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SHOULD VERMONT TEDDY BEAR GO ABROAD?

As Elisabeth B. Robert, CEO of The Vermont Teddy Bear Company (www.vtbear.com, leaves itsann!al meetin" on # $ay #%%& she can loo' bac' on one of the best years in the history of thecompany

2002)et reven!e *&+.% million)et profit *#. million

The n!mber of employees at the end of #%%# was &--. B!t Elisabeth has f!rther ambitions for thecompany

$y lon"er/term vision for the company is to levera"e o!r mar'etin" and operational stren"ths witha so!nd brand strate"y to "row o!r company with teddy bears and other prod!cts in the "ift

delivery service ind!stry.

0nli'e other 1nternet companies, we have proven o!r ability to profitably mar'et a "ift deliveryservice !sin" radio and the 1nternet. 0nli'e other 1nternet companies, we have an established,state/of/the/art, cost/ effective f!lfilment operation with inte"rated systems to c!stomi2e,personali2e, pic', pac', and ship and provide s!perior c!stomer service. And, the people of TheVermont Teddy Bear Company are not only persistent and smart, they have become over the pastseveral years e3tremely "ood at what they do. 4hy sho!ldn5t we aspire to be one of the premier"ift delivery services in the world67

(8o!rce Vermont Teddy Bear Ann!al Report

The company

Vermont Teddy Bear5s principal activity is direct mar'etin" in the "ift delivery ind!stry .9o!nded in-+:- in Vermont (on the east coast of the 0nited 8tates Vermont Teddy Beat e3panded very;!ic'ly. 1n -++# 1nc. $a"a2ine reco"nised The Vermont Teddy Bear Company as the :%th fastest"rowin" private company in the 0nited 8tates.

The same year, Vermont Teddy Bear went on the stoc' e3chan"e in )ew

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1n #%%# the Bear/?ram service acco!nted for :: per cent of reven!e retail operations, : per centcorporate@wholesale (incl!din" licensin", # per cent 8endA$ER1CA, - per cent and the=a>ama"ram service, - per cent.

The company5s Bear/?ram se"ment sales are heavily seasonal, with Valentine5s ay and$other5s ay its lar"est sales seasons.

2002 Sales Valentine5s ay &%$other5s ay -&Birthdays --?et well +)ew births +Christmas Other #-

Total -%%

The company primarily !ses the 1nternet to mar'et its Bear/?ram "ift delivery service.

The B!"!B !#Bea$s!"o!B%s&ness#

The B/t/B, or 5Bears/to/B!siness5 pro"ramme is Vermont Teddy Bear5s fastest "rowin" se"ment,with year on year "rowth of more than -%% per cent. 1ts corporate sales pro"ramme offerspromotional prod!cts and corporate "ifts for mainly lar"e companies.

One e3ample of the 5Bears/to/B!siness5 pro"ramme too' place in late -+++ when the companyhad a co/promotion with 8ea"ram5s ?in"er Ale. Across the co!ntry, #% million litre bottles of

8ea"ram5s ?in"er Ale were labelled with a chance to win a Vermont Teddy Bear and carried aco!pon for a #% per cent disco!nt on any of the Vermont/made bears offered thro!"h the Bear/?ram "ift delivery service.

Another e3ample of a corporate c!stomer is B$4 of )orth America, which re"!larly !ses theBear/?ram "ift delivery service to con"rat!late and than' both employees and clients for theirdedication and service.Amon" Vermont Teddy Bear5s corporate c!stomers are Dohnson Dohnson, Fraft 9oods, $arriott1nternational and =epsi Cola.

Onl&ne o$'e$&n(

The company be"an ta'in" orders on its website in $arch -++, reco"nisin" that the websiteprovided vis!al s!pport of the company5s radio advertisin" campai"n across the co!ntry and was aconvenient way for c!stomers to place orders. 1n ecember -++ online orders represented percent of total Bear/?ram orders. 1n April #%%% appro3imately & per cent of the Bear/?ram orderswere received via the Company5s website, triple the level of the prior year. 1n #%%& more than halfof the orders are received via the 1nternet.

)ompe"&"&on

The company competes with a n!mber of sellers of flowers, balloons, confectionery , ca'es andother "ift items, which can be ordered by telephone and over the 1nternet for special occasionsand are delivered by e3press service in a manner similar to Bear/?ram "ifts.

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The company also competes to a lesser de"ree with a n!mber of companies that sell teddy bearsin the 0nited 8tates, incl!din", b!t not limited to, 8teiff of ?ermany, a'in, )orth American Bearand ?!nd.

$any of these competitors have "reater financial, sales and mar'etin" reso!rces than VermontTeddy Bear.

The company sees its Bear/?ram "ift delivery service as a 5creative alternative to flowers5.Appro3imately G# per cent of Bear/?ram "ifts are p!rchased by men, often at the last min!te.

There are no material barriers to entry into this mar'et, and accordin"ly there can be no ass!rancethat additional companies will not see' to compete directly with Vermont Teddy Bear, incl!din"those with "reater reso!rces.

Appro3imately &%,%%% bears are assembled per ,year. $ore than 8O per cent of this prod!ction iso!t so!rced to overseas man!fact!rers, mainly in Asia. However, the mana"ement is e3plorin"some opport!nities in other parts of the world. As Elisabeth Robert says ?ift "ivin" is a deeply

rooted tradition in many forei"n c!lt!res. 0sin" common carriers s!ch as 9edE3 and ta'in" orderson the 1nternet, we avoid settin" !p an international distrib!tion infrastr!ct!re. Handlin" an orderfrom To'yo is now no different than handlin" one from 8t Io!is.7

(8o!rce Vermont Teddy Bear Ann!al Report

However, !ntil now the company has only beensellin" to 08 c!stomers, primarily in the bi" cities on the east coast )ew