Let's get this out of the way right up front: The internet gold rush is over, at least when it comes to garden-variety adult-product websites. Gone are the days of "if you build it, they will come." Today's virtual marketplace is no place for sissies—or those short on budget, for that matter. It takes time, money, patience, and a good deal of chutzpah to build a profitable online presence.
Profit isn't the only worthwhile goal for online storefronts these days. True, it would be nice if all of a company's endeavors could avoid becoming money pits, but sometimes it helps to think of online branches of real-world businesses as brand-building and consumer-convenience exercises instead of merely profit centers in their own right.
It's also worthwhile to bear in mind one guiding thought: No business that hopes to remain competitive in any industry can afford to be without at least a modest internet presence. Whether your company dreams of the day it can exist solely in cyberspace, needs to provide a 24-hour resource for customers who might be unable to shop during regular business hours, or simply wants to remind consumers it exists, the web provides a wealth of opportunities beyond e-commerce.
From concrete to abstract
The good news—at least for adult novelty retailers and distributors—is that while the video end of brick-and-mortar adult entertainment seems to have slowed a bit in recent years (some retailers, distributors, and producers report their video sales are off by as much as 30 percent, partially due to competition from the web and broadcast media), adult novelty retail remains strong. In fact, according to Bo Kenney, chief executive officer of retailer and distributor LGI Digital, "the sex toy business is thriving." Although Kenney admits he'd one day like to conduct all of his consumer-focused activities online, for now he's adding more novelties to his retail mix to boost the bottom line.
So is Castle Mega Store Corp. President and Chief Executive Officer Mark Franks, who says he believes "the future [of brick-and-mortar adult stores] is the superstore—like Lowe's, Barnes & Noble, etc." Castle Mega Stores recently completed a $500,000 remodeling job, because Franks says his goal is to attract real-world consumers who "would not normally go to 'an adult store.'" Big, bright, clean locations that display lots of product in a non-threatening environment make consumers (especially women, who may compose as much as 60 percent of novelty buyers) feel safe, he notes — and that encourages them to visit more often.
Interestingly, it's those same characteristics – combined with anonymity – that draw consumers to online shopping, and adult novelty retailers and distributors who are not actively seeking virtual traffic may be missing a large chunk of potential revenue. Not only does a web-based outlet allow real-world businesses to serve the changing needs and desires of existing customers, but it also allows them to capture customers well beyond the reaches of their geographical locations.
That's a large part of the reason novelty powerhouse Adam & Eve opened a web-based storefront 10 years ago. "It's given us a much broader reach around the world," says Director of Web Marketing Jennifer Alberry, who notes the company really didn't seek international buyers when it was strictly a mail-order house. "The internet has allowed us to be exposed to so many more people." In fact, although the company continues to sell its videos and books at a pretty brisk clip via catalog marketing, "Our toys do way better online," she says.
Virtual stores also give retailers a little breathing room in the profit margin because they require less staff and no fancy floor space, consequently reducing expenses associated with both of those budget categories. TLA Entertainment Group, which in 1997 opened an online store to complement its seven real-world properties, discovered that right away. Today TLA's web store, TLAVideo.com, is "much more profitable than the brick-and-mortar stores," according to Director of Marketing Brian Sokel, who notes, "The reach of the web coupled with the decreased cost makes [online retail] that much more interesting. A lot of folks in Philadelphia, where we are known and grown, aren't even completely aware of our web destination. We always direct those folks to our site to encourage browsing and deeper investigation."
Run, don't walk
Even though a cyberspace excursion may seem daunting to those not already immersed in the medium, retailers and distributors who aren't online should get there immediately, according to Rachel Venning, co-founder of woman-centric retailer Babeland. "In this day and age, everybody should have a website," she says. "It's kind of like having your number in the phone book." Even if the cyber-presence comprises nothing more than a billboard advertising what's available at brick-and-mortar outlets – along with hours, locations, and phone numbers – the investment is well worth the effort and expense, she avers.
