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April 14, 2017

Changing Channels: Retail Vets Talk About How to Stay On Top

This article originally ran as the cover story of the April 2017 issue of AVN magazine. Click here to see the digital edition. Pictured above, from right, Philip Del Rio of Hustler, Lewis Adams and David Joseph of US Arcades, Moose of Girlfriends Films   Philip Del Rio went from selling premium blue jeans to high-tech vibrators, watching dozens of retail trends come and go during the past decade. Now as vice president of retail operations for the Hustler Hollywood store chain, Del Rio predicts the forecast for the future calls for a smarter mix of online and brick-and-mortar sales and marketing. “Right now it’s all about integration between brick-and-mortar and online and really establishing a consistency across both channels as well as a digital marketing program that again also enhances both channels,” Del Rio tells AVN. Now established as one of the models for 21st-century adult shopping, Larry Flynt’s retail division has added nine boutiques since the summer of 2015. Most recently they opened for business in West Palm Beach, Florida, in January. “Last year we did six stores, which was fairly aggressive for us to go from 13 to 22 in a year and a half,” Del Rio says. “Those have been identified locations for a very long time. Our next round probably will not be as aggressive but we’ve definitely learned a lot from opening the last nine locations. We’re absolutely still growing.” The company is eyeing two more locations later this year and according to Del Rio it will “probably do three or four locations per year over the next few years.” Based on a successful expansion to Northern California with stores in San Jose and Bakersfield, Del Rio says his team has been scouting properties in Sacramento and Fresno, while Atlanta is also on the radar. “We opened our first store in Texas last year in July, which is doing very well,” Del Rio says. If Hustler Hollywood’s commitment to the in-store experience is any indicator, adult entertainment consumers continue to demand options when it comes to picking up the latest pleasure product or porn DVD. While mainstream retail giants such as Target, Macy’s, JC Penney and Sears have been reporting softer sales—and announcing numerous store closures in the past year—as consumers increase their spending with sites like Amazon, adult retailers show signs of confidence headed into the spring. Arcade Fire One new company that’s betting on brick-on-mortar is US Arcades, an adult video arcade one-stop operation that was previously owned by legendary retailer Eddie Wedelstedt. David Joseph acquired the network of viewing booths about a year ago with the purchase of International Amusements from the man known as Eddie W., who also owned Goalie Entertainment and M&M Sales. Joseph is the former owner of gonzo porn powerhouse Red Light District, known for selling some of the biggest celebrity sex tapes of all time, including One Night in Paris, One Night in Chyna and Amy Fisher Caught on Tape. US Arcades facilitates 900 arcade booths in more than 50 adult stores in 21 states and counting. “When you hear the term adult arcade, most people think of the dirty peep rooms that take quarters,” Joseph explains. “We’re taking that room’s technology into the 21st century. We hired a top engineer and redesigned our system with proprietary, patent-pending software.” Some of the upgrades include booths that can hold up to 1,200 movies; easy-to-navigate touch-screen menus with fast-forward, rewind and pause functions; and the ability to jump to any point in a movie with one touch. US Arcades also has teamed with live-chat pioneer Flirt4Free for a soon-to-launch channel that will bring live cams into video arcades for the first time in adult entertainment history. “This was made possible because of the relationship between David and [Flirt4Free] president Greg Clayman,” says Lewis Adams, vice president of sales for US Arcades. In another first, US Arcades is launching a national voyeur network where a customer can see another customer live in any booth in any store that has US Arcades by using the bluetooth technology in his phone to interface with the arcade. “I’ve held a lot of different positions in adult entertainment—from movie production to media and novelty sales to private label—and I can honestly say that what we are doing with arcades really excites me,” Adams continues. “If you have a location where you can operate an adult arcade, you’re holding a golden ticket and I’d love to talk to you. We can retrofit into any system out there.” The US Arcade business model is simple: there are zero upfront costs to the store and they pay for installation of the equipment—physical booths need to be built by the store. US Arcades allows the store to collect the money from the booths and bills the store every two weeks. “There are no additional charges for upgrades; we have 24-hour system monitoring, new movies and national marketing,” Adams says. Lance Bacigalupo, a 20-year veteran of the arcade industry and director of operations for US Arcades, tells AVN, “This is by far the most advanced system available today and I know them all.”  