Germany's Beate Uhse, the world's largest sex retailer by revenue, is investing heavily to adapt its image to changing tastes and morality and plans to build its brand through new 'lifestyle' products including drinks.

The company -- whose sales fell back in 2006 after a long run of growth -- is spending up to 5 million euros ($7 million) a year to revamp its stores, and putting more money into what it hopes will be "more fashionable products."

"We have love bags, which is a bag with products that make sex more fun, exciting," Chief Financial Officer Otto Christian Lindemann told Reuters in an interview.

"Take a love bag home, have a love experience."

The love bags, with names like One-night and Sexplorer, contain lubricants, vibrators, body paint chocolate, champagne and CDs of erotic stories, among other products.

The company says the days when a sex shop's main function was selling porn to men are over. The Internet has allowed men to watch porn at home: DVD sales are down. So Beate Uhse is trying to lure more women and couples to its stores.

Porn's share of sales has fallen to about 35 percent and will decline more as erotica products gain and the company starts offering other products like wine and beer, joining other firms extending their brands deeper into people's lives.

"There is going to be a big shakeout in the sex shop retail business in Europe," Lindemann said. "Europe has thousands of sex shops, most of them strongly dependent on DVDs. Many of them will not survive.

"In the future we'll still have DVDs but not that many," said Lindemann, whose company had sales of about 271 million euros in 2006, higher than Playboy or Larry Flynt Publications, which publishes Hustler (porn, adults only).

Finding a subsititute for the bread-and-butter DVD business and luring women to its shops will be tough, as Beate Uhse has found before with its Mae B stores aimed primarily at women. The last of three Mae B stores will close once its lease runs out.

Its new store in Munich and recently renovated shop in Dortmund are divided into four sections. Near the entrance are "fun products like massage oils, lubricants," Lindemann said.

Then comes lingerie, where women can change in cabins and check their look under different lights. The third part contains DVDs and the fourth what he called "harder stuff" like dildos, handcuffs and leather attire.

Beate Uhse, started in 1946 by a former female pilot with the same name, is determining how many of its roughly 130 company-owned and franchisee stores in Germany to renovate.

It operates around 330 sex shops in 11 countries and has mail-order operations in nine.

Beate Uhse is "one of the top-selling" firms in the sector, Gregor Elze, an analyst at BayernLB, wrote in a research note.

"By expanding into countries it has declared promising new markets, notably Poland, Slovakia, Spain and the Czech Republic, Beate Uhse should generate substantial sales growth," he said.

One of only a couple of analysts covering Beate Uhse, which is 60 percent owned by five private investors, Elze rates the share a "buy" with a target of 5.12 euros based on its growth potential.

Beate Uhse shares have performed weakly, underperforming German retailers and trading between 3.3 and 6 euros in the past year. That is below their 1999 stock market debut of 7.20 euros and a peak around 29 euros during the Internet boom in 1999.

"We're in really good shape to have good figures in the future because the infrastructure is set up. 2007 will be a year of transition," Lindemann said.

"At the end of the day, whatever new direction we take, we want to earn money. Selling erotica is different than selling porn. And we are going to do it right."

But it may yet prove challenging.

At the Beate Uhse store near Hamburg's main train station on Saturday night all six customers were men. And one of them told Reuters he would never buy Beate Uhse beer.

Also ...

Goethe, Einstein and Porn Entrepreneur Inspire Germans

Daily Times, 9/29/05 - What can Germans facing the harsh realities of modern life draw inspiration from? How about Einstein, Beethoven, Goethe and a chain of sex shops, a new campaign aiming to reinvigorate the national psyche says.

While politicians argue about who will lead the next government, Germany’s media have joined forces on a mass advertising drive entitled “You are Germany” that seeks to remind people of what has made the country great.

Organiser Bernd Bauer said with a mood of despair gripping Germans amid soaring levels of unemployment, weak growth, political standstill and even bribe-taking soccer referees, as many people as possible needed to be roused into action. “We’ve been down in the dumps — and we thought that this was a great way of trying to get us back out again,” he said. “It’s a fantastic and versatile country that we live in.”"

Double spread newspaper adverts urge readers to see themselves as successors to Germany’s famous sons and daughters ranging from scientific geniuses — “You are Albert Einstein” — to racing driver Michael Schumacher or entrepreneur Beate Uhse.e.

Having flown planes for the Luftwaffe in World War Two, Uhse afterwards built up a huge business empire selling sex products by mail order and in a chain of shops across 13 countries.

Celebrities and ordinary Germans rub shoulders in television commercials for the project, which has had huge exposure and is backed by 25 leading media and publishing firms. One of the inspirational figures used in the campaign is Ludwig Erhard, the economist widely hailed as the architect of Germany’s post-war economic miracle, a period when the country’s growth was the envy of the rest of Europe.

Political Limbo: Bauer said the campaign had been due to begin earlier this summer, but was delayed after Chancellor Gerhard Schroeder called snap elections for September 18.

Neither Schroeder nor his conservative challenger Angela Merkel won enough votes for a majority with their preferred coalition partners, leaving Germany suspended in political limbo which analysts have said could feed the general malaise. “I think as it’s still not clear who’s going to govern, the campaign has come at just the right time,” said Bauer. “You are Germany” will have cost over 30 million euros (20.5 million pounds) by the time it concludes at the end of January 2006, although all those participating are doing so at their own expense.

Bauer said most responses to the campaign had so far been highly positive, but he was phlegmatic about its likely impact. “We’re not so presumptuous as to think that we’re going to turn the country around with it,” he said. “But we think we may produce an initial spark and hopefully set something in motion.” But Klaus Schruefer, an economist at SEB bank in Frankfurt, was doubtful it would do much to help. “People’s scepticism about the future of the economy runs so deep, I don’t think it will have much of an impact,” he said.

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