November 18th, 2010 by databot
As word spreads this week that Amazon purchased Diapers.com for a whopping $545,000,000, I wanted to make sure and give you a little background on how this business grew in less that 5 years. The team at Diapers.com focused on one type of customer and for the most part one product and built in value added products in which they made good margins while selling diapers for little to no profit. The key to this strategy is that customers come back over and over and over again. They place multiple orders for diapers but add wipes or lotion etc. This company was so successful that Walmart and Amazon.com got into quite the bidding war for the 5 year old startup. I also admire the passion in which they started the business check out this quote below and the corresponding article from businessweek.com.
“Unable to buy from the major manufacturers, Lore and Bharara forged a practical solution. When an order came into the website, DePaola would run down to the local BJ’s Wholesale Club in her minivan to pick up diapers. Then she would ship them out. Orders started to come in almost as soon as the site went live. By the end of the first week, she was shipping 20 to 30 packages a night. The partners lost money on every shipment but learned that there was a market for diapers on the Internet. They began with a few hundred thousand dollars in seed money, which they spent, and then raised $4 million, and later $54 million, in venture financing. “Our gross margins at the beginning were 4 percent,” says Lore. “We were losing money on every package.”
After a one-line item ran in babytalk magazine, about six weeks in, DePaola was shipping 180 packages a night and could no longer fit all the diapers she needed into her minivan—so she got her father, who had a GMC Envoy, to help. They would push cases of diapers through the store and customers would make jokes like, “Triplets, eh?” Eventually she had to start renting trucks from U-Haul and clearing out the entire store. Then she bought from Costco (COST) and BJ’s stores farther away. (Strangely, losing money on each shipment increased their cash flow, as they were buying on credit cards with standard 30-day billing periods and selling for payments that came through in two days.) “Pretty soon,” says Lore, “we would clear out all the stores in a hundred-mile radius.” The diapers filled DePaola’s garage and started to pile up on the lawn, until one night, when it was about to rain, they realized they needed a real warehouse.”
Also check out below the AMAZING warehouse operation and their relentless approach to solving some of the most difficult problems e-commerce presents. Bottom line is you don’t have to be the Walmart of aftermarket parts you can create a thriving business focused on particular vertical or niche customer. RPMWare is the perfect platform for this as well. Have you ever thought of creating a vehicle specific site or a category site designed around brakes for example?
Check out the video below: