Making waves: Apparel Ventures hits lull with loss of label.

Warnaco Group Inc.'s purchase of Ocean Pacific Apparel Inc. last year is resulting in some nasty ripple effects for Los Angeles-based swimwear maker Apparel Ventures Inc., which for seven years had a licensing deal to make OP-branded suits.

No longer. Warnaco is now making Ocean Pacific swimwear, and Apparel Ventures also lost the license to make Tommy Bahama swimsuits. Those deals ended at the same time that sales flattened at the company, said Apparel Ventures chief executive Marvin Goodman.

So Goodman and Howard Greller, the new chief merchandising officer, have been charged with dressing up the company's assets.

The privately held business, with annual revenues of around $90 million, struck a licensing deal with Local Motion Inc., a Hawaiian brand with old-school surf roots going back to 1937. It has acquired Waterfront Design Group Co. for $20 million and will take over the license for Rampage, a teen clothing line (retailers are more interested in proven brands).

"With OP moving away, we felt that we were missing the surfwear component," said Goodman. "The brand (Local Motion) connotes surf. We seized that opportunity."

The loss of the OP and Tommy Bahama licenses, along with Apparel Venture's subsequent dealmaking, has become standard procedure these days among local swimwear companies. With competition fierce and revenues leveling off, companies are being forced to poach each other's swimsuit brands and related design expertise.

The license jockeying is also the result of consolidation both in the retail business and the feeder apparel industry. Licensing deals frequently move when companies gain new parents and there is pressure to keep a foothold in stores.

Apparel Ventures is among several local companies subject to the whims of licensing deals (although it does manufacture its own brands that include La Blanca and 2 Bamboo). Liz Claiborne Inc. just dropped its licensing relationship with Los Angeles-based Maxine Swim Group Inc., better known as Manhattan Beachwear, while Tommy Hilfiger Corp. signed up with Tustin-based Raj Manufacturing Inc. after Jantzen Inc., Hilfiger's former licensee, was bought by Miami-based Perry Ellis International. (Last week, there were reports that Hilfiger is preparing to put itself up for sale.)

At its most basic level, sales determine whether a licensing deal goes from one company to another. A swimwear manufacturer typically pays royalties of 5 percent to 8 percent of net sales to the licensor. It also funds advertising campaigns and presents products at shows, such as the annual Miami swim show.

But licensing deals, which typically are subject to renewal after two or three years, can be complicated by other factors. A deal sometimes breaks down when companies no longer see eye-to-eye about the direction of a brand, which can involve design or distribution.

"Licenses are like marriages," said Alex Bhathal, executive vice president of Raj. "Generally, licenses don't change hands unless there is a failure somewhere."

Nibbling at market share

Until the 1990s, large swimwear companies like Apparel Venture and Raj didn't have to cut licensing deals, instead concentrating on their own brands. They left licensing to smaller companies.

But those smaller companies began nibbling away at market share. At its highest point, Goodman said Apparel Ventures' market share exceeded 20 percent. Now, it's around 15 percent.

Meanwhile, swimwear industry annual sales have been fiat, at about $3.65 billion, according to the NPD Group.

Warnaco Swim Group, a Commerce-based division of New York-based Warnaco that manufactures Speedo and Calvin Klein suits, saw revenues tumble 1 percent in the second quarter.

For many of these companies, the recent swimwear season--June and July are the most important months in the industry--has been especially trying. In most of the country, the weather didn't prod customers to buy beachwear and sales slumped.

The ongoing retail consolidation, mostly notably Federated Department Stores Inc.'s acquisition of May Department Stores Co., has been a further cause for concern.

For now, Goodman said he's not planning to add more brands, instead concentrating on Local Motion swimsuits, which will begin to be shipped in September. "We are going to try to build that and make that the best we can," he said. "We have probably nine, 10 labels that we are working with. At some point, the plate runneth over."

As for the new season, Goodman says he is encouraged. "Bookings are excellent," he said. "My feeling is very positive going into the season."