Vermont Teddy Bear Co.: Class of 1992
In 1992 a breed of stuffed animals outran many high-tech companies to earn a spot on the Inc. 500. A few years later, that species was on the verge of extinction
In an economy tilting toward wealthy geeks selling Internet services and telecom gear, who is going to provide the one really essential product -- a teddy bear -- that will soothe the national psyche? After all, even geeks need more than their Palm handhelds to snuggle up with after dark.
That basic yet bottomless need for some teddy to love is what fueled the growth of the Vermont Teddy Bear Co., which climbed over many fleet-footed tech companies to secure a place on the Inc. 500 in 1992 (when it ranked #80) and 1993 (#58). But the business later suffered a near-death experience. It wasn't until Elisabeth Robert, the new chief executive, made a critical insight into the company's market that Vermont Teddy Bear got off the endangered-businesses list.
The company landed on the Inc. 500 on the strength of a national rollout of its "Bear -Gram" service, which was launched in the early 1990s. Founder John Sortino had expanded the business's customer base by initiating a national delivery service for the bears, which came in four different colors and could be attired in one of more than 100 outfits.
The company's initial public offering, in 1993, marked the beginning of its travails. With the $9 million the company netted, it chased what turned out to be some truly horrendous ideas. It spent millions constructing an unusual corporate headquarters, a building accessorized by a colorful silo with a beanie on its roof.
But it was new marketing initiatives that got the company, based in Shelburne, Vt., into serious trouble. Vermont Teddy Bear wasted nearly $1 million sponsoring a Busch Grand National Series NASCAR driver. "We got virtually nothing out of it," concedes Robert. The company extended the circulation of its catalog and expanded its offerings with what she calls "teddy-bear crap" -- watches, knapsacks, books, videos, and the like -- in an attempt to become a category killer for its branded bears. That misguided strategy turned out to be as soft as the company's furry products. Furthermore, the business had opened three retail stores whose combined lease commitments totaled approximately $600,000 a year. The result of all its costly marketing: sales fell -- from $21 million in 1994 to just $17 million in 1997. The company lost nearly $2 million in both 1997 and 1998. "It amounted to one huge disaster," Robert says.
Robert, who'd been the chief financial officer, became the CEO in 1997 -- the company's third in a little more than two years. She inherited a mandate to clean up the mess. Closing down the retail stores, which were generating only half of their projected sales, was an easy-enough decision. But what she learned from shuttering the company's retail space on Manhattan's Madison Avenue saved Vermont Teddy Bear from lasting hibernation.
When she studied the Madison Avenue sales figures, Robert saw that roughly 70% of the store's volume was being shipped elsewhere by customers who thought that a teddy would make a great birthday, Valentine's Day, or Mother's Day gift. Those numbers made it clear that retail storefronts had no place in the Vermont teddy's ecosystem. Of the glitzy midtown store, Robert says, "We had the most expensive fulfillment center in the country.
"I zeroed in on the question, 'What business are we in?" says Robert. With each bear priced at about $70 plus shipping, people tended not to buy the bears for themselves. Teddy lovers could buy bears born overseas for, say, $30. "We became instead the creative alternative to flowers," she says. "It was amazing what a difference it made to reposition the marketing message."
The company now broadcasts that message from some 250 radio stations in 79 markets at the peak sales times of the year. In fiscal year 1999, the Vermont Teddy Bear Co. earned $1.7 million on sales of approximately $22 million. For the first nine months of fiscal year 2000, sales and profits were up more than 100% -- only proving, says Robert, that "you have to open your mind to the possibility that you don't know what business you're in."
Stephen D. Solomon is an associate professor of journalism and director of the program in Business and Economic Reporting at New York University.
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