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SMALL BUSINESS

Soap factory staves off a trip to the cleaners

Facing foreign competition, Shugar Soapworks, a family business, stays afloat by cutting costs, innovating and serving clients like Trader Joe's.

February 14, 2007|David Colker | Times Staff Writer

One day in 2005, nearly half the business of the last major soap factory in Los Angeles suddenly went down the drain.

Shugar Soapworks Inc. made private-label soaps for hotels and retailers at its South Los Angeles plant. If you stayed in a high-end hotel in Las Vegas, odds were that the individually wrapped soaps in the bathroom were made there.

"We had hotels with 4,000 rooms and 95% occupancy," owner Dan Shugar said. "That's a lot of soap."

But then the middleman who contracted with him for the Vegas hotels uttered the word perhaps most dreaded by stateside manufacturers: China. Shugar couldn't meet the price quoted by a Chinese manufacturer and he lost the contract key to his operation.

It's the kind of blow that many companies never get over. But Shugar kept the family business alive through drastic cost cuts and mechanical innovation.

"I said to myself that I would live to see another day."

Currently, the company makes private-label soaps sold at the specialty Trader Joe's markets and the discount 99 Cents Only Stores.

Cleaning up in the bar soap field isn't easy these days. "Bar soaps are mature and considered increasingly mundane by many U.S. consumers," research company Euromonitor International said in a 2006 report.

It's not that people are less clean, they're just turning to different kinds of hygiene products.

Three years ago, liquid body washes started outselling bars for tub and shower use, Euromonitor found. This phenomenon was mostly due to women preferring body washes, but men are catching up.

"Products like Axe body wash have really strong marketing that is sex-based," Euromonitor analyst Roman Shuster said. "They are saying to men, 'If you use this product, you will have lots of women coming after you.' "

U.S. bathers spent about $1.6 billion on body washes and $1.2 billion on bar soap last year. Liquid hand soaps, also on the rise, took in $672 million.

The Los Angeles area used to be awash in bar-soap manufacturing. Procter & Gamble made Ivory in Long Beach, Lever Bros. produced Dove in the City of Commerce, Los Angeles Soap Co. made White King downtown and Jergens turned out products in Burbank.

Dan Shugar's father, Arnold, got into the business 38 years ago, specializing in ball-shaped, fruit-scented soaps sold at Akron and other local discount chains of the era.

Dan Shugar joined the business at age 19. He helped get the company into licensing deals in the early 1990s tied to popular movies, television shows and sports.

They produced soaps in the shapes of characters from "Toy Story," "Batman Forever" and the "Power Rangers" show. The last licensing deal they made was for a NASCAR-themed bubble bath sold in plastic oil cans.

But licensing was getting more expensive and hazardous. "The market matured and got overdone," Shugar, 40, said. "Movies came out that were geared to products, and if they were not hits, you could get burned."

In 1999, Shugar bought the company from his father. By then, the major soap makers were gone from the area. Los Angeles Soap shuttered in 1987 after 127 years in business, the victim of competition and flat demand. Others closed plants in the name of consolidation.

Shugar turned to private labels, a business some of the majors had dropped. In 2000 came the hotel contract that eventually supplied the Mirage, the MGM Grand, Treasure Island and others.

At the height of the operation the company had 12 employees working in the 15,000-square-foot building.

As renewal of the hotel contract approached, Shugar became concerned. "I knew in the back of my mind that China would be the competition," he said. "But being that Las Vegas is so close, I thought savings in shipping would help us."

But he couldn't beat the quote from China.

With the loss of his biggest contract, he dropped down to three employees.

Hoping to trim one of his biggest remaining expenses, electricity, he contacted the Department of Water and Power. "They told me if I could shut down by 1 p.m., they could give me a much better rate," Shugar said. He moved the plant's starting time back to 5 a.m. to meet the cutoff time, resulting in 40% savings.

One of his most valuable assets was his mechanical engineer, Cheng Lim, who came to Shugar from Jergens when that company closed its Burbank plant in 1992. Lim could have stayed with the giant company, based in Cincinnati, but "my wife did not want to go," he said. "Too cold there."

Lim adapted the Shugar production line for use by fewer employees.

For example, a worker once stood at a conveyer belt to pick up the finished bars of soap, one by one, and turn them 90 degrees in preparation for the wrapping machine. Lim divided the belt into two strips, with one traveling slightly faster than the other. The bars thus turned without human intervention.

"Without him," Shugar said, "I would have to move to China."

The company has recovered enough to add an employee, but Shugar sometimes operates a forklift in addition to doing all the sales and administrative work.

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