The Bear necessities of business success

I’ve just come across a great article outlining the problems of the two 20-something women who now run Merrythought, the British manufacturer behind the Olympic Games’ £85 teddy bears.

There’s plenty to discuss here: it’s not just a question of pricing but production, quality, management, breakeven, investment appraisal, capacity constraints and the search for export markets.

It’s worth printing out the whole Telegraph article and picking out these issues. I was interested to read that:
- Pricing has to be high to cover very high materials and productions costs. Should the company sell to retailers or direct from their website to collectors, who make up about half their business?
- The company’s premium product is growing in demand, partly thanks to the Olympics deal but also because of strong export sales in Japan as well as demand for dual-branded bears from the likes of Fortnum & Mason and the Royal Collection. But it’s still hard to make a profit.
- A couple of sentences show how hard real-life investment appraisal can be. The old factory is popular as a visitor attraction, but “this year alone we are having to invest circa £250,000 in roofing work, which is of no intrinsic benefit to Merrythought as a business and does not produce a return on investment.”
- How to modernise the production of a traditional product? Currently it’s very labour intensive, which is why they are the only soft toy manufacturer of any scale left in the UK. Now the problem is how to expand to meet demand. Because manufacturing in the UK has declined so much finding skills locally is very difficult. Perhaps some degree of outsourcing will be essential, but ‘Made in Britain’ is still a crucial selling point.
- The two sisters have inherited the business and had to learn fast about effective management. It seems that they have a crucial strategic decision to make too – whether to be product orientated, or market orientated.