Beate Uhse Banks on 3-D Porn for Sex-Shop's Rebound

Beate Uhse AG Chief Operating Officer Serge van der Hooft is banking on 3-D porn movies to lead a sales revival at Europe’s largest sex-shop chain.

After free-of-charge online movies led to a slump in revenue from videos and DVDs, Van der Hooft aims to start a fightback with multidimensional films such as “Octopussy,” a parody of the James Bond classic that was released this year.

“We will definitely invest in this business,” the 33- year-old executive said in an interview at the company’s Dutch wholesale center in Almere. “The sale of erotic movies on DVD fell within a few years from top to flop because of the surprisingly fast emergence of free porn on the internet.”

Expanding into 3-D porn is part of Beate Uhse’s goal to stem four years of declining sales. The retailer, which has been barely profitable since 2006 and forecasts a loss in 2010, is also introducing products such as bath towels and skin creams and may close some outlets and sell assets, van der Hooft said.

“This may all come too late now as Beate Uhse might not have the strength to finance the turnaround,” said Klaus Kraenzle, an analyst at GSC Research in Dusseldorf. He has a “sell” recommendation on the shares, which have lost 97 percent of their value since the end of 2003, slashing the company’s market value to 33 million euros ($42 million).

Beate Uhse fell 1.6 percent to 42 cents today in Frankfurt trading.

Going Public

The business was founded by Beate Rotermund-Uhse, who began by selling condoms by mail after World War II and took the company public in 1999, two years before her death in 2001.

Hardcore movies, a major profit generator for the Flensburg, Germany-based company, declined to 17 percent of revenue last year from about three-quarters 15 years ago and one-third in 2006. With customers no longer willing to pay as much as 100 euros for a film, as they did a decade ago, margins have shrunk, Van der Hooft said.

The 3-D version of “Octopussy,” in which Danny Mountain plays the character James Bone, went on sale last month in Beate Uhse stores and outlets which the company supplies as a wholesaler at prices ranging from 59 euros to 79 euros, depending on location. The chain also sells titles such as “Roma 3,” an erotic costume drama in which rebuilt ancient temples and palaces serve as backgrounds.

Production Costs

Production of the movies can cost more than 300,000 euros, according to sales director Raymond Houtenbos, at least 10 times more than low-budget films and amateur movies which can be found for free on websites such as youporn.com.

Beate Uhse’s 3-D business is in a test phase, according to Van der Hooft. “We need to see how people will react to things coming at them in a 3-D porn movie,” he said.

3-D movies, which first appeared in cinemas in the 1920s, gained a resurgence of popularity with the December release of News Corp.’s “Avatar,” the world’s top-grossing motion picture.

The sex-shop chain, which has 258 stores in 11 European countries, aims to compensate for falling sales of erotic toys and clothing with so-called lifestyle products, such as bath towels and skin creams, the executive said.

The need to introduce new products has been hastened by increased competition in the company’s traditional markets. Royal Philips Electronics NV, Europe’s biggest consumer- electronics maker, started selling vibrators last year. Clothiers including Hennes & Mauritz AB and Inditex SA’s Zara chain are selling “sexy lingerie,” according to Kraenzle.

‘Private Porn’

The company has also introduced the so-called “private porn” marketplace on its German website, allowing amateurs to upload their home-made videos and to sell them to anonymous customers on the web. Beate Uhse earns money by charging a fee for the online service.

Beate Uhse reported a first-half loss before interest and taxes of 6.1 million euros as revenue fell 12 percent to 96 million euros. The retailer cut annual sales and earnings forecasts last month, and now expects a loss of as much as 8 million euros for the year, while sales will fall to as little as 204 million euros from last year’s 231 million euros.

Sales have “stabilized” this summer, Van de Hooft said.

The executive said he’s unable to predict whether Beate Uhse will return to profitability next year. The company plans to close more of its own retail stores, mainly in the Netherlands, Belgium and France, and will consider selling assets and curtailing its international expansion, he said.

“A turnaround is a Herculean task and I doubt that Beate Uhse will be successful just with nice new DVDs or overknees that one can buy elsewhere,” Kraenzle said. “These days the internet brings all kind of content for free and sexy clothes are available at any other retailer.”

To contact the reporter on this story: Holger Elfes in Dusseldorf at helfes@bloomberg.net.

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