From the December 2000 issue of Startups

Would you pay upwards of $87 for a hand-knit sweater? How about a really small one likely to be smeared with grape juice and chocolate pudding? You'd be surprised how many people will. If you don't have kids of your own, maybe you haven't caught on to the explosive market surrounding high-end children's products and accessories. Parents, grandparents and friends of the family are demanding hand-crafted, hand-painted furniture; tailor-made, brand-name clothing; and beautiful toys and decorative items for children. And savvy retailers are lining up to provide these luxury shoppers with a satisfying retail experience.

Marketing consultant Leslie Speidel points out that baby boomers are getting older, and many of them are excited grandparents or first-time parents. The disposable income of this demographic is huge, especially for those over 55. "The extravagance is beyond homes and cars," she says. "They're putting status into everything they have."

Recent government reports indicate that the birth rate is increasing along with disposable income. Nearly 4 million babies were born in 1998, with birthrates for women in their 30s up to the highest level in three decades. This baby boom of the older mom means a generation of parents with more disposable income and refined tastes. It also means cribs, dressers, play outfits, hats and beanbags will be in high demand.

Of course, big industry caught whiff of this opportunity a few years ago, and many jumped on the profits bandwagon by developing a baby or kids division of their brand-name products. Already at market are BabyGap, Pottery Barn Kids, GUESSkids, Martha Stewart Baby, and preferred toy vendors like Imaginarium and ZanyBrainy. However, the good news for the adventurous upstart is that there's still room for small players to open their own (online or brick-and-mortar) shops, and cater to all those status- and quality-conscious adults.

Going Retail

Those already running their own luxury juvenile stores and those who study the market agree this is a good business to get into. However, you'll need to consider whether you want a retail location or a dotcom. Going real rather than virtual has its limitations: Speidel believes the region must be quite affluent-a resort area, an upper-class suburb or a major metropolitan area, for example. But even if the location is right, the rent on your business could hold you back, limiting your product line by square footage.

The greater market, say experts, is on the Web. "There will always be people who buy high-end luxury goods online because they don't otherwise have access," Speidel notes. While there may be plenty of places to find Ralph Lauren crib sets in San Francisco or New York, all the customers in between will rely on online storefronts to deliver the merchandise they seek. The Web's niche appeal and ample product lines delivered to a broader audience make cyberspace a potentially more lucrative alternative.

For many retailers selling better kids' goods online, this retail void was their impetus for getting started. Harina Kapoor, 32-year old founder and CEO of designer children's e-business RainBee.com in Buffalo Grove, Illinois, launched her dotcom in 1998. "After my daughter was born, we went to a boutique that had great catalogs. However, they were only open four days a week, they had poor customer service, and their shipping times were long," recalls Kapoor. "I like quality products. I'm also an engineer and a management consultant, so I have the tech skills. I thought, 'This is the perfect model to put on the Internet!'"

In the evenings, after her two children went to bed, Kapoor worked on her company, often until 2 a.m., designing her storefront and backend system as well as the product line. To get RainBee off the ground, Kapoor put up $150,000 of her own money. Yet even without funding, Kapoor and her one staff member saw respectable sales of $80,000 their first year. "I was working a full-time [consulting] job, and I only had two other customer reps at the time," says Kapoor, who learned about the industry by reading financial and business magazines and studying a local boutique.

A year ago, Kapoor, who has already surpassed her goal of $1 million in sales this year and now has 10 employees, was able to quit her consulting job, and she now runs RainBee full time.

A Wide Range of Children's Products

And here's the competition: Laurie McCartney is 32-year-old CEO and founder of Los Angeles-based eStyle inc., babyStyle.com and kidStyle.com. BabyStyle offers such merchandise as $75 linen pillow shams, a DKNY cashmere sweater for baby and a pewter rattle. In contrast to the grassroots effort of RainBee, estyle went for full funding and has raised more than $60 million. McCartney has a staff of 200-plus.

McCartney, a Harvard Business School alum, brought her high-profile expertise and business networking to the job. While the average entrepreneur may not have the benefit of McCartney's experience and connections, there's lots to learn from her course of action. She found mentors for herself, people who knew the industries of children's products and luxury goods, and learned from them. She networked in many local professional groups in order to find a knowledgeable staff. She also looked at other Web-based retailers' site designs and product cata-logs and put thought into what she could do differently to make her business better.

While the company is privately held and thus not disclosing sales figures, McCartney is pleased with the evolution of babyStyle, which launched last year, and kidStyle, which launched in April. She plans to continue to roll out her own additional sites under the eStyle umbrella and focus on better-selling items, such as gift sets.

Handmade Clothing For Kids

"It helps when you're your own target customer," says Steffanee Taylor, co-founder of KidsClothesline.com in San Jose, California. Taylor, 32, loved the clothing her mother made for her two sons, and, with her mother at the sewing machine, she took her work online to sell handmade baby and children's clothing.

Six months pre-launch, Taylor, a Silicon Valley marketing veteran, researched other Web-based vendors selling the same type of high-quality, handmade and embroidered clothing, and she realized her product was unique. From there, she had to learn the technical skills to get the business in gear, including how to build the backend billing software and integrate the shopping cart technology. Taylor estimates she saved about 75 percent of the production costs by learning to do the work herself rather than outsourcing it to contractors. Like a fine boutique, the site's catalog is small, offering only 150 products with variations on theme and size. Many products are priced at $70 or $90, and they never offer sales, trendy items or seasonal promotions. "The profit margin is somewhat slim because there's so much handwork," says Taylor. So, for her business, she decided to stick with the basics.

KidsClothesline started off with just 300 visitors per month, but through directory listings and word-of-mouth, that number has grown to 15,000. And, says Taylor, with some stepped-up marketing efforts, including direct mail, she anticipates an increase in traffic and sales for this holiday season.

Keeping costs down is a big issue for this company, as it's funded with about $20,000 of Taylor's own money, plus innumerable hours spent in site development, sometimes as many as 30 hours a week. Taylor says her sales continue to increase every month, and she is optimistic and willing to be patient for further growth. She continues to plug away at the site, massage an evolving business plan and look for some external funding to further develop the business.

Families With More Disposable Income

While some parents wrinkle their foreheads at the thought of shelling out part of their kids' college funds for clothing that will be outgrown in six months, others are anxious for quality goods from trusted manufacturers. Business owners and marketing minds agree, the timing is right for youth luxury items.

Jack Gifford, professor of marketing at Miami University in Oxford, Ohio, accounts for the current boom of this industry in this way: "People are having smaller families, and many of them are dual-income, so there's more money to spend," he says. And if mom and dad are spending all that time working, he concludes, "parents [feel] guilty about not being there, so they're looking to make up for it in other ways."

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