“The excitement around growth is driving the industry forward.”

There is little reliable data to exactly gauge the size of the global market for adult products, much less its growth and its potential. What seems certain, however, is that the market is growing. With the aid of Samir Saraiya, the founder and CEO of ThatsPersonal.com, EAN attempts to shed some light on the driving forces behind this growth, and of course, we also discuss the current developments and their effects on the market.

There seems to be a lot of growth in developing markets? What’s the reason?
Samir Saraiya: There has been a significant growth across the globe over the past few years, especially from developing markets where internet access via smartphone has connected e-commerce to the masses. This has led to a new set of internet retailers who leverage the online platform for their market entry strategy in markets where traditional retail had been non-existent.

Additionally, I have noticed a lot of activities in the ‘Grey Markets’ of select geographies where government laws are not well defined on the policy governing this industry. Local retailers buy from established overseas distributors to cater to this rising demand. Low-end Chinese manufacturers have dominated this entry level segment with their price points which has led to a rapid increase in global production capacity.

What factors have contributed to the growth of the industry in the West?
Besides the rapidly growing e-commerce sector, we see a lot of traditional retailers especially supermarkets, pharmacies, and convenience stores give shelf space to this category to support consumer demand for sexual health and happiness. Manufacturers have been quick to segment the market and provide a large variety of products backed by quality seals like ‘CE’ or ‘FDA Approved’, resulting in stronger consumer confidence. Brands are investing in softer designs and packaging to attract larger audiences, while Durex and Trojan are leveraging their brand and distribution strengths to grow their non-condom product portfolio creating millions of first time users.

Let’s discuss current events: What are your thoughts on the merger of Womanizer and We-Vibe?
It’s great to see such blockbuster M&As in our industry. I believe the merger will work as it is a marriage of strengths. The brands have similar attributes, especially relating to product positioning and consumer audience. Both brands are strong in their respective geographies and will be able to leverage their combined resources to achieve better economies of scale.

Once they get their integration right, the WOW Tech Group should look at more such acquisitions, especially for premium innovative products, and take them to global scale by utilising their sales and marketing resources. This merger has created a strong business proposition for long term wealth creation.

You always said in previous interviews that our industry needs money and know-how from outside. Now an investor has joined Lovehoney. Is this an isolated incident or could you imagine our industry attracting greater investor interest in the future?
Lovehoney was ripe for private equity and I am happy to see the deal announced. The interesting aspect of the deal is that the sole investor, Telemos Capital, has taken a majority stake. This sends out a powerful message that signifies investor confidence towards the industry and I believe this will set a trend for more such private equity investments in future.

The investment wave is expected soon as financial investors are known for their herd mentality. Companies that are excited to grow exponentially need to start focusing on their fund-raising activities by engaging with financial advisors, as it takes time to become ‘investor-attractive’. I believe that financial resources will be a key success factor in the near future.

For years, there has been talk of the disintegration of the traditional supply chain. What are the reasons for this?
I believe the disintegration of the traditional supply chain will continue in the future. There will always be growing interest by manufacturers to maximise margins by going directly to the consumers, or by retailers to buy directly from manufacturers. This is particularly prominent in industries where consumer products and retail stores lack brand identity.

“I believe the disintegration of the traditional supply chain will continue in the future.”

Then, there’s the discussion about exclusive distribution. One could argue that there are not many brands strong enough to generate enough revenue for a distributor who exclusively markets a particular brand. How does this fit together?
The partnership necessity for exclusive distribution between manufacturers and retailers is diminishing as exclusivity is restrictive in nature. Retailers desire to offer a large selection of brands to their customer base while manufacturers are keen on increasing their distribution partnerships to reach more consumers.
Having said that, companies are looking at preferred partners for strategic exclusivity and mutual benefit. This fosters deeper relationships around aspects like market intelligence and exclusive promotions resulting in a tighter span of control.

A great example of exclusive distribution that I have seen lately is Durex’ partnership with select convenience store chains like 7-11 and pharmacy chains like Watson’s. Durex has set up independent kiosks with powerful point of sale branding resulting in consumer marketing pull while compensating the retailer for real estate and exclusivity.

The market is characterised by distributors who market their own brands / products, and retailers who act as wholesalers to get better margins when buying products etc. What’s driving this need?
Wholesalers and retailers are keen on marketing their own products in order to increase margins and create brand equity. This business need has been encouraged by a set of independent sales agents that represent multiple Chinese manufactures. This layer solves the challenges of communication and trust and supports low MOQ requirements while ensuring quality. This has created price challenges for traditional Western manufacturers in the commoditised categories, while benefiting consumers with lower prices.

Obviously, traditional manufacturers and brands try to fight this supply chain disruption. What outcome should we expect?
The supply chain disruption has caused many manufacturers to rethink their competencies and find alternate revenue streams to survive this threat. Some companies have moved out of the low-end segment, while others are leveraging their brand equity and retail relationships to retain shelf space. Manufactures are exploiting the growing e-commerce platforms by closing direct deals with Amazon while restricting their distribution channel from marketplace sales.

