Diapers.com On Its Way To Selling Half A Billion Diapers, Raises $20 Million Debt Round

“This year we will sell half a billion diapers,” Marc Lore, the CEO of Diapers.com tells me. That is a hell of a lot of diapers. In fact Lore believes Diapers.com sells four times as many diapers as the next largest seller of nappies online, Amazon. In 2009, Diapers.com pulled in $182 million in revenues, up from $89 million in 2008, he says. And this year, Diapers.com is on a run rate to bring in $275 million in revenues. The company may one day become the Zappos of diapers and baby gear. (Zappos, by comparison, pulled in $1.2 billion last year and is now part of Amazon).

The Montclair, New Jersey-based company is announcing today its latest financing round of $20 million in debt from Pinnacle Ventures. (Actually, the company name is Quidsi. Diapers.com is just the brand name). Last October it raised $30 million in equity from NEA, Accel, and Bessemer in a series E financing. The total capital raised since 2006 is now $78.5 million.

Lore and his co-founder Vinit Bharara keep plowing the money they raise into marketing, going from a $15 million budget last year to $30 million in 2010. They say they are currently operating at break-even.

Diapers.com sells a lot more than just diapers. It also sells, formula, cribs, strollers, car seats, and toys. The website carries 12,000 baby items, going up to as much as 60,000 by the end of the year. The site is selling 10,000 car seats a month, for instance, making it perhaps the largest retailer of baby car seats online. Diapers is also the exclusive e-commerce partner for BabyCenter.

“We wanted to create a relationship through consumables,” explains Lore, but then start selling higher-margin goods than just the diapers, wipes, and formula. “The incremental cost to ship the high margin stuff is small because we are already shipping diapers,” he says. In fact, shipping is free with orders of $50 or more, and 80 percent of orders are more than just diapers. The average order size is $100.

In order to squeeze every penny out of operations, Diapers.com develops its own supply-chain management systems and box selection software. The box software figures put how many boxes of each size Diapers.com should carry in inventory based on the cost of cardboard, filler, and UPS shipping. Choosing the right boxes alone adds up to about a point of margin savings. Add the bigger-ticket items and the magic of high-volume commerce, and you can see this business growing up real fast.