Diversifying to build on a healthy seasonal business

Lisa Costa, owner of Hamptons Baby Gear, works

Lisa Costa, owner of Hamptons Baby Gear, works in the company's Riverhead warehouse with office manager Megan Heckman. (Jan 31, 2013) (Credit: Sam Levitan)

Seven months a year, Lisa Costa's small business suffers from its own version of the "baby blues."

That's when revenues at Costa's Riverhead firm, Hamptons Baby Gear Ltd., take a nosedive. The 4-year-old rental company, which provides everything from cribs to baby swings, generates about 90 percent of its sales between May and September, courtesy of the Hamptons crowd. The rest of the year, Hamptons Baby struggles to pay its bills, including its monthly rent of $1,500.

"I can't survive without increasing business in the off-season months," said Costa, 46, the firm's owner, as well as a 14-year-veteran of the Town of Southampton Police Department.

The firm's seasonal peaks and valleys are typical of many businesses targeting vacationers summering in East End and North Fork communities. But experts said Hamptons Baby has several options for overcoming off-season lulls, including bringing in additional products that would appeal to the region's year-round residents.

"It's about thinking outside the box," said Joel Evans, distinguished professor of business at Hofstra University's Frank G. Zarb School of Business.

TRIP INSPIRES BUSINESS

A vacation five years ago with her husband and two kids, now ages 5 and 8, led Costa to go the entrepreneurial route. Hamptons Baby is modeled after an Arizona rental firm that provided her family with a crib and car seats.

Early on, Costa took on a business partner and invested $10,000 to purchase a smattering of items, including five cribs and a couple of booster seats and high chairs. By the end of the first summer, the firm had spent as much as it had generated in revenue -- $30,000 -- to meet the strong demand for its leased wares.

Costa's Southampton home and her partner's East Quogue residence doubled as their warehouse. But by the end of the second year, faced with her partner's exit from the business and a growing inventory, including beach umbrellas and wagons, Costa moved to a 1,400-square-foot office and warehouse space in a corporate park.

"It's extremely hard to flourish for only five months of the year and not have a huge nest egg," said Costa. "I start at a negative before the summer hits."

Since the company's birth in 2009 and thanks to its website and customers' cooing, gross revenues have quadrupled -- from $29,000 to $120,000 last year. Yet the firm has just broken even, Costa said. Hamptons Baby employs four full-time and six part-time workers during the summer, two part-timers in the off-season and an office manager year-round. In addition, the company owns two delivery vans.

THINKING BEYOND SEASON 1

Product diversification is one way for Hamptons Baby to lift its winter revenues, said Marshal Cohen, chief industry analyst at NPD Group, a Port Washington market research firm. Cohen suggested Costa expand to include consumer electronics, which would broaden the customer base to year-round residents.

"This is about going beyond summer customers and stretching the calendar to keep the business going," Cohen said.

With that goal in mind, Costa last year promoted her baby gear in mailings to Long Island real estate agencies and hotels, but found that her printed materials got lost on recipients' desks. She now plans to visit potential accounts. Cohen said Hamptons Baby could also profit from alliances with bed-and-breakfasts.

COMMUNITY OUTREACH

And Evans suggested reaching out to children's clothing stores and other baby- and kid-friendly businesses to enlist their help in promoting Hamptons Baby's wares, offering them a share of the proceeds they generate for her firm.

Nursery schools and day care centers could also be potential sources of revenue in the off-season, said Evans. With their registration numbers typically varying from one year to the next, they may find it more cost efficient to lease their baby furnishings -- rather than spend a lot of money to buy items that may get little use.

Evans also recommended offering rental agreements with an option to buy, a strategy that would enable the firm "to turn over inventory faster and acquire new items."

For her part, Costa regards western Long Island as her next frontier, based on Hamptons Baby's recent rentals in Great Neck and Roslyn. She now plans to develop that market further with ads in community newspapers.


COMPANY PROFILE

Company: Hamptons Baby Gear, Ltd., in Riverhead

Owner: Lisa Costa

Founded: 2009

Employees: 4 full time and 6 part time during the summer; 2 part-timers in the off-season

Revenues: $120,000

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