Behind the scenes

Shop-Eat-Surf: Raj Swim Makes Bold Moves With Eye to Future

Monday, November 7, 2016

shop-eat-surf

Posted: October 2, 2016 11:09 PM

A lot of companies talk about adjusting to younger consumers, the digital revolution, and the rapidly changing retail environment.

Raj Swim is doing more than talking– they are taking dramatic steps to leap into the future.

Raj Swim has been in the business for 50 years, and is now owned and operated by Alex Bhathal and Lisa Vogel, the children of the founders.

Alex handles all sales, production and finance. Lisa oversees design and merchandising, marketing, advertising and licensing.

The company, which has 450 employees and its own domestic manufacturing facilities, owns several swim brands including Athena, Basta Surf, NEXT and LUXE by Lisa Vogel and holds the license for Reef, Ella Moss, Splendid and Nautica. They used to license Oakley and Hurley swim, but don’t anymore.

Raj’s largest brand, also the fastest growing, is NEXT, an active swim brand aimed at the SUP market and beyond. NEXT has diverse distribution and is carried at Nieman Marcus, Lord & Taylor, Dick’s Sporting Goods, Zappos and surf shops.

Raj is leaping into the future by transforming itself from a traditional wholesale manufacturer to a consumer-centric digital company focused on its own retail and e-commerce initiatives as well as partnering with retailers in new ways.

It is rethinking all of its internal processes and the fundamental way it approaches business. Internally, this transformation is called Swim Quake.

“Swim Quake is all about being digital and consumer-centric in how we do commerce and how we manage our procedures internally,” Alex said.

“This is requiring everybody in the company to be open to change and that can be challenging,” he said. “We have some very good people who have done things certain ways who are being challenged to change and modernize and update.”

“We are questioning everything,” Lisa said. “Why are we doing it this way? Are we doing it because we’ve always done it this way? Is there a new way, a better way, a way to incorporate technology?”

Big changes in seasonal deliveries

One of the biggest modifications Raj launched this year is a major change to its seasonal delivery calendar.

Like most swim brands, Raj used to launch a new season in June and that product would carry through with reorders until the end of May of the following year.

Now, depending on the brand, they have broken the product cycle into three to five seasons.

“We’re doing smaller vignettes more frequently and trying to be more consumer-centric,” Lisa said. “It’s about buy now, wear now. We also want to be trend right, and that’s easier to do when you are designing closer to market.”

“We are thinking of the customer first,” she added.  “It’s 90 degrees outside. Do you really feel like buying a coat right now? Then it will be freezing and stores will have swim on the floor.”

And that is the real difference. Raj is now making business decisions based on consumers, rather than buyers.

I asked Alex and Lisa how retailers have responded to the seasonal order change.

“The feedback we are getting is that they understand the value of having faster reactions to fashion trends,” Alex said. “But it’s a big change for them because instead of allocating all their dollars up front at one time, we’re asking them to basically save dollars to spend over the course of the year.”

That comes with a risk that other brands may grab those open-to-buy dollars.

“There is definitely a risk in that but it is one we’re comfortable taking,” Alex said.

“Because in the long term, it’s really the right thing to do,” Lisa added.

Designing for the floor, and online

The design team has also transformed from creating a traditional merchandise plan to designing in-store assortments.

“It’s built around how it will appear on the retail floor and how it appears online,” Lisa said.

How the suit will look online has changed the way Raj designs. It’s asking questions like, “Is this the right texture? Will it show up online in a photograph? Is it worth investing in this special fabric?”

“It makes you look at things very differently,” Lisa said.

For many years, a huge design consideration was the hanger appeal of a suit. How will it look on a hanger in the store – does it have too many straps? Will the consumer understand it?

“Now with online selling, the suit is modeled on a body so it’s taken the design to another level with what we can do,” Lisa said.

Direct Sales a Focus

Raj is very committed to its retail initiative. It owns a retail chain called Swim Spot, which has nine stores – five are permanent and four are seasonal or on short-term leases.

One is at the Ala Moana shopping center in Hawaii and the rest are located in Southern California.

The stores carry Raj brands and products from other brands as well.

Raj believes it is crucial to have direct communication with consumers, which has led to some big product wins.

Four years ago, Raj designed a new style for its NEXT brand that buyers were skeptical of. Not one unit got placed at wholesale.

Raj tested 60 units at SwimSpot and it blew out.

They shared that information with their wholesale sales force, and the next year, specialty stores picked it up, and it sold well again.

“In year three, we told the story to many of our major customers including Nordstrom, and Nordstrom placed a pull page of the style, and they sold like 90% within 10 days,” Lisa said. “It was crazy.”

