German Retailer Beate-Uhse Plans to Prove Sex Sells Shares

Grandmother and former Luftwaffe pilot Beate Uhse has created a small empire of sex emporiums. Now she plans on taking it public.
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In New York City,

Times Square

has become a mecca of family entertainment. Adult cinemas have been pushed aside for multiplexes displaying family fare like

A Bug's Life

and

Mulan

. Vendors of erotic trinkets and toys have either closed their doors or moved shop to less desirable real estate.

Near Berlin's trendy

Hackescher Markt

, where gallery-dwelling Germans rub elbows with Europe's most fashion obsessed, the trend is almost exactly reversed. Between the boutiques and the bistros, elements that New York City would have quickly rousted -- embodied by erotic retailer

Beate-Uhse

-- have taken root.

The difference in treatment is no giant surprise. Europeans have long been considered less uptight about sex than Americans. What is entertaining, however, is that the stock market might be about to prove the theory.

After more than 50 years in business, Beate-Uhse goes public on Wednesday. The offering, expected to raise upwards of 120 million deutsche marks ($65.5 million), has provoked as much interest in the company as the wares it hawks in its nearly 140 stores.

Guns or Butter. Or Something.

The IPO also marks an impressive milestone for Beate Uhse, the 79-year-old grandmother and former pilot who started the company shortly after World War II with investment capital of five pounds of butter. Uhse, who now splits her time between Germany and Florida, used the butter to pay for the printing of her first product -- a 1947 pamphlet on natural contraceptive practices that came to be known as "Pamphlet X." She wrote the pamphlet after discovering as a door-to-door saleswoman that many housewives were experiencing unwanted pregnancies.

From that humble beginning, Uhse created a small empire of sex shops. She started selling her wares through a mail-order catalog that quickly caught on with a rehabilitating postwar Germany. The success of her first writings encouraged Uhse, who was barred from flying by U.S. authorities even though she had flown Messerschmitt Bf109s to and from the front in World War II, to expand her product line to include more publications and condoms. Now, the shops offer a cornucopia of trinkets and costumes, balms and oils.

The growth of the company, however, proved it was not without its detractors. Predating the legal troubles of

Larry Flynt

, the rambunctious publisher of

Hustler

magazine, Uhse was sued in the 1950s for selling condoms to unmarried couples. Since then, the company says it has fought off more than 2,000 lawsuits to fight for what its founder called "liberal rights."

After studying marketing in the U.S. in 1961, Uhse opened her first store, quickly expanding through Germany and other parts of Europe. While Uhse was not available for an interview for this story, the company has said part of its success derives from placing its shops outside of traditional "red light" districts.

The matronly proprietors of the Beate-Uhse near this correspondent's apartment in Berlin also declined to be interviewed. But they did offer to guide him through aisles crammed with erotic clothing, books, videos, contraptions and CD-ROMs. The aisles were also crammed with mostly male patrons, even though a fair amount of the products are meant for women.

.Com It

As of Wednesday, Beate-Uhse will add about 8.4 million shares to its list of wares. Most of the shares will be new. Uhse, who also goes by her married name Rotermund, and her son Ulrich will retain around two-thirds of the company. The consortium for the deal includes

Commerzbank

,

Dresdner Bank

,

Flensburger Sparkasse

,

Gontard & Metallbank

,

Hamburgische Landesbank

and

Vereins-und Westbank

.

If past examples are any clue, the IPO should prove successful -- and prove that sex sells shares. For example, shares of

Playboy Enterprises

(PLA)

, the company that owns the flagship publication of the same name, are up more than 45% this year.

And trading in Beate-Uhse could also be helped by the company's ambitions to expand online, where much of the proceeds will be spent. Already the company's site (www.beate-uhse.de) -- replete with a topless model on the home page -- is one of the most accessed ones in Germany. That attests to the company's claims that over 98% of the population is familiar with Beate-Uhse and its products.

That the company deals in what some might consider smut is not deterring some potential investors, who say the bottom line (of the company's balance sheet, that is) appears attractive. "The fact that it is a erotic retailer shouldn't really influence investors," says Thomas Teetz, an equity strategist for

Trinkaus Capital Management

in Dusseldorf.

The company has successfully improved its sales numbers, which jumped to 169 million marks in 1998 from 132 million the year before, although operating profit fell to 7.9 million marks from 25 million marks in 1997 due to costs related to the IPO.

Still, not everyone is convinced Beate-Uhse will excite investors as much as its products do.

"There are so many other issues out there right now, we aren't even looking at it," says Charlotte Frenzel, a small-cap equity analyst for

Banque Paribas

in Frankfurt. "So they're expanding into the Internet. If you want an Internet stock, there are plenty of non-sex-related ones to choose from. I'm not sure where they'll get long-term growth." Paribas does not have an investment banking relationship with Beate-Uhse.

Although investors will have the final say as to whether Beate-Uhse stock sells as fast as the books, toys and paraphernalia it peddles do, the fact that it is listing suggests its extraordinary expansion course is unlikely to deviate. But don't expect an outlet in Times Square anytime soon.