Friday, September 7, 2007
Good Vibrations, the woman-friendly sex toy retailer, is used to a lot of shaking and grinding.
But not in its financials.
Reeling from a sharp drop in Internet sales, the three-decade-old San Francisco company posted a letter on its Web site last week pleading with friends to throw it a lifeline of capital.
"Today, having almost completed our 30th year, we face the need to raise capital quickly in order to ensure that our business survives in its traditional form," board members Charlie Glickman and Carol Queen wrote in the letter.
Company officials said revenue this year is likely to end up $3 million short of the $13.9 million they had projected. They are seeking a $500,000 line of credit to buy inventory for the holiday season, along with investment of $1 million to $5 million to add retail stores and decrease their reliance on Web sales.
Good Vibrations' troubles could serve as a case study of the potential and pitfalls of the Internet for all kinds of small brick-and-mortar retailers.
The company began in the 1970s, when the Internet seemed more like science fiction to most people. Joani Blank, a feminist sex counselor who led groups for pre-orgasmic women, decided that the city needed a "non-sleazy place for people to buy vibrators."
Over the years, Good Vibrations added a second store in San Francisco, plus stores in Berkeley and Massachusetts. It became a worker-owned co-op in 1992 but recently reverted to a traditional corporation with shares held by its workers.
When the company added an online store in the 1990s, the venture was immediately profitable. The Web seemed like the perfect medium for a San Francisco sex toy retailer - expanding its reach beyond the Bay Area and making items like the Ecsta-Sleeve Kit and the Eroscillator discreetly available to eager buyers in less libertine parts of the country.
As recently as 2003, Good Vibrations was generating two-thirds of its sales from catalogs and the Web. But over the past year, Internet sales dropped by half.
The company had counted on total sales growing from $11.9 million last year to $13.9 million this year, generating a profit of $320,000.
Instead, revenue is likely to be about $10.5 million for the fiscal year ending Sept. 30, according to CEO Theresa Sparks.
Company officials blamed the precipitous drop partly on the entry of numerous price-slashing sellers into the online sex toy market. Some were big companies like Amazon and Drugstore.com that could underprice Good Vibrations due to economies of scale and purchasing clout. Others were kitchen-table Web businesses that could underprice Good Vibrations because they had almost no overhead.
'Victim of our success'
This week, for instance, Good Vibrations' Web site is offering a purple Rabbit Habit cordless vibrator for $82. But Amazon and Drugstore.com are selling it for $55.99, and some smaller online stores also list it for less than $60. (Hearst Corp., owner of The Chronicle, is an investor in Drugstore.com.)
"Sex toys are becoming a commodity - who would have thought?" Sparks said. "To a certain extent, we're the victim of our success. We were one of the first companies to challenge the cultural taboos around sex toys and women's erotica. Lo and behold, we won. Now we've got Amazon selling our products. And as a result, we're getting hammered on price."
Good Vibrations also cited a damaging setback with Google's search engine during the 2006 holiday season. Google constantly modifies the algorithm it uses to rank Web sites, so as to avoid people manipulating the search criteria to benefit their site.
One such algorithmic change sent Good Vibrations' ranking plummeting from the first page of results to somewhere virtually invisible. That meant disaster for holiday sales.
"We literally went from the first page to page eight," Sparks said. "Two months later, we were back up to page three. Then we were down to page seven. That's substantial."
"What caught everyone by surprise was how quickly things can change online," Glickman said.
Good Vibrations hasn't been the only female-friendly sex toy business to suffer from these online upheavals.
"I can empathize with them," said Petra Zebroff, CEO of Libida.com of San Francisco, a store for women's erotica. "We took a big hit about a year and a half ago, but we're a lot leaner now and able to handle these problems."
Going more traditional
Libida responded by overhauling its Web site and trying different online marketing tactics, such as advertising on blogs focused on women's sexuality.
Good Vibrations, meanwhile, plans to refocus on traditional retailing. The company hopes to expand its brick-and-mortar operations, which continue to do well.
"We would like to open (new stores) as fast as we can get the financing," Sparks said.
Blank - who founded Good Vibrations but is no longer associated with it - called that a good idea. She said in-person retailing plays to the company's strength, which is employees' informed and encouraging attitudes about sex.
"You can sell just about anything on the Internet that you can sell in a bricks-and-mortar store, but what you can't sell is one-to-one attention," Blank said. "The Internet has the advantage that you can purchase stuff anonymously. The disadvantage is that, when you're dealing with a topic with such an emotional charge, the one-to-one personal connection makes all the difference."
But Good Vibrations still faces the dilemma of raising enough money to keep going through this year's holiday season - let alone open new stores.
Soliciting help via a public letter over the Internet is an unusual way of going about that task.
"If you're a business and you need money, you don't want your competitors to know you need money," said Michael Doherty, a business development consultant with Doherty & Associates in San Francisco. "To me, this reeks of desperation."
But an unusual funding strategy might be just the thing for an unusual business like Good Vibrations.
"Many companies keep this sort of thing very quiet," Glickman acknowledged. "But there's a parallel here. Good Vibrations has always been very open about talking about things other people keep very quiet."
E-mail Ilana DeBare at idebare@sfchronicle.com.
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/09/07/BUI8RVKVA.DTL
This article appeared on page D - 1 of the San Francisco Chronicle
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