Build-a-Bear Earnings Call: Virtual World a "Conerstone of Our Long-Term Growth Strategy"

"A cornerstone of our long-term growth strategy is the investment we are making in our new online virtual world website, BuildABearville.com," explained Build-A-Bear Workshop Founder, Chairman and CEO Maxine Clark  in the company's Q1 2008 earnings call this morning. "Our goal with Build-A-Bearville is to leverage the grand equity we have built in the real world by creating a complimentary brand experience in the virtual world." Clark goes on to discuss the focus the company is giving Build-A-Bearville as well as virtual worlds potential for other brands like Ridemakerz. Almost more interestingly, it's fascinating to see a traditional toymaker spend a very significant chunk of an earnings call talking about virtual worlds.

"We know that kids are using the Internet for play in increasing numbers and at younger ages," Clark continued. "The concept of virtual world online communities that immerse children in a brand-centric environment is still very early in the adoption curve. As we create synergies between our real-world stores and our new website, we believe we will be able to attract new and returning guests to our stores. We also believe that Build-A-Bearville gives us a strong platform for growth in other entertainment oriented areas for our brand."

Clark went on to outline the history of Build-A-Bearville. After a launch in December, the site hit 1 million users in just one month. Clark now reports that in 4 months, there have been over 3 million avatars created. There are no fees outside of purchasing a toy at a physical Build-A-Bear Workshop, and the avatars unlocked with the accompanying codes have no expiration date, unlike worlds like Beanie Babies 2.0 or Webkinz.

The main advantage Clark sees for Build-A-Bear in the increasingly competitive youth market, though, is the union of physical stores and a virtual world. She says the company is still in the learning phase "with regard to what programs and features work best to create synergies between the online world and our real world stores"

"While we believe that the ultimate measure of Build-A-Bearville success will be in our in store sales," Clark continued, "we are focused on three very important metrics: achieving critical mass on the site by raising brand awareness and converting our store guests to Build-A-Bearville citizens, maximizing the online engagement by increasing the frequency of visit and time spent per visit, and growing the economy in the world measured in the Bear Bills earned and spent online indicating the emotional investment that citizens have made in customizing their characters and adding furry friends to their homes."

While the physical store is still "the heart of who we are" for the workshop, it kicks off the rest experience. In February, the company launched the Stuff Fur Stuff program, tying virtual currency to in-store purchases. Now members get 100 Bear Bills for every dollar spent, 2,000 Bear Bills for each new furry friend purchased, and a bonus of  1000 Bear Bills and various virtual goods for a newly launched animal. Each purchase sends users back to the virtual world.

It works both ways, though. A recent campaign with Hannah Montanna and another with Lucas Grabelle offer specific virtual services (video, content, and locations) available only with in-store purchases. Clark emphasized again that this was still an experimental phase, but one the company looks at as a long-term strategy with many future plans already in the works "for enhancing our brand, expanding the entertainment value of our brand, and growing revenues."

For starters, 2008's marketing will bring much more focus to Build-A-Bearville.

"The virtual world is real news and a highly relevant new offering to tell our guests about," said Clark. "In fact, our new T.V. advertising campaign, which began airing this week on National Kids T.V., incorporates both the real world store experience and the online world experience. This commercial takes you into our store and in a very clever way also introduces you to the virtual world. The message packages our dual brand experience into one, coherent brand message."

Commercials will also run on prominent kids and tween shows like "Hannah Montana" and "The Suite Life of Zack and Cody" as well as in a year-long sponsorship with the Disney Channel.

For a more boy-focused approach,  Clark is looking at  other brands: "I think you will see the potential for the online virtual world aspects of a brand like Ridemakerz as well to have a financial opportunity."

Even if Ridemakerz doesn't come to virtual world fruition, it sounds like Clark will be working in the space for some time.

"Our goal," she concluded, "is for our guests to own the world and provide user generated content as the product expands and the emotional connection deepen."

[Full transcript available at Seeking Alpha]

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