There's No Baby Fat on This Dot-Com

NEPTUNE

1800Diapers makes a go at selling diapers and baby products online

ENTREPRENEURS HAVE NOT given up on Web-based businesses just because the Internet bubble burst. Where businesses likeWebvan, eToys.com and Pets.com collapsed after burning through their cash due to such problems as the high cost of shipping kitty litter, 1800Diapers in Neptune hopes a ultra-low-overhead approach will help it thrive.

"The company came about because my wife was having trouble managing and literally juggling two small kids and big boxes of diapers at Costco," says CEO Marc Lore. Giving up the discount and shopping elsewhere for smaller, more manageable boxes of diapers seemed the only alternative. "The prices for diapers in pharmacies and other stores are 50% to 60% higher than at Costco," says Lore.

1800Diapers, founded in January, sells cases of 40 to 200 diapers at prices ranging from $22 to about $42 per case. The company offers the popular brands-Luvs, Huggies and Pampers-along with other baby products at its Website, 1800DiaDers.com.

This is a slim company; Lore has just one fulltime employee. Most business operations, from customer service to order fulfillment, are farmed out. The strategy is to keep costs to a minimum in order to realize a profit. "The business model is to deliver diapers, baby wipes and formula at WalMart prices to your door," says Lore.

The company has adopted what Lore calls a viral marketing strategy to encourage each customer to recruit others. After ordering from the Website, a purchaser can download, print and distribute $2-off coupons. The coupons carry a code number associated with the first customer. Any time a new customer orders from the Website after using that coupon, the primary customer receives a $1 store credit.

Lore, 34, graduated from Bucknell University with a bachelor's degree in finance and is pursuing his M.B.A. at Wharton. He went through several businesses before getting into babies' diapers. He was executive vice president and chief risk officer for Sanwa International Bank, working in the Japanese bank's London office. He left investment banking in 2000 to go into business for himself. He founded ThePit.com, an online market for collectibles based in White Plains, New York, and sold that company for $5.7 million just 18 months later to New York City trading-card company Topps.

His day job is COO of Bellevue, Washington's WizKids, a maker of collectible games acquired in 2003 by Topps. Lore says he has no intention of quitting WizKids, even though 1800Diapers is profitable and generates more than $200,000 per month in sales. He expects it to bring in between $2.5 million and $3 million this year.

"I would remain on the board, but I'd probably hire someone professional to come in and run the company," Lore says. "Given my career at this point, it's probably a board-level position for me."

The next step for the little diaper company will be securing additional money. "We will be seeking angel financing in the near future to take it the next level," he says.

Lore believes his company's streamlined operation and low-overhead style make it failure proof. "There is no risk of us going out of business whatsoever. We are making money in a veritable basis, albeit small, but we are making money," he says. "This could be a $10 million-to-$20 million business in a year or two."

Those are tough words from a company that is barely six months old. Of course, if 1800Diapers does not live up to that promise, there is still plenty of room in the dot-com gravevard.

E-mail to jpruth@njbiz.com

Copyright Snowden Publications, Inc. Jun 27, 2005
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