Bloomberg
Baby Gear Maker Skip Hop Pushes Beyond Target and Pottery Barn
By Karen E. Klein - Feb 8, 2011 7:23 AM PT
A few months after her first baby was born in 2000, Ellen Diamant had a business idea that might seem obvious to any parent who has ever struggled to carry a diaper bag while maneuvering infant, stroller, and packages: a new design that would attach to the stroller, making the bag’s contents easily accessible.
Over the next year, Diamant, an art director and graphic designer who had worked in the fashion and publishing industries, began sketching a new kind of bag, one with special stroller attachment clips and a contemporary look that was miles from what she calls “Winnie-the-Pooh styling.”
By 2002, Ellen had a prototype she dubbed the Duo Diaper Bag that she tested with friends and colleagues. By the next year the bag was popular with local mothers clubs and play groups Ellen visited. The product’s success persuaded Ellen and her husband, Michael, a serial entrepreneur who built his first successful Web design company in the early 1990s, to launch Skip Hop in the fall of 2003 to design, manufacture, and sell an expanded line of products for parents, from diaper bags to toys and nursery bedding.
The couple invested $50,000 to get the company started -- despite having lost $500,000 on Michael’s second business venture, iClips, a year earlier. The failure of that company -- an early video-sharing site -- was difficult. “You feel like you don’t know what’s going to happen, you can’t pay your vendors, you’re laying people off,” Michael recalls. Along with their own investment, iClips lost more than $6.5 million in venture capital and money from friends and family. “It’s awkward at dinner, at least for a few years,” he says.
Today Skip Hop employs 31 and sells a range of product types to specialty, chain, and online retailers in the U.S. and overseas, including branded lines at Target and co- branded toys and bags at Pottery Barn Kids. Ellen says the New York City company had $20 million in revenue in 2010 and projects $25 million this year, a quarter from international sales.
MORE IMPACT THAN YOU’D EXPECT
Small, nimble innovators such as Skip Hop have had an outsize impact on the juvenile market, says Ali Wing, the founder of baby products retailer Giggle. For years, the baby industry was dominated by huge corporate players and tiny neighborhood boutiques. “To have designers who can bring innovations to market, with the greater scale and replication Skip Hop has achieved, has forced change on the larger market,” she says.
Gartner analyst Janet Suleski sees this juvenile products market growing, particularly in “emerging economies such as China, Brazil, India, and some smaller markets, such as Turkey.” She notes that smaller competitors can be more nimble than larger competitors, bringing products to market more quickly. “What smaller companies lack, however, is supply chain power to mass-produce large numbers of those innovative items quickly, so it may not be possible to meet the full demand,” she says.
Early on, the Diamants introduced the $49.99 Duo at a New York City trade show. It was an immediate hit, with a dozen retailers signing on to carry it. Michael didn’t take long to realize that baby products had gone global via the Internet: “You bring a new product to market, and moms get excited about it, and the whole world knows about it tomorrow.” The company spent at least $100,000 for a high-quality online presence, including photography, advertising, branding, and a Web store. Ellen says she drew on her publishing background to put a professional face on the company’s look and feel. “We wanted to be trendsetters,” she says. “We didn’t want to look like a mom-and-pop, which does not inspire confidence.”
Other than establishing a robust online presence, Michael Diamant says driving Skip Hop’s overseas sales is about finding strong distributors, vetting them, and granting them exclusive sales rights. “A good distributor for us has other lines we respect and is already selling to retailers we like. When we research a market, we find out what the big four retailers are, what brands they carry, whether the distributor sells there, and what kind of volume they’re doing,” he says. He adds that setting up yearly minimum sales is an important spur for distributors to invest in the Skip Hop brand. “The distributor has to spend money to promote you, and you have to give them time to build the business. If you become known as a good supplier, the word spreads.”
KEY STEP: DISTRIBUTION IN CHINA
Pricing is also crucial to Skip Hop’s overseas sales, especially since many of its products are subject to duty rates as high as 18 percent. A few years ago, Skip Hop opened a distribution center in China, where its products are manufactured. That allows distributors to retrieve product in China rather than having it shipped to the U.S. and then back overseas again. “I used to have to charge 20 percent more to cover shipping and U.S. duties, and the price of the bag went up to $90 in Europe. You don’t want to be an expensive import. You want to be competitive,” Michael says.
Of course, selling overseas is as frustrating as it is lucrative for Skip Hop. “We exceed the safety laws in the U.S., but some markets don’t have laws, and retailers set their own rules that don’t meet any known standards,” he says. “These retailers want you to do specialized tests, which get very expensive.” Brand knockoffs are a particular problem in China, where copy-cat Skip Hop products hit the streets before the real thing hits the shelves. The company hires shoppers to purchase the knockoffs from “shady characters,” Michael says, and they bring the evidence to local authorities, who will usually shut counterfeiters down.
Selling in 54 countries means having to use dynamic tactics to stanch intellectual property theft, Ellen says. The company applies for international patents and uses technology available through such online retailers as eBay and Alibaba.com to foil thieves. It relies on its overseas distributors to report knockoffs, but they are still common. “It happens all the time. All we can do is hope that our branding is what people really want,” Ellen says. The company’s top overseas markets are in the U.K., Spain, and Japan, but its products are sold in such far-flung places as Dubai and Poland.
Although many small business owners grumble about government regulation and business laws, Michael says selling overseas has made him grateful for countries with strong protections and legal remedies. “If a New Zealand Costco is carrying counterfeits, we can send them a letter, and they’ll pull them off the shelves the next day,” he says. “I want the rules. They work for me.”
In the long term, the Diamants hope to maintain the 40 percent growth they’ve achieved in recent years. They plan to localize websites better for their top international markets, and Ellen is working on designs for products that may not sell well in the U.S. but are big sellers overseas. For instance, a European distributor recently asked for Skip Hop “reins,” the kind of leash attachments for wayward toddlers that are not terribly popular in the U.S. but are used widely in Europe. Skip Hop is also working on bedding that matches international mattress and crib sizes that differ from American standards. “We want to round out our categories to offer overall solutions for parents, so we’re a one- stop solution for bath, bedding, toys, and on-the-go categories,” Ellen says.
To contact the reporter on this story: Karen E. Klein at karen@kareneklein.com
To contact the editor responsible for this story: Nick Leiber at nleiber@bloomberg.net
