The $5 million diaper bag
In the $7 billion baby product industry, companies are doing whatever it takes to get the attention of today's chic parents.
By Matthew Boyle, FORTUNE writer

NEW YORK (FORTUNE) - Design guru Scott Henderson has won numerous awards for his cutting-edge work for companies like Cuisinart, Hewlett-Packard, and OXO International. Today, he's helping design a box to hold diaper rash ointment.

If that sounds a bit odd, then you're obviously new to $7 billion baby product industry, where strollers like the ballyhooed Bugaboo can cost upwards of $1,000 and offer as many bells and whistles as the latest car models from Detroit and Japan. To gain an edge, smart manufacturers are doing whatever it takes to capture the attention (and aesthetics) of today's chic parents-to-be who are willing -sometimes even eager - to pay top dollar for products that seamlessly blend fashion and function.

About 10,000 of Skip Hop's diaper bags are sold each month.
About 10,000 of Skip Hop's diaper bags are sold each month.

One company that has taken full advantage of this trend is Skip Hop, whose sleek diaper bags are wielded by celebrity moms like Heidi Klum, Brooke Shields and Courteney Cox Arquette.

Founded by the husband-and-wife team of Michael and Ellen Diamant three years ago, Skip Hop will generate between $5 and $6 million in sales this year, more than double last year's figure, and a collaboration with Henderson on three new products launching later this year could boost sales even higher.

While pregnant with her son, now five, Ellen, who then worked in the publishing world as an art director, got frustrated searching for a stylish, unisex messenger-style diaper bag that could easily transition from her shoulders to the back of a stroller. She shared her frustration with Michael, a dot-com entrepreneur whose latest venture had just dissolved.

"We did not want it to look like a diaper bag," Michael Diamant recalls "No one made [the bag and stroller] fit together; that was the brainstorm."

At the time, some designer diaper bags did exist, but the Diamants wanted to price theirs below the high-end models (a brocade model from Petunia Pickle Bottom costs $155), yet well above the dowdy stuff found in mass merchants like Wal-Mart (Research), Target (Research) and Babies R Us. They launched their first model, the Skip Hop Duo, at a trade show in October 2003, and since then, they've transformed one of the most mundane (and downright unappealing) elements of parenting into a must-have accessory.

Today, the Skip Hop -- priced between $50 and $85 -- is available in three models, and in canvas, denim, or corduroy, with up to 16 different colors. About 10,000 of them fly off the shelves every month at stores such as Bloomingdale's, Nordstrom's and Manhattan's Buy Buy Baby, but not, alas, in Babies R Us.

Diamant says eschewing the baby superstore was a tough choice, but necessary to maintain an aura of exclusivity: "If you are a Wal-Mart shopper, you will not buy this." The company recently hired a marketing director formerly with consumer products giant Unilever to keep watch over the brand.

Next week, Skip Hop will unveil a diaper bag customized for double strollers, and in May a diaper saddlebag that hangs off the side of a stroller will debut.

Henderson, meanwhile, who previously headed industrial design at a firm called Smart Design in New York, has been busy jazzing up racks that parents use to hold bottles and baby food, as well as a "diaper caddy" for ointments, Q-tips, and other diaper-changing accessories.

"We look at boring categories and we just go after them," says Diamant. "They realize, like so many companies don't, that design is the last great competitive advantage," says Henderson, who has two kids himself, and says that Skip Hop is his favorite client.

The next design challenge for Skip Hop? Redesigning that old nursery war horse, the bassinet. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.