In fact, Venning and company's first online effort was an educational and altruistic endeavor that didn't offer e-commerce at all. The goodwill and curiosity Babeland.com generated in the early days, though, not only increased brick-and-mortar sales, but also encouraged the company to expand its online presence with an e-store. The online store, in turn, boosted overall profits and cemented Babeland's reputation as a responsible, authoritative resource for sexual exploration. Sex info, product reviews, and consumer interaction continue to be a primary mission of the website, although it's long since become a profit center in its own right.
Although Venning and most others who are successful in the online retail game heartily recommend creating a cyber-presence that's not all about turning a buck, they realize today's internet is a vast – and often confusing – beast that can be frightening to mount for the first time. Although domain names are relatively inexpensive to acquire (and a domain name that is uniquely yours is of paramount importance, even if you use it only for email) and do-it-yourself efforts certainly are an option (although often they aren't well received by the growing cadre of cyber-snobs), development of a functional, attractive e-commerce website can require an investment of $60,000 to $100,000 or more, according to Alberry, who cautions, "You get what you pay for." In addition, financial transaction processing online can be a nightmare, because many banks won't work with companies that sell adult products, as Babeland found out recently when its long-time banking partner was bought by a larger operation and almost immediately cut off Babeland's ability to accept credit cards. Even banks that do work with adult clients often charge a premium rate for processing, and that must be factored into the cost of doing business. "It's like a sin tax," Venning says.
More daunting, perhaps, is the fact that newcomers — especially smaller operations with local loyalties but no discernible widespread reputation — must compete with online giants who've been in the realm for years. "It's tougher for unknown quantities," Alberry says. "Branding definitely helped us."
Adds Venning, "Today it's very competitive for sex toys, and online marketing is very different from brick-and-mortar marketing." Pricing, marketing tactics, and customer service all factor into the equation, and all must be fine-tuned for the virtual space.
Start small, think big
That shouldn't dissuade anyone from jumping in, though, retailers note. There are a variety of ways prospective online merchants can get their feet wet without breaking their budgets. Ari Suss, president of XR LLC (which operates NicheShops.com and the BDSM novelties mega-site eXtremeRestraints.com), turned a part-time online business into a full-time fortune by starting small on eBay. "[An eBay store] is an excellent way to get started," Suss says. "When I got to the point where I was making $10,000 to $20,000 a month on eBay, I quit my day job as a financial manager at [a major soft-drink company]." Two years ago, XR LLC added a Yahoo! store to its marketing efforts, and that turned out to be another low-cost/high-return endeavor. The Yahoo! store, tied to HealthyAndActive.com, offers more "mainstream" adult novelties than the ones available at XR LLC's other properties, and that was partly to keep Yahoo! happy. "It's a great option," Suss says, "but Yahoo! stores have to be PG-13 rated. You can sell almost anything you want, but you can't use explicit images." The catch, he notes, is that merchants still must have a financial processing solution of their own, because neither PayPal nor Google Checkout — the two giants in online payment systems — are adult-friendly. In addition, third-party processing companies that work with the adult industry often either won't accept clients that sell physical product or charge too high a percentage to make such a relationship cost-effective. To address that, XR LLC initially employed a relatively inexpensive software package called Miva Merchant, which allowed the company to bill online customers through its own virtual merchant account (which, under Visa and MasterCard rules, must be separate from any existing brick-and-mortar merchant accounts). Recently, to address its expanding needs, XR LLC had a propriety billing system designed.
Dave Levine, who founded SexToy.com in 1995 and over time expanded it into one of the largest online novelty empires, advocates newbies in the virtual space begin by creating their own billboard sites that not only promote their real-world stores but also funnel customers into an affiliate program — at least until they master online marketing and have the traffic and resources to support their own e-stores. Affiliate programs do all the heavy lifting (stocking, order-taking, billing, shipping, customer service, etc.) and pay marketers a percentage of each sale they refer. "[Web surfers] want original, informative content, not just a shopping cart," he advises, adding that to him it makes more sense for start-up operations to focus, in the beginning, on website traffic generation than on order fulfillment. "Traffic is of paramount importance for any website," Levine says. "Although high-end niche stores seem to be flourishing, it's getting tougher and more expensive to get profitable traffic. The worst mistake you can make is to spend all of your time making a gorgeous, high-tech website if you don't know how to get traffic."