Adams says the advantages of going to a video arcade to watch porn (or a webcam) rather than doing it at home come down to human interaction. “There are a few reasons why people visit arcades,” he explains. “One is that there is no privacy in their own home. Either they have a roommate or family living there and there is no time to take care of business. “Another reason that I feel is the biggest is the social factor. Today you don’t have to leave the privacy of your own home to do anything. You can buy groceries and pretty much everything else online. You can work from home. All things are on social media. However, we are social creatures and do enjoy the company of fellow humans. Whether you are going to meet a friend or possibly make a new friend, the arcade is the place where like-minded people can meet.” Eddie W., who has more than 50 years in adult entertainment, tells AVN the arcade business in the old days “was an automatic goldmine.” “A movie would come out and the only way to get it immediately was to visit a store,” Eddie says. “It’s not like that anymore and arcades took a hit. The only way to compete and earn that money again today is to be up to date with the newest technology. You’re competing against an iPhone.  “Today I’ll go into a store and I’ll see the arcade is neglected and offering the same old movies from 10 years ago. The customer wants a better experience today. They want to be comfortable and be able to browse easily. You see that in all walks of retail.  “The legend Reuben Sturman used to say you would install an arcade and make your money back in 26 weeks. Today, you’re lucky if you make it back in two-plus years. My good friend Michael Moran of Lion’s Den confirmed the fact that there was a time when 52 cents of every dollar in the store came from a form of video (arcades, rentals, sell-thru). Today, stores are seeing about 18 cents of every dollar spent on media. You have to be very smart today and the only way is to stay ahead of the curve technologically.” Hustler Hollywood’s Del Rio agrees, noting his company is already taking steps to streamline its service. “We’re working on brick-and-click integration and looking at opportunities like in-store pick-up, same-day delivery to customers in the area and creating the omni-channel experience like everybody else is doing,” Del Rio says. Omni-channel retailing refers to creating synergy between a variety of channels in a customer’s shopping experience. Retail Rally For large production studios such as Girlfriends Films, which also distributes numerous others, finding the sweet spot with its retail footprint is key. Moose, the president of Girlfriends Films, says his company understands the importance of strengthening both e-commerce and brick-and-mortar distribution. “In the adult industry just like any other online retail business, there is an undeniable demand for instant gratification,” Moose tells AVN. “People who shop for everyday items online have a certain demand for ‘what’ they can get and ‘how fast’ they can get it. “On the other hand, there are certain things you just can’t rush. If you want any kind of specialty item—a custom car, a tailored suit, a fitted wedding dress—it’s pretty much impossible to have it delivered to your door in one day. Same thing with adult films. Many of our customers have discriminating tastes and an appreciation for the collectible value of our top-selling lesbian adult series. They want a DVD they can add to their collection, something they can hold and keep for years to come. For those customers, it’s important to keep the integrity of our physical products intact. “At the same time as a provider of adult entertainment we can understand that sometimes you just don’t want to wait to watch good porn. That’s why here at Girlfriends Films we provide many of our titles for on-demand.” Pulse Distribution, one of the largest manufacturers’ reps in the adult industry, services both brick-and-mortar and online stores with more than 100 studios across every genre of porn. Robert Plarski, executive vice president of sales for Pulse, tells AVN from his perspective retail in general is still “going strong.” “One other large component is the mail-order business,” Plarski says. “While it’s true that shopping for shoes or clothing or household goods is way easier online, there are certain items a person likes to look at, hold, read, touch and decide and compare. And then take it home immediately. The online retailers are making a strong push to outdo the traditional distributors. But I think there will always be both options.” Moose, whose company distributes more than 15 studio brands in addition to its own, echoes Plarski’s sentiment. “In my opinion