Sex shops are floating and lap-dancing is thriving. Jamie Doward on a new twist to the world’s oldest trade
What do the Big Windsor pub in Cardiff, a former female Luftwaffe pilot and Dublin city centre have in common? Sex. Or rather its simulacrum.
Last week, Germany’s biggest sex shop chain, Beate Uhse, floated on Frankfurt’s SMAX, the stock market for small- and medium-sized enterprises. The public offering of eight million shares was heavily oversubscribed. Shares in Beate Uhse, named after its founder, a 79-year-old former member of the Luftwaffe, soared by nearly 80% on the first day of trading.
Given that the world is estimated to spend more than $25-billion a year on “adult entertainment”, demand for the stock is perhaps not that surprising. The success of the Erotica exhibition, the industry’s biannual trade fair at London’s Olympia, is a case in point. The first, in November 1997, was attended by 25 000. The next looks set to attract double the audience.
“People have always been interested in the subject, but we’ve taken it from the seedy back streets and brought it into well-lit, more attractive venues,” said Erotica’s managing director, Savvas Christodolou.
Erotica itself is to go public next year. It is soon to appoint a financial adviser with the intention of valuing it, in anticipation of a float on the United Kingdom Alternative Investment Market or Nasdaq in the United States.
For now, Erotica is seeking to raise up to 8-million from investors to develop its electronic commerce strategy. The company is keen to develop an online brand to help it sell sex toys.
Erotica is being advised on its e-commerce strategy by ROCQM, a marketing subsidiary of advertising giant WPP. “The sex industry is the biggest unformalised industry in the world. There are a lot of poor sites out there. We have to understand the consumer buying profile and create a model which can be taken forward,” said John Caswell, CEO of ROCQM.
Erotica is also spearheading a campaign to introduce a formalised set of trading standards to the adult entertainment industry. Such a committee would ensure companies comply with regulations. Erotica is experimenting with a number of acronyms for the new body, including Natural (National Association of Trades Universally Recognised as Adult Leisure).
“In the past, people would sell blue videos. You would pay 10 and end up with a video which showed a blue screen. They weren’t breaking the law, but it gave the industry a bad reputation,” said Christodolou.
Another example of an expanding “adult” company is Cherokee Leisure, which is developing a chain of table-dancing clubs. It floated on the over-the-counter Ofex market in 1997. The company has ambitious expansion plans, which include converting all 3 000m2 of Cardiff’s Big Windsor pub into a four- storey space featuring 30 dancers. Cherokee is soon to establish an online magazine service.
And in Dublin the 23rd Ann Summers shop is soon to open. The chain, which also makes money from catalogues and its famous parties, aims to have a shop in every major city in the UK. “I remember at a sales party years ago someone producing a vibrator and embarrassing everyone,” said CEOJacqueline Gold. “But now we’re much more sophisticated. We sell 600 000 vibrators each year.”
Impressive, but nothing like the market across the Atlantic. The US accounts for about half the global adult entertainment consumption, according to research by Wired magazine.
Playboy, publisher of the world’s number-one men’s magazine, is worth more than half-a- billion dollars. Last year turnover stood at $300-million and the company’s share price has risen from $11 a year ago to more than $30.
General Media International, owners of Penthouse, produced sales of $104-million in 1997. Larry Flynt Publishing, the privately owned company that includes Hustler in its stable, had a turnover of $135-million last year.
Stop. Rewind. Take another look at the figures. Last year Playboy made pre-tax profits of $4,3-million, only a quarter of those the previous year. Granted, the company has been investing in expansion, most notably in its recent purchase of Spice Entertainment, the media company that provides pay-per-view adult entertainment services. But the rise in the share price seems optimistic, despite the fact that the combined US and European market for pay-per- view and subscription channels is set to be worth $5,4-billion by 2003, according to Datamonitor. The company is trading on a price:earnings ratio of 180, a long way to fall if its next set of pre-tax profits fails to show signs of improvement.
General Media International, the company behind Penthouse, made a $1,9-million loss last year.
A similar picture emerges in the UK. Circulation figures for top-shelf magazines seem to be in decline. Penthouse UK, which used to sell 400 000 copies a month in the 1970s, was reportedly selling less than 30 000 when it was relaunched as an arty magazine last year. Now it sells about half that.
Meanwhile, between 1996 and 1998 FHM increased its circulation by 326% – from 182 000 copies a month to an average of 775 000. Loaded and Maxim enjoyed circulation gains, too.
And this seems to be the nub. As sex enters the mainstream and permeates new media, the old barons are struggling to keep their market share. “The Internet is a great leveller. It’s going to cause a significant shift. For too long the adult leisure industry has been dominated by a handful of players,” said Christodolou.
Adult services account for 69% of the $1,4- billion online paid-content market, according to Datamonitor – the Net seems to be the only growth area in the industry – hence the interest to get into e(rotic)-commerce.
But the lap/table-dancing industry is experiencing tough trading conditions, despite being a fledgling sector. Competition is manic. “There is hardly a one-horse town that doesn’t have a table-dancing club now,” said David Peters, Cherokee’s managing director.
Cherokee Leisure, which floated on Ofex at 20p, now trades at 14p. Its last set of results showed it made pre-tax profits of 175 000, about a quarter of those projected at the time of flotation.
Despite this, Cherokee believes a brand of upmarket clubs has a strong future. “There’s tough competition but there is a lot of money to be made,” Peters said. This may be true in terms of turnover, but not in profits.
Sex may sell. But at the moment it rarely pays.