In fact, anyone who depends upon an online presence to generate income will avow that traffic generation is his or her No. 1 priority — and challenge. It's a product of a number of factors: online and offline marketing and advertising, search-engine optimization (and search engines frequently change the algorithms that determine link popularity), word of mouth, website usability, and a host of other factors. According to Levine, the only way to get a good handle on effective traffic generation is to study the craft, talk to those who are successful, and learn by experience. "There's always something new," he says. "Take things one step at a time. After all, launching a website is not an end in itself. It should be a constant evolution."
As good as they can be for supporting marketers while they learn the finer points of traffic generation, basic affiliate programs aren't for everyone. For a variety of reasons, adult novelty retailers may want to present a more personalized face to their virtual customers. That's where "white-label," "private-label," and drop-shipping programs come in. Usually offered by large affiliate programs, white-label sites allow affiliates to customize the appearance — and sometimes the product mix — in their online stores while still relinquishing the stocking, billing, order fulfillment, and customer service back-end duties to a provider who pays them a percentage of the sales they generate. Private-label programs usually go a couple of steps further, providing back-end services like the online interface, stocking, and order fulfillment for an intensely customized consumer-facing store while the website owner bills and provides customer service. Drop shipping may be the most involved, requiring the website owner to develop his or her own technology, billing mechanisms, and customer service department, but leaving order fulfillment to the drop-shipper. (Most often, drop-shipping involves a deal worked out with a distributor that doesn't engage in retail sales.) All are popular and viable online working relationships and can be arranged with companies like Adam & Eve, SexToy.com, Babeland, and NicheShops as well as other resources.
Coming together
One of the primary concerns for brick-and-mortar retailers entering cyberspace is the dichotomous pricing structure that exists between the two realms. Because of intense competition and reduced overhead, online stores often offer prices that are 20 percent to 30 percent lower than what their offline compatriots charge. "Sometimes that means trouble with manufacturers," Suss warns, "but online you've got to sell for less to be competitive."
Dennis Paradise, president and CEO of distributor Paradise Marketing, says retailers may see online and offline pricing structures begin to resemble each other more closely in the near future, as so-called "big-box stores" begin to nudge their ways into the adult product sphere. Wal-Mart, CVS, and Safeway all are beginning to offer "marital aids" and "sexual enhancement products" in some of their stores, and that bodes ill for the traditional adult store profit margin, he says.
"[Brick-and-mortar] retailers want to mark product up three to five times; some want to make 70 percent on all product," Paradise says. "What they should be doing [much as online retailers do] is looking at net profit per package as a function of inventory turn, not margin: Return on investment is a function of profit per square inch of shelf space.
"The old think isn't going to work in the new era of marketing challenges," which include web-based businesses as competitors for brick-and-mortar, he continues. "If retailers don't wake up now, by the time they figure it out they're going to be out of business."
Just do it
Regardless how a retailer decides to approach the web, the one mandatory consideration is they must approach it. "Just do it," Alberry urges. "Anymore, there are so many options to build a website that it's hard to go wrong."
However, she cautions, "If you're going to do it, plan for the resources to support it. If you don't manage [your web presence] well, it's not going to bring you the results you want. Customers have expectations that every site they visit will be like the big guys — Wal-Mart, Amazon, etc. — and if you run from that, you're not going to make it."
Venning agrees to a point, but adds that even if a retailer's website remains small and only serves as a virtual signpost to its brick-and-mortar properties, there are benefits besides the overtly financial to be gained. "One of the great things about websites is there is so much more information you can learn about your customers," she says. "You can find out what they were looking for when they found you, what search terms they're using, how they got to the site (whether by typing in "yourname.com" or being referred by another site), even what products they seek." That information can help a web denizen design more effective product mixes online and offline, she says, adding that without the symbiosis Babeland has cultivated between its website and its brick-and-mortar locations, it's likely neither would be as successful as they are. "Products perform online about like they do in stores," Venning says. "Like anything else you do in your business, you get out of it what you put into it."
This article appears in the current issue of AVN Novelty Business.