there will always be a need for brick-and-mortar,” Moose reasons. “Buying online from companies like Amazon can be a double-edged sword. On the one hand, you can have anything you want at the click of a mouse. On the other hand, what if it doesn’t fit, what if the color isn’t the exact shade you were hoping for, what if the item is heavier or lighter than you imagined it would be? “There are always going to be times when you want to physically go and try something on and hold it in your hands before buying. Look at the success of the adult toy industry. Clients are going to adult stores ‘fishing’ for products they can see and touch in person. They ask questions about it and make a first-hand decision before buying. It’s the same thing with a DVD. A customer sees the DVD cover photo on the shelf—that’s the bait. If the title and text intrigues them, they pick it up. That’s the first bite. When they turn it over and give it a second look, now they’re hooked and you reel them in for the sale.” Plarski says brick-and-mortar retailers continue to receive a boost from products such as glassware and sexual enhancement pills, while toys, lingerie and lube remain bankable at the store level, too. “On the DVD side, what used to be the main driving force for repeat customers was new releases and then an additional purchase—a bottle of lube or a boner pill,” Plarski continues. “DVDs have now become the ancillary product they pick up at point-of-purchase as an add-on, impulse buy. Sure, there are still customers who will always want the new release—Porn Pros or Dogfart—but I think a bulk of these DVD sales are from the sale-priced items.” While taboo and interracial remain among the leading porn genres, according to Plarski, the other trend is for “value priced sell-thru,” or catalog DVDs available at a bargain price. “One of the best bonuses of Pulse is the variety and depth with which we stock,” Plarski adds. “I don’t know of any other distributor that has what we do. By having this much variety, it allows us to combine multiple studios to make genre mixes that no one else can create.” Bricks and Clicks Speaking of variety, online retailer Adult Empire maintains one of the world’s largest collections of adult content in all formats, including video-on-demand, DVDs and sex toys. Adult Empire Vice President Colin Allerton tells AVN his company benefits from the reality that stores have scaled back on their porn content buys in favor of pleasure products and lingerie. “For the consumers who are used to going to the stores and picking up DVDs, they are finding there is not a large selection and then they start looking across mobile platforms on their tablet or mobile phone and they go to our site and find 60,000 movies to choose from rather than 500 in the store,” Allerton says. “So having a larger selection of in-stock items puts us in a really good position. “We’ve also found people who look at toys in stores and then shop online and find a good price.” While Allerton acknowledges it’s hard to replace the personalized experience one can get with interaction in a store, he says Adult Empire is constantly working to refine its digital service. “It’s been a never-ending process,” says Allerton, a 17-year veteran at Adult Empire who has held six different positions at the company. “We’re always moving forward. There will be new site updates in the near future. For us it’s never just one thing, we are always trying to improve the customer experience. One of the biggest drivers right now is we really focus on the mobile end of the market. Most people in the adult industry—more and more people are using their phones to browse around on the internet. We’re really mobile first. “With mobile now if you combine VOD and everything, it’s definitely the fastest growing segment.” Allerton points to social media as having a big impact on the consumer “and how they interact with adult entertainment.” “Between things like Snapchat, Instagram, Facebook and Twitter they can find out so much more about the girl they’re interested in,” Allerton continues. “It’s definitely driving a lot of changes in the industry. The fan can get much closer to the performer than ever before.” One way the Pittsburgh-based company engages porn fans on social media is through its “Empire Girl” contest, which last August crowned Katrina Jade as the second annual winner through fan voting. Jade received $6,000 and a four-scene showcase contract with AE Films for winning the competition, which generated more than 49,000 votes. At press time Adult Empire had launched its sixth annual Final Femme porn star fan contest that coincides with NCAA basketball’s March Madness tournament. The winner will be announced online on April 5. Education, Education, Education Jeff Dillon, the vice president of business development & marketing at eline.com and a consultant for online retailer GameLink.com, tells AVN “online retail is a thriving business.” “More people each year look toward