An online boutique's story illustrates the challenges and opportunities related to the Web business world.
By MATT WICKENHEISER, Staff Writer
February 15, 2008

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.

Entrepreneur finds a niche in cyber nappies

By Alison Aloisio

Bethel native Kelly Hayes Wels, four months pregnant, has 10,000 diapers in her basement.

She's not just stocking up so she doesn't have to leave home until the baby is potty trained.

Wels owns an Internet business, "Kelly's Closet," from which she sells modern cloth diapers out of her Waterford home.

A green theme

The 1991 Telstar grad originally trained in the field similar in which her father, George, makes his living - landscaping.

She holds an associate's degree in horticulture from Southern Maine Community College.

Wels worked for several years at O'Donnell's Nursery in Gorham, Maine, and later as a sales representative for a plant bulb company.

But after her second child was born in 2000, Wels decided it was time to stay home and find income that would fit around her child-rearing schedule.

Internet-based businesses were just starting to take off.

"I had an idea to sell boutique baby clothing," Wels said. "So I had a website designed - and then I hardly sold anything for five months. I was going to close the doors."

As she pondered what to do, Wels received two e-mails from women asking if she could offer cloth diapers made by one of the boutique clothing companies - "Kushies."

"I figured I had nothing to lose," said Wels.

She ordered the smallest shipment of diapers she could.

The modern cloth diapers are far different from the old rectangular-shaped ones that often leaked and, because they were held together with pins, posed a stabbing threat.

Today's version is instead contoured, utilizes snaps and is lined with fleece to wick moisture away from the skin.

Wels decided to try them out on her 1-year-old son.

"They were awesome," she said.

She did some research and added more brands to her site.

Then a company called FuzziBunz® contacted her about offering their diapers. She bought some.

"I couldn't keep them in stock," she said.

Prices on her brands range from $17.95 to $23 each.

Not cheap, said Wels, but the savings, compared to disposables, add up over time.

Competition

Sales were terrific for several years, and Wels figured she had it made in the diaper business.

But in 2005, she noticed that some of her customers were starting their own websites and selling cloth diapers.

By the end of 2006, she said, "my sales had dipped significantly."

An employee she had hired to help her had to be laid off.

Wels realized she would need to try a different approach.

"People do more research now before they buy," she said.

So she decided to offer some new wrinkles, such as a 30-day, money-back guarantee. And she now has access to the factory seconds of one company, an arrangement other Web diaper businesses don't have.

Wels, who had been spending a lot of money on magazine ads, also decided in June of last year to instead hire a publicist to handle her marketing.

Since then, she said, the publicist has gotten her business name into featured locations in some national magazines.

Now Wels' business is grossing about $50,000 a month. She has two employees. She's added two more websites. One promotes her best-selling diapers and the other offers bulk sales.

Balancing work

Pregnant with her third child, Wels says she has to pace herself in her work, resisting the urge to constantly check e-mails.

"There were many weeks I was working 80 hours," she said. "I think it was the work ethic I got from my parents."

So she now leaves much of it for her employees, and spends more time looking at the big picture.

"I'm always watching what everyone else is doing," she said. "I've learned you can't get too comfortable in business."

And she's happy that her latest line of work has at least a loose tie to her first profession.

"It's still green-related," she said.