Kids closet

Kids outgrow up to three to four clothing sizes per year, particularly in the zero to two year old bracket. This creates two problems for parents, the need to continually purchase costly new wardrobes, and the need to store or dispose of outgrown clothing. KinderStuff, an innovative childrens’ fashion ecommerce startup arriving in Los Angeles today by way of Germany, aims to keep pace with growing kids by allowing parents to exchange previously worn clothing from its collection for discounts on new items.

The new US-focused online kids label offers a simple answer to the growing kid problem: Mail three items back to the company and get 10 percent of your next purchase, or five items for 20 percent off. Return shipping on used items is free, and shoppers can redeem their discount immediately upon printing the shipping label, rather than waiting until the return package is received and processed.

KinderStuff sorts through the typically months-old returned items, recycling those which are in poor shape, and reselling those which are “gently used” in a separate Hand-Me-Down section of its website. Adding to the feel good story, one third of this latter category is donated to local charities.

The German startup known as Kindsstoff abroad entered the overseas market nearly six months ago and is just now getting through its first wave of Hand-Me-Down sales. Based on early data, its founders are confident that the used clothing category is additive to its overall sales figures, rather than cannibalizing the sale of new items. More importantly, the return and future purchase credit program gives past shoppers a reason to return and engage with the brand on a semi-regular basis.

For co-founder Robert Rebholz, one big difference in the US is that parents are far more engaged online, both in terms of social media and ecommerce. Furthermore, as demonstrated by auction site Ebay and online consignment shop ThreadUp, among others, US consumers have demonstrated a willingness to purchased used clothing online, a concept that is only recently becoming commonplace in Germany.

KinderStuff is basing its US operations in Los Angeles, where it will soon begin manufacturing its clothes locally for distribution within the North American market. Like in Germany, the US clothing line will begin with basics, such as long sleeve shirts, t-shirts, and onesies, and plans to evolve quickly to add hoodies, pants, and accessories such as socks and hats. The German line currently offers 45 items priced between approximately $15 to $25, while the US line offers 15 different options. The similarly designed lines in both countries offer fashions for zero to two year olds at present, but will expand to serve kids up to six years old within a few months. The company expects its US second-hand store to open in approximately three months once the site has enough inventory accumulated from customer returns.

In the US, KinderStuff will have to compete with kids Web-only subscription retailers Wittlebee and JustFab-owned FabKids. Rebholz still believes there is still room to create an online only brand the caliber of Warby Parker or Bonobos in the category. The new market entrant plans to rely on its US-friendly, but European-inspired design sensibilities and the company’s innovative return and recycle program to differentiate itself in the market.

Remarkably, KinderStuff is taking on both markets with just $1,000,000 in Seed financing, which it raised in Germany in two stages with the first coming 2011 and the second in late 2012. The company has already built a US team of seven individuals and plans to double this number by year’s end all prior to raising additional capital. Of all the plot twists in this story, this limited funding level seems the most likely to trip up the upstart brand.

As countless other startups have proven, ecommerce is a costly business at the earliest stages and demands significant investment for customer acquisition, product manufacturing and fulfillment, and general operations. Only once the business reaches multi-tens of millions in sales do economies of scale typically kick in to make profitability possible. Kindsstoff has seen $50 average order sizes and just single digit return rates (on unworn items), offering an early glimpse into the economics the business might be able to achieve in the US.

KinderStuff plans to avoid paid customer acquisition as much as possible initially, relying instead on mommy bloggers and social media to drive awareness. The one thing it does have going for it is a unique model that moms have yet to see in the states and thus are not immune to in their social feeds. How long the company can trade on this novelty currency remains to be seen.

There’s little arguing that there’s an opportunity to build a massive online childrens brand. Business model tricks such as KinderStuff’s return and recycle program are a clever differentiator in an increasingly model but ultimately won’t define a company’s success. Ultimately, it will come down to the quality of its product, and the company’s ability to economically build a significant brand following that determines its fate at the end of the day. Like Wittlebee, the German transplant is competing not-only with offline giants Old Navy and Gap (which are sister companies), OshKosh B’Gosh, and others, but now the ecommerce sophistication of $100 million plus per year and growing JustFab.

There will be no easy path to success for KinderStuff. That said, moms can be a strangely loyal and viral bunch. If the company can get its snowball rolling downhill quickly through the curiosity of incentivised returns, it might have enough time to build product loyalty and approach scale where it can compete with more established competitors. More likely playground rules will apply and the biggest kid around will end up winning this fight.