Talking growth with Raj Manufacturing, makers of Hurley and Reef swimwear

I thought it was high time to meet the faces behind Raj Manufacturing, which recently added Reef to the stable of brands under its swimwear umbrella.

Raj has the license to make and sell several swimwear brands, including Hurley, Guess, Tommy Hilfiger, St. John, Ella Moss and O’Neill, though that license ends this summer. Raj also owns its own brands, Athena and Luxe.

I met with Co-Presidents Lisa Vogel and Alex Bhathal, the children of company founders Raj and Marta Bhathal, at the company’s offices and manufacturing facility in Tustin, Calif.

We talked about the opportunities for Reef swimwear, the growth of Hurley’s swim line, the strategy behind Raj’s new Luxe brand and the company’s international push. And of course, we talked about the impact of the recession on business.

Family Ties

The story of Raj is one of those great American entrepreneurial stories. The company was founded in 1967 by Lisa and Alex’s parents with one brand, Barefoot Miss, best known for its ruffled bandeau top loved by teenage girls back in the day.

A family trip to Greece inspired the creation of the Athena swim brand in 1983, to this day the company’s biggest brand by revenue. The business prospered, and Alex and Lisa grew up playing on the factory floor.

Lisa joined the business 16 years ago after graduating from USC, and convinced her parents to expand into the licensing business. Guess Swimwear, then a $90,000 business, was the first brand that came to Raj under a license in 1999.

Alex rejoined the business soon after, armed with an MBA, and he and his sister spearheaded the expansion into more licenses, developed an international business and expanded the company’s private label business.

Two and one-half years ago, Raj added investors from a private equity firm that previously owned Reef and restructured the business, allowing Alex and Lisa to buy their parents’ share of the company. Alex, 34, handles sales, finance, production and long-term business strategy. Lisa, who is also in her 30s, is in charge of design and merchandising, advertising, marketing, licenses and operations.

Raj and Marta are still on the board of directors and come into the office a few days a week. In fact, I bumped into Marta in the hallway when I was there, and she and Lisa discussed who was going to pick up Lisa’s son that day.

“I’m close with my family,” said Lisa. “We even vacation together. We have a passion for the business – it’s not about egos. Occasionally we’ll have a disagreement, but it’s about what is best for the business and we let it roll of our shoulders.”

Raj makes most of its products at its factory in Tustin, and can turn around replenishment orders in two weeks. That has helped as the economy cooled because the company didn’t get stuck with a lot of extra inventory. (At right, a worker sews swimsuits in the Raj factory.)

“We don’t have to make a lot of big bets,” Lisa said. “We have a ‘just in time’ system and can turn the volume up or down based on demand.”

The Orange County Business Journal estimates that Raj has annual revenue of $150 million, though Lisa and Alex declined to comment on revenue figures.

Reef and Hurley

Lisa said Raj sees a lot of opportunity for Reef swim because Reef is a well-known, international brand. Raj’s first Reef line for the 2010 season will be shown to retailers next month in Miami.

“I’m really happy with how the line turned out,” Lisa said. Previously, the line had a true Brazilian cut, which means tiny bottoms. Raj has broadened the assortment to include a wide range of fits so the suits can appeal to young women in all parts of the country.

Raj also hired Tandi South, left, formerly Reef national sales manager for girls, as vice president and national sales manager of Raj’s Active division.

Hurley’s swimwear vibe is still tomboy-sexy but a premium collection was also launched last year and is sold at high-end stores such as Fred Segal and Lisa Kline.

“Hurley swim has been a big success, there’s been explosive growth” Alex said. “Hurley has definitely emerged as a leader in action sports.”

I asked if it hurts to lose O’Neill, and Lisa said, “We already replaced those dollars when we signed Reef and Hurley.”

I also asked if Raj was looking to add more action sports labels to its portfolio. Lisa and Alex said they have spoken to a number of large action sports brands, but they feel that their portfolio is pretty complete. “It would have to be something really amazing,” Lisa said. Plus, they don’t like to have brands that overlap. “The Reef and Hurley design aesthetic is completely different,” she said.

International and private label

The international and private label pieces of the business have each been doubling, which has helped to offset the impact of the economy on other parts of the business. Sales in Australia, Japan, Canada and Mexico are particularly strong.

Raj set up operations in Europe and began selling direct there Jan. 1. The company has been focused on getting the infrastructure just right there and growing that business is a big focus going forward,

“We’ve dabbled there before,” Alex said. “It’s a big market, and it is not forgiving if you make mistakes.”

Raj has global licenses for Reef, Hurley, St. John, Ella Moss and its own brands. For Guess and Tommy Hilfiger, it has global rights except for Europe.

Wherever it can internationally, Raj plans to sell direct, Alex said.

The company’s private label business, where it makes swimwear for catalog companies and others, is also up considerably.

2008/2009 results

Overall, Raj revenues should rise in the low single digits for its current fiscal year, which ends this month.

“Flat is the new up,” Alex said. “I’d be very happy with that.”

Bright spots include animal prints, vibrant colors and detailing, including the Guess Animal Instinct bathing suit that retails for $129 that “we can’t keep in stock,” Lisa said.

But overall, “the market is tough,” Alex said. Some accounts are up 25 percent and some are down 30 percent, he said.

The most difficult part has been getting reorders, he said as retailers order less goods.

“It’s been challenging, no question,” he said. “We’ve learned more in the last year than in the previous 10.”

Luxe

Raj launched Luxe by Lisa Vogel last year. Luxe is at high-end line aimed at women 29 to 49 and is currently sold at upscale hotels, resorts, spas and boutiques around the world. The plan is to build the brand at the best distribution and then grow from there when the time is right, Lisa said.

The future

Looking ahead, Alex and Lisa envision continuing to grow all the pieces of their business, including increasing their apparel offering to have an expanded definition of cover-ups and beach attire.

Taking the company public is not in the cards, however. “We will always be a family business,” Alex said.