LOS ANGELES — One day in 2005, nearly half the business of Shugar Soapworks Inc. suddenly went down the drain.

The company 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 percent 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 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 — housed in a former automobile battery plant — 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.

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 liquid 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 soap 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.

Shugar's father got into the business 38 years ago, specializing in ball-shaped, fruit-scented soaps sold at local discount chains.

After a brief stint in college, 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.

The father and son 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 growing more expensive and hazardous. "The market matured and got overdone," the 40-year-old Shugar said. "Movies came out that were geared to products, and if they were not hits, you could get burned."

Another problem was working as a father-son team. "You can't just cut off from the business and go home at the end of the day," he said. "At dinner my father would say, 'My son messed up and we lost an account.' "

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 hotels 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 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.

Sales last year were $2 million, about half what the company brought in when it had the hotel contract, but the operation has edged back into profit, Shugar said. Still, the company remains vulnerable to overseas competition.

Through the struggles, he has come to increasingly respect soap as a way to make a living.

"When my dad was doing it, maybe I thought of it as just a business," Shugar said. "But we are making something that helps make people clean, healthy. It makes you feel good.

"Now I think I am doing something cool."