Bouncing Baby

Babycupcakes was launched in 2003 with an initial investment of just $231.25 each from Bellingham and Camper (most of which went towards buying a domain name). They began selling their ‘nappy cake' gifts - decorative (and very practical) arrangements of nappies, which are made to look like a cake. Bellingham got the idea from watching an episode of the hit U.S. TV show Sex and the City.

The dynamic creative duo soon began expanding their range to include socks dressed to look like cupcakes and bouquets of baby clothes. Their product range now includes baby ‘sushi packs' of socks, ‘gelatos' of cotton baby jumpsuits and sock-filled smoothies.

In its first year, Babycupcakes turned over about $50,000. By 2005, retailers were clamouring to stock the products, leading Bellingham and Camper to add a separate wholesale range to their retail offering. By 2008, turnover had surpassed $1 million; Babycupcakes now employs five full-time staff and ten casuals and distributes to more than 500 retail stores in Australia.

In early 2009, Babycupcakes began international distribution from New York to Benelux. But getting product into the international market required some painful trial and error.

The Challenge

How to expand internationally.

The Solution

The idea of going international didn't stem from a desire to rule the world by Babycupcakes' co-founder Kathy Bellingham. It developed in 2007 after she began noticing the various international copycats that were operating online. "We didn't want to miss out on the market and we didn't want people to think we were copying them." But expanding Babycupcakes' retail range overseas was far from easy.

In 2007 Bellingham and Camper decided to trial their retail range in the UK. Camper's sister, who lived in the UK, offered to test the water for them.

They set up an online retail website to take the orders in the UK. Camper's sister had to box the gifts and send them out in between her full-time job commitments. The business grew organically just as their online business in Australia had grown. However, after only six months, the volume had become too much for her sister, forcing Bellingham and Camper to consider alternatives. Bellingham says: "We had to rethink the whole idea."

That first UK experience was a steep learning curve for the pair. They discovered that expanding their retail range was a "logistical nightmare". For example, their retail range sells on its packaging; relying on others to arrange their intricately designed bouquets and other products was too great a leap of faith and a risk to their brand. As a result, they reverted to handling all international retail enquiries from Sydney via their Australian website.

Bellingham says: "We decided that the best way we could expand and the most efficient for us would be to produce the wholesale products in Australia and ship them around the world." Initially they engaged the services of a UK fulfilment house to process their wholesale orders and deliveries in the UK; they now use an Australian company - Outliving - which exhibits the range at three gift fairs each year in the UK. This year they also exhibited at the Chelsea Garden Show.

Outliving had seen the Babycupcakes range on display at an Australian trade show and was keen to represent it in the UK. As a distributor, Outliving purchases the stock from Babycupcakes at less than the regular wholesale price, adds its margin, and on-sells the unique products to retailers in the UK.

Babycupcakes now supplies its wholesale range to more than 50 retail outlets in the UK. In the US it uses sales agents to distribute product, which is stocked by more than 20 stores.

Getting product through US customs has been another problem. Bellingham says: "Our name - Babycupcakes - seems to indicate that we sell edible stuff." This means customs officers sometimes open the products and unravel them to see what they're made of, which is not ideal for a product whose packaging is its main selling point. The solution was to engage a knowledgeable "importer of record" with very experienced freight agents. Bellingham says: "You need to be able to rely on your representatives and customs agents to have the appropriate contacts, links and existing relationships with people who do the examining."

Currency fluctuations have also been headache, with customers naturally preferring to use their local currency. Bellingham says that exchange rates change so much from day to day that they needed a payment system which would allow them to charge customers in their local currency at a fixed rate. The solution was to set up a WorldPay account, which handles multiple currencies. But the solution is not ideal as WorldPay's commission rate is 4.5%. Bellingham says: "You would think in this day and age that it would be easy to take payments by credit card or bank transfer but it's not because [with those] you're also dependant on the conversion rate at that particular time."

Accommodating cultural preferences has been tricky. For example, Bellingham says that UK consumers, unlike Australians, do not like bright baby wear, preferring pastels. "In Australia, we tend to have blue, green or white for the baby. In the UK, it is lemon, lemon, lemon all the way. That's the unisex colour." She says it is the same in the US.

The Result

In just over five years Bellingham and Camper have gone from making nappy cakes at home with the spare change left from few hundred dollars in start-up capital to employing 15 people and turning over more than $1 million last financial year. They supply 50 retail outlets in the UK and 20 in the US.

It seems that not even the global financial crisis has been enough to dampen the world's appetite for exquisitely wrapped baby gifts. Bellingham believes the current economic environment bodes well for their type of business. Since exhibiting at the New York gift fair in January 2009 Babycupcakes has received more than 50 enquiries from all over the world.

Since the Sydney Gift Fair in February 2009, Babycupcakes' new wholesale customers in Australia increased by 25%. Bellingham knows of other gift businesses that are also experiencing their best gift fairs ever. Bellingham's next goal is to write a procedures manual standardising the Babycupcakes experience so they can expand their retail operations internationally.

Babycupcakes recent accolades include winning the 2008 My Business Award for Best Retailer, the 2008 Best Gift Product along with The People's Choice Award at the 2008 Gift Awards. It was runner-up for the 2008 Reed Gift Fair's Best Advertisement category.

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