Sex not selling for European erotic companies

FLENSBURG, GERMANY: Europe's biggest chain of sex shops is turning its back on sleazy red light districts by moving uptown and up market in search of new customers.

Beate Uhse, which dominates Europe's erotica market, is establishing a range of city centre boutiques that aim to attract a wider clientele.

"The traditional sex shops will not survive as they are," said Otto Christian Lindemann, the German group's director.

Beate Uhse's flagship products, porn films and special film screenings, are no longer making money for the company.

These days, clients prefer to surf the Internet where they can often download films for free.

As a result, DVD prices have tumbled.

"In the 1990s, a video cassette cost the equivalent of 40 euros ($54). Today, you can find DVDs for as little as 10 euros," said Richard Fhal, boss of Concorde, a French wholesale dealer for Beate Uhse.

The German firm's recent financial history reflects this change in the market and makes uneasy reading. Bulk, mail order and Internet sales are all in trouble. And that's not counting some other difficulties closer to home.

Customers have complained of long delays in receiving their mail order goods. Also, there was controversy surrounding a range of Beate Uhse vibrators that tried to cash in on World Cup fever.

Launched during last summer's World Cup football tournament hosted by Germany, the vibrators bore the names 'Olli K' and 'Michael B,' but had to be withdrawn after two German players, Oliver Kahn and Michael Ballack, threatened legal action.

Finally, flooding at its distribution centre in the Netherlands ruined all the company's Christmas stock. As a result, net profits for 2006 dropped by 30 per cent to 10 million euros.

But the company is not finished yet. The resilient personality of its founder, Beate Ushe, a World War II fighter pilot, lives on.

To turn around its ailing fortunes, a new strategy must be found. In the view of one analyst, Beate Uhse holds a trump card over its competitors.

"The Beate Uhse brand is renowned throughout Germany, Austria and Switzerland. It's a good asset to have over the competition," said Stefan Rohle, an analyst at the Institute for Independent Research.

Lindemann's magic pill is to replace the hard-core porn magazines and tawdry dildos with colourful sex toys and risque underwear aimed at both men and women.

A new store in Munich opened in January with the aim of testing this concept.

"Eroticism is part of all our daily lives," Lindemann said. "With this shop, we are reaching out to new customers, who go there to browse after doing their Saturday shopping. We will continue to make porn, but it will targeted at a much wider audience."

For sex industry watchers, this idea is a bit passe. Five years ago, Beate Uhse announced similar measures. In 2003, it opened Mae B, a new chain aimed exclusively at women which failed.

Fhal, the French wholesaler, said this was because women tend to be more discreet about their sexuality than men. Women prefer the discretion of mail order where half of all customers are female. All this comes a little too late, but better late than never," said analyst Rohle.

Klaus Kranzle, an analyst at GSC Research, said it was not clear that the new proposals 'will bring in much money'.

Lindemann disagreed. "We cannot change overnight," he argued and insisted that the strategy taken 'is the right one'.

This time, however, there is little or no margin for error. The company's principal shareholder, Ulrich Rotermund, son of the company's founder, is looking to sell his share of around 28 per cent.

This has sparked fears the group will be broken up, a possibility rejected by Lindemann.

Beate Uhse remains hopeful that sex will start selling once again.