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For small swim makers, be they surf- or fashion-minded, the right mix of big talent and tiny fabric swatches can go a long way. Now more than ever, companies in the $1 million to $10 million range are making an impact on California’s nearly $1 billion women’s swim industry by breaking hot-selling trends and snapping major players to attention — in matters of product design and portfolio acquisition.
Warnaco’s recent $40 million acquisition of Ocean Pacific Apparel Co. underscores the big business belief that California’s active lifestyle brands are the latest money makers. Warnaco Swim Group, the industry’s leading player with an estimated $400 million in revenues — about 20 percent of the worldwide swim market — had yet to fill that junior surf niche in its portfolio; the company already owns brands in the contemporary, designer and active arenas with CK Choice, Michael Kors and Speedo among its eight labels.
Another major swim player looking to diversify is Los Angeles-based Apparel Ventures Inc., worth an estimated $90 million. In December, the megabrand snapped up $20 million, three-year-old Waterfront Design Group, makers of the leading junior brand Rampage Swim and contemporary line W Swim. The newly acquired company was renamed Blue Water Design Corp.
Of course, there are a few years and a lot of sales that bridge the gap between a $2 million company and a $20 million one. But that distance may be shortening.
In a cyclical industry such as fashion, the rise and fall of small brands is nothing new. After all, surfwear megalabels like Roxy and Billabong were once indie upstarts too. “The pendulum swings back and forth. At times, major lines dominate and smaller lines grow up,” said Alex Bhathal, executive vice president of Tustin, Calif.-based Raj Manufacturing, makers of Guess, O’Neill and St. John swimwear.
He recalls about seven years ago when status-label fever took swim by storm and all any consumer wanted was suits by Guess, Nautica, Ralph Lauren and Calvin Klein. Now, once unheard of names like Vix, TNA and Letarte are buzzwords among retailers near and far.
“California lines are known as innovators, they are the lines that help set [retailers such as] Everything But Water apart,” said Karen Tanner, merchandising director of the Orlando, Fla.-based 36-store specialty chain. “They introduced the embellishments and details that have been the trend for the last few seasons. That’s now being carried out on a grander scale by corporate giants.”
Raj’s Bhathal agreed, pointing to another major trend toward skimpier bottoms first put forward by California’s smaller fashion-forward lines like Sauvage, Vitamin A and L Space. That, too, was quickly adopted by mass lines, and today the tiny bikini bottom ranks among the category’s bestsellers.
But are these new players taking a share of the pie from the giants?
While Bhathal conceded the large number of small lines at swim shows and markets is having an impact on retailers, “from a sales point of view, I don’t know that they’re affecting us much. But their newness forces us to keep our lines fresh. I view it as an opportunity to learn from them instead of a threat.”
There is room in the marketplace for newness, believes Howard Greller, president of Blue Water Design Company and a three-decade industry vet who helmed giants Beach Patrol Inc. and La Blanca in the Eighties and, in 2001, built Rampage Swim from scratch.
“In order to break in against the biggest players you need originality. You won’t necessarily get pushed around by big guys because stores are looking for innovation now. If someone has that, then they deserve everything they get.”
The looming question, then, is which companies can rise above one-hit-wonder status and continue to sell suits. Though the state’s pioneer spirit provides a favorable retail climate to small brands with big designs, finding funding and the right manufacturing and distribution formula can be tough without big business connections.
Tom McNeel is a 15-year veteran of the Southern California swim scene. He founded the popular line L Space in 1998, then parted ways and launched his second brand, Love Surf Love, at the 2004 Miami Swim Show. “The biggest challenge is always the outlay of the capital and the ability to keep it going. Retailers’ number one concern is trust that a new company can fulfill its shipments. But that’s dependent on financial backing,” said McNeel, who estimates first-year sales of Love Surf Love at $1 million.
Warnaco Swim Group president Roger Williams said he is approached by 10 to 15 companies a month looking for advice. But they must already display critical mass, he said, with revenues of at least $5 million, to be seriously considered. “For us, it’s 100 percent about the product. We already have the infrastructure to take a company from $5 million to $15 million in a couple of years.”
But not all small players are looking for exponential growth.
“The best thing about being a specialty line is the diversity and freedom it allows you,” said Paula Hermanny, Brazilian-born founder and designer of Vix, based in San Diego. “But you can’t always please everyone.”
Vix, whose annual sales have hit nearly $10 million after five years, has been approached with acquisition offers, but the company maintains it’s not looking to “sell out” right now.
Some, such as Ana Romano, another San Diego-based Brazil native, are making a go of doing it themselves while keeping one eye on any potential opportunity. Romano owned a line for 18 years in Brazil but moved to San Diego when she married business partner Chuck Labitan five years ago. The couple launched a new signature line, called Ana Romano, at ASR’s September 2003 show.
“Being new and competing with 400 other manufacturers is hard. A lot of stores are already packed,” said Labitan. But currently, distribution of the Ana Romano collection includes about 80 retailers, or 250 doors, in the United States and the Caribbean, including Everything But Water, Just Add Water, Macy’s and Nordstrom. Labitan expects 2005 sales to triple from 2003.
At the same time, he’s negotiating with surf companies, both to offer design services to in-house brands and also sell the Ana Romano line. “As a fashion brand, it’s hard to cross over into the surf arena. But [designing swim] may be a way to do that,” he said.
Even for high-impact, editorial darlings with fledgling finances, like Los Angeles-based Ashley Paige, it’s not too early to plan for the long haul. She’s taking a two-pronged approach to growing her $250,000 brand by electing to keep her hand-knit swimwear business small while developing sportswear and cut-and-sew swim lines for mass production.
Corporate takeovers, she said, are a long way off, because she isn’t quite ready to trade in one set of challenges for another. “I’ve always dreamed about getting bought out because it seems so glamorous. But I’m not in a hurry. There are things to learn at every level of the game, and I’ll probably learn something new the day I retire.”