It's a Bear Market; He Just Wants to Make It Profitable : Novelties: New CEO brings a 'sense of urgency' to the Vermont firm, whose profits flagged while sales have boomed.

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Madness seemingly reigns all around the Vermont Teddy Bear Co.'s new factory.

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Visitor parking lots are nearly full by midmorning, crammed with tourists and locals. Inside the funky building that looks part New England barn and part carnival fun house, children and adults await a tour or buy teddy bears, T-shirts or coffee mugs from the factory store.

Others follow a pair of frenetic company employees as they lead a tour through the factory floor, where huge rolls of fur fabric are cut into the shapes of arms, legs and faces. Bolts of multihued fabric and ribbons are draped across sewing machines waiting to be turned into bear clothing.

It's a chaotic scene that makes Chief Executive Officer R. Patrick Burns happy. It mirrors the spontaneity and sense of fun that has characterized this small company since it was founded as a peddler's street cart 14 years ago.

But while Burns wants to nurture the Willy Wonka atmosphere at Vermont Teddy Bear, he also wants to infuse the company with a renewed sense of reality, one that will allow the company to keep up with its own growth and return it to profitability.

"You're really selling the fun and emotion of entertainment. It's a great brand as a result of that, and I think we have an opportunity to leverage that," Burns said.

The factory is definitely entertaining. The company manufactures dozens of stuffed bear designs and outfits them to reflect special occasions. There are brides and grooms in full wedding attire; Santa and Mrs. Claus bears surrounded by little bruin elves; a pregnant bear wearing a maternity smock, and a bear with a leg wrapped in a bandage, a Band-Aid above its eye and crutches under its arms.

But despite the whimsy, the past year or so has been tough for Vermont Teddy Bear. There was an investigation by the U.S. Labor Department into the company's use of roughly 160 home workers to stitch together bears and costumes. The investigation ended with no penalties.

In 1994, the company grew more than anyone expected, but the chaotic expansion resulted in a $54,000 loss, not in bigger profits. Vermont Teddy Bear's sales have risen about 20% a year since the company went public two years ago and reached $20.6 million last year.

The loss was troubling. Company founder John Sortino decided to step aside as CEO.

Observers are not surprised that Vermont Teddy Bear ran into problems, given its explosive growth. "Trying to keep up with that had to be a nightmare," said Dave Miller, editor of Teddy Bear and Friends, a magazine for collectors.

The company's board of directors wants to get Vermont Teddy Bear back to where it was, and quickly. Burns was signed up as CEO about 8 p.m. Aug. 2 and on the job less than 12 hours later.

"There's a high sense of urgency," Burns said. Already he has replaced the chief financial officer, and other employees are said to be on their way out.

But he and others believe the company is fundamentally sound. Its product has a good reputation and a strong brand name, sales are above expectations and the new factory is improving productivity.

The company's sales have surged because of Vermont Teddy Bear's unique marketing approach. It has plenty for children, but most products are targeted "at the kid in all of us," Burns said.

Most of its marketing is conducted through advertising on New York, Boston and Chicago radio. Customers call a toll-free telephone number to talk to a "bear counselor" who helps select a "bear gram" for a special occasion.

But that's been expensive, and Burns wants to reduce advertising and manufacturing costs. If "we start affecting those two major levers in the company, I think our goal of profitability for fiscal '96 can be realized," he said.

Burns said the company's biggest competitors are sellers of candy and flowers, traditional gifts for birthdays and holidays like Valentine's Day.

But the bears are more expensive than most candy. Prices range from $50 to $250.

Burns recognizes that. "We have to, I think, consider seriously making our products available to a broader market," he said.

Burns, who has previous experience at L.L. Bean and Disney Direct Marketing, said he wanted to rely more heavily on catalogues and possibly open another company store or two. Another profit center might develop out of licensing Teddy Bear products for use by other companies.

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