The public savings banks in the northern German state of Schleswig-Holstein probably hold one of the oddest investments of all German banks. One of the subsidiaries of the state’s conservative Sparkassen association owns 13 percent of shares in the country’s most famous sex shop chain, Beate Uhse.
But what makes for a good story currently does not make for a good investment. The share is traded at only €0.22, and the company’s financial situation is precarious. At the core is Beate Uhse’s failure to leave its filthmonger image behind and turn itself into a modern lifestyle brand.
Instead, inflated prices and defective goods have chased customers away. Some 70 years after founder Beate Uhse, a wartime pilot and businesswoman, started Germany’s first "specialty store for marital hygiene," the company might be running out of steam.
In 2015, sales dropped by 10 percent year-on-year to €128 million ($149 million). The erotica company made a loss of €18 million that year.
Some observers told WirtschaftsWoche they assume that shedding the unit was an emergency sale to get cash.
This downward trend has been steady for years, and has eaten up nearly all of the company's equity. Between 2009 and July 2016, the firm’s capital reserves shrunk from around €100 million to just under €5 million ($5.5 million). And there’s no light at the end of the tunnel. Management just admitted to only meeting its minimum expectations for 2016, an operating result between plus €2 million and minus €1 million.
Despite the long-running restructuring and the remodeling of formerly dingy stores, shops attract fewer and fewer customers, and online shopping is down too.
Insiders said the problem is mismanagement. Several former employees told WirtschaftsWoche about low-quality products, particularly vibrators. Instead of tackling the problems, the company hiked prices considerably in 2015.
“And then leadership wonders why sales plummeted,” one former employee said on condition of anonymity.
Sources also said that the firm experienced problems with supply of some of its products, for example fur-lined handcuffs. According to those sources, management told employees to spread out other items across the shelves to conceal the gaps.
Another problem lies with the firm’s marketing, which is infrequent and doesn’t attract wide attention. Beate Uhse has only uploaded four videos to its YouTube channel, which were watched a total of 5,660 times. By comparison, arch rival and online sex shop Amorelie reaches twice or even thrice as many people with each of its marketing videos.
Many of the firm's campaigns also keep targeting the classic male clientele instead of confident, modern women, as Amorelie does. WirtschaftsWoche learned recently from an internal study that many still consider the company’s image to be a bit sleazy.
And as if Beate Uhse’s situation wasn’t already dire, management is losing trust among investors. The company recently promised shareholders to have its business vetted by an auditing firm, and yet no report has materialized. Rumors emerged that the company didn’t have enough money for the project, but WirtschaftsWoche found that the company simply saw no point in actually doing the study after it failed to convince shareholders to postpone an interest payment in July. Management never communicated this decision.
Even more curious was a deal reached in late September. Beate Uhse sold its subsidiary Beate Uhse New Media, its entertainment unit that contains its pornography business.
The buyer was the Swiss tmc Content Group AG, in which Beate Uhse holds 27 percent. Another 10 percent can be traced to a Luxembourg-based firm called A.J.L. Associates S.A. According to WirtschaftsWoche's research, Gerard Cok, head of the non-executive supervisory board at Beate Uhse, is a member of the management board at A.J.L. Associates. Another 35 percent belong to the Dutch Letni B.V., which is attributed to Consipio Holding B.V. Consipio holds around 30 percent of all Beate Uhse shares and is also attributed to Mr. Cok and his family. It looks like the clan made a deal with itself.
Beate Uhse management justified the sale of its subsidiary claiming that it will be better able to focus on sales. But only a year after the company announced it would actually expand its entertainment unit in its annual report. In this year’s mid-term report Beate Uhse still reported that it improved its online offers. The company might have invested in the entertainment business just before selling it.
Some observers say they assume that shedding the unit was an emergency sale to get cash. Others speculated that the Cok family just wanted to get the juiciest piece of the company for themselves.
Beate Uhse New Media did turn a profit of around €1 million in 2015. In the first six months of 2016, the subsidiary earned €260,000 in profit, which would likely have added up to €500,000 for the whole year. The unit was sold for around €1.5 million, three times the profit, WirtschaftsWoche has found. That is a steal even for a struggling company.
The new Beate Uhse Chief Executive Nathal van Rjin, who took over the helm in late September, will have to turn around online sales and integrate the store network. The Dutchman would need to invest heavily to that end, but the company’s financial worries are set to worsen. In 2019, a bond worth €30 million ($44 million) will mature. The firm also has to stem annual interest payments of €2.3 million.
Beate Uhse has enough equity to make two such payments. Where will the rest of the money come from if there isn’t a sudden boom in business? WirtschaftsWoche sent this and other questions to the company for comment, but got no reply.
This text first appeared in WirtschaftsWoche. To contact the author: [email protected]