Similarly, large Western brands that are known for their quality in the soft product categories like liquids, lotions, sprays, oils, etc. are eager to take up private label manufacturing jobs in order to optimise their capacity. These large European, American, and Canadian companies have a clear edge over their Chinese counterparts when it comes to perceived quality, and they are better positioned to support wholesalers and retailers for their soft product private label needs.

Speaking of brands: Do you see any changes compared to previous years? You have always said that the industry should not just focus on product development, but also on branding…
There has been limited advancement on the consumer branding front this year. Big spenders like Satisfyer, Fifty Shades of Grey, Fleshlight, We-Vibe, and Pipedream have achieved strong brand recognition in the B2B segment. These brands need to substantially invest in order to further their brand recall in the consumer segment.

Investments in consumer branding require financial capital and I am confident that some of the private equity money entering the industry will be allocated towards creating brand value.

Would you agree that the business model that has long dominated our market has become obsolete due to the consumer’s access to the internet?
The industry has a natural fit with e-commerce as the online shopping experience solves customer issues like privacy. The internet has helped in many ways, especially product discovery, product education, and discreet purchase. The business model will keep evolving as the market share of online sales will grow rapidly. The industry will need to constantly develop new skill sets to compete in the internet age, especially with respect to marketing, cataloguing, marketplaces, logistics, customer care, etc.

“The industry has a natural fit with e-commerce as the online shopping experience solves customer issues like privacy.”

Of course, Amazon cannot be left out as a hot topic – curse for some, blessing for others? Or the biggest danger for the entire erotic market?
Amazon has substantially grown the pleasure product business in every market where they operate. It provides a great shopping experience and more and more consumers are inclined to use the site for their regular set of household products. This has led to the opening up of the pleasure product category to mainstream consumers, who otherwise would not have visited a traditional adult shop. The sheer scale on which Amazon operates has been one of the massive driving factors of consumer adoption.

Amazon is known to have created a disruption across many industries & categories and pleasure products are not an exception. The current problem of marketplace dumping needs to be addressed and over the long term, the industry has to adapt better to the Amazon model, and those who successfully do so will greatly benefit from it.

Let’s move on to product development: Did 2018 herald the end of vibration technology that dominated the market for decades?
Vibration is one of the core technologies, and it’s here to stay. We will continue to see vibration technology exist in its purest form as well as blended with other technologies. Airflow or suction technology has become a category of its own like electro stimulation. Hot Octopuss has led oscillation technology forward and I hear of companies re-experimenting with heat technology in their R&D labs. These core technologies will together support various future products including interactivity and sex tech.

“Vibration is one of the core technologies, and it’s here to stay.”

The range of male toys is growing rapidly. But what is missing so far is the big hit that we have seen several times among toys for women. Is there a lack of real innovations?
This category has been underserved and I believe the industry is moving in the right direction with new and interesting products focused on the male consumer. Besides penis enlargement products, the range has grown from the basic male masturbators to interesting variants that include vibration, oscillation, and suction especially via brands like Hot Octopuss, Fleshlight, and Autoblow. With the growth of sex tech, companies like Kiiroo and Lovense have brought in virtual reality and interactivity, further strengthening the available product portfolio. The buzz around high tech sex dolls (robots) keeps circulating via the press and we will have to wait and watch consumer readiness.

The journey has started, and I believe that companies are focused on both innovation as well as moving the needle from early adopters to early majority. It’s a matter of time until the big hit materialises and becomes a game changer for this industry.

All that is commonly referred to as Sex Tech is also still waiting for the big break. Do we just have to be more patient or will this product category be forever trapped in its niche?
This category is relatively new, but it has already created buzz and excitement. Technology has played a major role across many industries and I am confident it will play its part in our industry as well.
Sex Tech has been able to attract external funding, especially angel funding and crowdfunding. I am impressed with organizations like ‘Women of Sex Tech’ which has an ever-growing set of dynamic ladies pursuing innovation in sex tech.

The development costs for sex tech products are high and over time, the functionality and utility will enhance along with price drops.
I believe the larger ecosystem will embrace these products and propel them forward. I expect to see more partnerships between device manufactures, content providers, and software developers to expand this niche.

If you had to deliver a verdict on the erotic market in 2018, what would it be?
The industry has grown geographically, and we see expansion across most categories and market segments. This has created more opportunities and has led to wider participation from different sectors of the economy.

Consumers have become more savvy with product information from ratings, reviews, videos, etc. leading to a higher level of maturity. This has created a greater need for specialisation across the eco-system.

Existing companies have realised the business environment is changing, and they are building their competitive skill sets to plan for the future. Well-managed companies are growing faster than the rest of the market and achieve leadership positions.

Overall, the industry has become smarter and has solved the past challenges of oversupply. The excitement around growth is driving the industry forward.