the internet to do their shopping as they feel more comfortable giving their credit card info and they realize adult products are discreetly shipped and don’t come with the big letters ‘PORN’ on the side of the box,” Dillon says. “I know a lot of physical stores using their online presence to drive foot traffic in their stores and vice versa, using store traffic to fuel their online sales.” Dillon says the two biggest growth trends in recent years are “the increase in supply and demand of BDSM gear. Second is male sex toys.” “As male sex toys have improved greatly over the last five years and the stigma around men using sex toys is lessened we will continue to see growth in this area,” Dillon explains. “To meet these needs we are increasing our selection and we are providing education around these products, which is seriously lacking for men and male sex toys.” The seasoned executive pointed out Gamelink started in online retail in 1993, pre-dating Amazon. “So their impact was minimal to at first. Once they started selling sex toys on Amazon.com they had a dramatic impact on the market as they drove down cost and could sell to their massive customer base,” Dillon continues. “Since we can’t compete on price, we can offer a more diverse selection of adult products. The one good thing about Amazon is they force everyone to step up their e-commerce game. Customers now expect more from an online shopping experience. They want lots of product info, reviews, pics, expedited shipping free, everything in stock, etc.” Hustler Hollywood’s Del Rio emphasizes his company is aware of the changing retail landscape and making adjustments. “We’re definitely not immune to the traffic decline to brick-and-mortar stores. It’s something we definitely do feel but I think we’re in a bit of a different bubble, though,” Del Rio says. “I just don’t think people have as much knowledge and education about our product as they do with jeans or tennis shoes or whatever else they’re buying online. There is still that education aspect that I think differentiates us between us a department store like a JC Penney or Macy’s that are feeling that pinch.” Del Rio continues, “Our product is very unique. There’s not enough awareness and education out there and we’re able to be different being that educational stop. You can get that online but I do think that there’s an advantage to discussing something with a live person as opposed to reading bullet points on a product page online. That’s really the difference that we still have.” He even took it a step further. “Most of our business happens in the evening after dinner. We are part of the date night still. So it’s an experience that you wouldn’t get by jumping on your laptop,” Del Rio reasons. “In a weird way we are almost a part of foreplay. Couples go to dinner, have a drink or two, a glass of wine, and come into our stores and have a bit of fun and learn. There is definitely a differentiation.” Del Rio indicates DVD sales in his stores are down between 7 and 10 percent during the past couple years. “I would imagine that will continue this year. Where we’ve been having the most success is when we’re kind of tweaking the promotions on the DVD business and moving units quicker sometimes at a more value price,” Del Rio explains. “The mistake we did make a couple years ago was we sat on a lot of old inventory and didn’t bring in as much new releases as we needed to. That further accelerated the decline. It’s all about better pricing. Some of our newer stores we are kind of looking at that footprint to make sure we’re not devoting too much. Where it’s at is lingerie and adult novelties.” An executive at Urban Outfitters for seven years as well as a high-end denim retail manager, Del Rio says his transition to adult has been “really unique.” “At the end of the day I run this division as a retail business, not an ‘adult’ retail business,” Del Rio says. “The same things are important to me—good customer service, strong operations, managing the message and the brand. All those things were important 10 years ago to me and are still important. The biggest difference is there is so much more of an education component to the adult business that I really kind of grabbed onto in the last couple years. “If you’re spending 200 dollars on a vibrator that people are inserting into their body there is significant weight on it to understand the product and features and benefits. I’ve sold 300-dollar pairs of jeans before, too. But there’s just something different about the intimacy level of our product. We have to insure people are trained in the details.” Del Rio reveals the We-Vibe Sync is the top seller in the Hustler Hollywood stores, along with the Womanizer. “What’s selling right now is couples toys—anything that has dual purpose that the man can use on himself and the woman can also use,” he says. “There’s a lot of value on toys that couples can use together.”

 
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