Though retailers can be sensitive about brands selling directly to consumers, “What I always tell retailers, and it’s the truth, is we’ve become smarter having this division of our company,” Lisa said.

The stores provide a rich flow of information and learning. Beyond seeing what’s selling, the store staff also tracks dressing room conversions – which suits are taken into the dressing room and which styles turn into sales.

“If we notice a pattern of a suit going in but not getting sold, we can pick up on an issue with fit, and we can try to fix it,” Lisa said.

“It’s really helped us become a smarter supplier to the market with better products, better brands, and better knowledge,” Alex said.

Selling swimwear requires great customer service. That’s a big focus for Raj, which provides intensive training for its retail sales force four times a year on the various suits, how suits can help a women’s figure, complimenting certain areas or camouflaging others.

SwimSpot has posted positive sales despite the challenging retail climate. Same store sales grew 12% for the year ended June 30 2016, the company said.

There are some big swimwear chains out there already – Everything But Water and Diane’s come to mind. I asked Lisa and Alex if there is room for another player.

“We’re finding that there is,” Alex said.

So are more SwimSpot stores on the horizon?

“We believe it’s the future of the company,” Lisa said. “We will always have a wholesale model as well.”

“Our goal is to have a successful wholesale model which is supplemented by a direct-to-consumer model,” Alex added. “That direct-to-consumer model consists of e-commerce as well as an appropriate amount of swimwear stores in key markets.”

All together, the retail and online sales account for 5% to 10% of total company sales. Alex declined to provide a specific figure.

The Exit of Private Equity

Alex and Lisa bought their parents out 10 year ago. With that came a lot of financial complication because they had to recapitalize the business, which meant taking on a lot of debt and private equity partners.

Since then, they have been working to simplify the financial structure and have paid off the sub-debt, paid down the acquisition debt and refinanced the private equity partners, who now only own a very small piece of the business and do not have a board seat.

They wanted to go back to the company’s more simplified financial roots.

“We have the bank, and we have our family,” Alex said.

Importantly, they also wanted more freedom to control the future of their own company, and to do that meant moving private equity out.

“As you know from talking to companies with private equity, sometimes you don’t always see eye to eye,” Lisa said. “And for us, the future is being digital and consumer-centric.

“We have a retail strategy with SwimSpot,” she said. “And the “R” word is scary to private equity.”

Finances and Investment

In addition to simplifying its finances, Raj has focused on investing in its factory and brought in more state of the art machinery. They also upgraded their headquarters, and built a new showroom in New York City.

They rebranded the company from Raj Manufacturing to Raj Swim.

“We think the new name reflects who we are and what we do as we evolve the company to be a vertical swimwear platform instead of a traditional wholesaler and manufacturer of swimwear,” Alex said.

The company has also expanded its management team, and invested in bringing talent into the company.

New hires include SVP Marie Takeshita, a long time Nike executive who also spent time at Fox Head; SVP of Brand Management Natasha Thomsen, also a former Hurley and Nike executive; Jim Wilcox, Director of Supply Chain; Director of Finance John Vo; and Key Account Executives Sasha Hartloff and Danielle Maggi-Ross.

Despite the investments Raj remains profitable, Alex said.

“We always have been, and we plan to always be,” he said.

The 2015/16 Swim Season

I asked Alex and Lisa how their last fiscal year, which ended June 30, turned out.

“There has been a lot of turmoil in distribution with the big box stores going out of business and reliable, long-term customers filing for bankruptcy,” Alex said. “So wholesale was challenged. And then there is a lot of pressure on stores because of the rise of e-commerce and the rise of the millennial.

“Plus, the category has a lot of fragmentation going on. A lot of bigger companies are having challenges. Then there are more, smaller brands than ever that are hopping up and having successes.”

However, Alex believes swimwear as a category, while not recession-proof, is an affordable luxury and has held up pretty well.

“If we look at the actual retail selling of our brands and products and the category in general, swimwear had a decent year. It’s just in the context of a very challenging environment,” he said.

The fragmentation of the market is quite interesting as is the rising influence of small brands.

In the past, a brand might catch a trend and have two or three years of success. But often they were undercapitalized and not capable of building on their momentum, Alex said.

“But in today’s world, when they catch something, those spikes can be pretty powerful because of direct-to-consumer and social media,” Alex said.

While the changing consumer landscape is challenging, it’s also invigorating, as is Raj’s attempt to transform into a consumer-first company, Lisa said.

“It’s so exciting to be able to talk directly to the consumer and learn from her and just become smarter with what we’re doing downstairs (with design),” Lisa said. “I also think this trend of smaller brands popping up on Instagram is very interesting.

“It’s exciting because it makes us do even a better job,” she said. “We have to work that much harder.”

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