffer any ill will left over from Pay Your Age Day, according to Americus Reed II, professor of marketing at the Wharton School at the University of Pennsylvania, and co-founder and partner of branding company Persona Partners, in Philadelphia. "Strategically they understand how to continually identify critical identity-relevant moments like birthdays," he said. For consumers, especially children, those moments of joy and happiness spent at a Build-A-Bear become "flashbulb memories that become burned into who you are as a person", said Reed. That also makes a birthday trip to Build-A-Bear part of an annual ritual for children, strengthening the identity bond consumers have with the brand, according to Reed.

When Build-A-Bear, or any company, is successful at inserting itself into formative experiences, then brands stand to develop consumers who will be much more forgiving of mishaps, according to Reed.

Another seemingly unrelated data point, gleaned from public sources, also helped drive the Count Your Candles campaign and may mitigate the long-term effects of the event.

When Toys "R" Us closed operations in June 2018, it opened a large competitive opportunity for Build-A-Bear, Todorovic said. Build-A-Bear found that 70% of Toys "R" Us's business was driven by special events, like birthdays and holidays, according to publicly available data released by market research firm The NPD Group. Build-A-Bear conducted a geographic comparison of shuttered Toys "R" Us locations and its own retail stores and found a correlation between the proximity of the two and performance in traffic and sales. Build-A-Bear timed Pay Your Age Day to closely follow the closure of Toys "R" Us, to capitalise on consumers' search for a retail replacement for special occasion toys.

"That helped formulate some of these programmes," said Todorovic. "Especially from the launch perspective. That's why the Pay Your Age event was on a random Thursday in July, typically one of the slowest retail months."

Along with drawing in customers with a birthday tie-in, and flagging former Toys "R" Us customers, Build-A-Bear also wanted to bolster membership in its customer loyalty programme, Bonus Club.

"Definitely the long lifetime value of these guests is going to more than pay for the discount that we are giving on that day," said Todorovic. "We are hoping that if we can get that guest to come in just one more time in their lifetime, it's going to be a really creative opportunity for us."

As the imagery of the Pay Your Age Day event fades from consumer memories, Build-A-Bear will still have a powerful new tool to drive sales as a result.

"The public sees this thing go wrong and thinks, 'Oh, they blew it,'" Reed said. "But on the other hand, they increased their loyalty club membership by 20%."

Out in front

The Pay Your Age Day event unfolded in real time, largely on social media. The BBC reported live from the scene in several locations. While only a small percentage of stores were actually closed or turned away customers that day, in the media there was an overwhelming sense of disaster at all Build-A-Bear locations. That made it tough for Build-A-Bear to respond at first, but many teams within the company helped mitigate the fallout and manage consumer response.

"It was an interesting time for people in the office. We had to make some real-time decisions to really think about our guests and associates," Todorovic said.

However, how a company responds to a public relations crisis is a significant factor in how much damage it will do to a company, according to Reed. Companies should take a "three-pronged approach", he said.

"Number one, validate concerns; say, 'I hear you,' without necessarily apologising. Number two, you show action," he said. "And number three, control the narrative."

Build-A-Bear followed that model to the letter. On 12 July, the day of the Pay Your Age Day event, the company issued a press release to acknowledge that the event resulted in "long lines, extensive waits, and disappointed guests". The company took action by offering customers who weren't able to obtain a bear, a voucher worth $15 in the US and £12 in the UK, good for six weeks.

And to put its stamp on the narrative, Build-A-Bear CEO Price John appeared on the Today show, a national broadcast in the US, the morning after Pay Your Age Day and explained to viewers, "I know that the most disappointing moment is when a kid is super excited and something doesn't happen. There was no ill intent. Our objective at Build-A-Bear is to make kids happy."

The response was effective. The story largely disappeared from the headlines by the weekend. More importantly, the problem was never inventory, and all stores were open and serving guests the following day. So while parents and children may have walked away empty-handed on 12 July, eventually they got a stuffed animal. And sales began ticking upwards from that day forward.

Short-term memory

While counterintuitive, it shouldn't be a surprise that the bad press of the Pay Your Age Day event doesn't seem to have inflicted long-term damage to Build-A-Bear's reputation or revenue streams. Marketing failures by successful companies abound, and it is extremely rare that they do permanent damage. Fortunately, for most companies that suffer a marketing setback, the public's attention span is short and easily distracted.

"In the data I see, there is almost never a long-term effect that hurts the brand," Reed said.

That seems to hold true for recent marketing disasters. French supermarket chain Intermarché recovered after a promotional Nutella sales event turned violent at stores across the country; Germany's Jägermeister didn't suffer long-term consequences after releasing a toxic substance at a promotional pool party in Mexico that left several guests unconscious; US-based Uber Eats, Uber's food delivery service, weathered the fallout when its Krispy Kreme doughnut giveaway promotion in London crashed its app and angered thousands.

"Unless the company is doing something vehemently egregious, and they're doing things to keep it in the news, that story is going to be forgotten," said Reed.

The way forward

The real question for Build-A-Bear is whether the uptick in sales seen after Pay Your Age Day is temporary or a lasting change in the company's fortunes. At the time of this writing, the company had only reported four weeks of sales since the event, and it is clear that some of those sales were driven by customers redeeming the coupons. And while those sales came at a discount to customers, it didn't negatively impact the bottom line, according to Todorovic.

"The redemption of vouchers naturally lowered our dollars-per-transaction metric during this period, but more transactions generated an increase in total revenue," he said in the August earnings call.

Although Build-A-Bear doesn't seem to have suffered much long-term reputational damage because of the bad press of Pay Your Age Day, and may have even gained a strategic benefit, it is still facing the same difficult retail landscape. The event helped double sales, but the quarter still ended on a loss. Can it leverage the 1 million new loyalty club members to stem the losses?

It is hard to predict how future sales will unfold for Build-A-Bear. Consumer audiences continue to fragment and become harder to reach effectively. Online retailers are becoming more and more of a threat to traditional retailers.

The company is trying numerous strategies — real estate diversification, new location types, new promotional ties, expanded franchising, improved online commerce — to continue moving in the right direction, but the challenges persist.

"We continue to see some strong numbers, but we're trying to change faster than the world is changing around us," Todorovic said.

Drew Adamek is an FM magazine senior editor. To comment on this article or to suggest an idea for another article, contact him at Andrew.Adamek@aicpa-cima.com.