March 17, 2010

CUTTING HER TEETH IN E-COMMERCE

MATT WICKENHEISER

— By

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Staff Photo by John Ewing: 20080212 Tuesday, February 12, 2008....Kelly Wels runs an online business selling cloth diapers from her Waterford home. Wels maintains a large inventory of cloth diapers and related baby care products in the basement of her Waterford home.

click image to enlarge

Staff Photo by John Ewing: 20080212 Tuesday, February 12, 2008....Kelly Wels runs an online business selling cloth diapers from her Waterford home. Boxes of filled orders such as these are shipped to customers all over the country by Wels.

Staff Writer

Kelly Wels invested thousands of dollars in inventory for her online children's clothing boutique and had about $50 of sales to show for it.

She had hoped for a lot more. Wels, a stay-at-home mom with two children and a background in horticulture, had hoped the boutique would generate maybe $100-$150 a week, enough to pay the family's grocery bill.

Her motivation and experiences illustrate the pitfalls and successes that can come from an e-commerce site. Increasingly, Maine residents are trying to fill commercial niches in the global marketplace through the Internet.

Wels' idea was Kellys-Closet.com, the online boutique she launched April 1, 2001, out of her Waterford home. But even grocery money was a stretch.

''I knew it would be a slow-to-go, but it was a very slow-to-go,'' said Wels.

After several months without sales, she was ready to shut down the site. Then she got calls from two different people within three days, asking whether she carried a certain brand of cloth diaper from a Canadian company whose products she stocked.

At that point, with thousands invested in inventory and the Web site, Wels had nothing to lose. A case of the diapers wholesaled at $1,000, and she bought one.

She sold out within a few days.

''I felt like I was onto something, it was like a high -- this is going to make a complete turnaround after all,'' said Wels. ''The business at that point, to about 2005, it was gangbusters, just nonstop.''

Wels had tapped into a market influenced by growing environmental awareness, as well as pocketbook concerns.

Disposable diapers are a significant expense. Although it costs about $400 as an initial investment to get started in cloth diapers, a family can save about $2,500 over two years, said Wels. And if they're taken care of properly, diapers can be used for younger siblings, too.

Her business exploded as she focused on various brands of cloth diapers. Expanding out of her home, she rented commercial warehouse space to store inventory. She started taking out full-page advertisements in national magazines.

''I was basically living beyond my means, business-wise,'' said Wels. ''I wasn't making the right decisions.

''It was almost like an ego trip -- things got ahead of me.''

The problem was basic, said Wels. She was spending more than she was taking in. And she didn't have someone doing the books on a weekly basis, to give her timely cash-flow reports.

''I had a great work ethic, but I didn't have the skills that I now have,'' said Wels.

Nory Jones, interim director of graduate business programs at the University of Maine, said Wels' problems were a textbook case of starting a business -- virtual or mortar-based -- without the proper skill sets.

Jones, who teaches an e-commerce class at UMaine, has her students develop a small business as a project.

''In the e-commerce class, I try to stress that a 'build it and they will come' approach will not work,'' said Jones. ''Rather, small-business owners should have a solid business plan and use traditional business strategies.''

Jones said she has her students do a SWOT analysis (Strengths, Weaknesses, Opportunities and Threats). She said this immerses them in the business and the industry, and helps them understand where their core competencies lie and where they need to make improvements.

Concurrent with too-fast growth, said Wels, she started getting a number of e-mails from customers asking her how she started the business. And then she started seeing a lot of competing Web sites.

''It got so competitive, extremely competitive,'' said Wels. ''My numbers started falling significantly.''

Wels worked with her husband, who has a lot of business acumen through his work in the pharmaceutical industry. They went through her profit and loss statements, analyzed advertising benefits and explored overhead costs.

She cut overhead, working within the company's means. She hired a bookkeeper to tend the books on a weekly basis, and talked with a lawyer about copyright issues and ways to protect KellysCloset.com from competition.

She's also worked out an exclusive distribution deal with one of her top suppliers, allowing her to launch fuzzibunzonline.com.

Being able to use the name of a top cloth diaper for a Web site adds a level of credibility marketability. And she's working on a similar deal with another popular supplier, with the same goal in mind.

Wels said that the company is profitable, though she wouldn't release margins. She had gross sales of more than $500,000 last year, expects to pass the $800,000 mark this year and wants to surpass $1 million within two years.

She has two part-timers working on doing order fulfillment.

Wels said a lot of customers in Maine have asked whether she has a physical storefront. She and her husband go back and forth on that concept, said Wels.

''It's in my mind, probably not for a while. I don't know if it will ever happen,'' said Wels. ''It's a completely different business.''

And there's another diaper-related change in her future: Wels is five months' pregnant. For the first time, she'll be able to experience some of the new designs she's been selling.

''This sounds weird, but I actually look forward to it,'' said Wels.

Staff Writer Matt Wickenheiser can be contacted at 791-6316 or at:

mwickenheiser@pressherald.com

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