Workers at a sex toy factory in Shenzhen. China now produces 60%-80% of all sex toys sold worldwide. (Photo/CFP)
Companies selling erotic products in China are facing stiff competition and a lack of industry standards and regulations, reports Chinese-language Entrepreneur magazine.
China's first sex shop was opened in Beijing in 1993, seen by many foreign China watchers as a symbol of an increasingly open society in the country. Yet 20 years later, the industry remains in a gray area and is often the target of government crackdowns against "profanity." The founder of a medical equipment manufacturer, the first company to produce a product for male masturbation, was questioned twice by the police, once in 1993 and again in 1996.
Despite the challenging environment, several online retailers selling adult products online began to emerge in 2000. The estimated number of these retailers ranges from several hundred to several thousand, including 100 leading companies, most of which are based in Beijing.
A leading online retailer, Oyeah, which was founded by Lin Degang in 2003, garners annual revenue of 10 million yuan (US$1.58 million), with gross profit margins of 40%. Lin estimates that buyers of erotic products only account for 3% of the urban population aged between 20 and 50, while the sales of these products, excluding sexual performance drugs and vibrators, came to 3 billion yuan (US$475 million) in 2010, according to Lin. The market is growing rapidly and the opportunity for online retailers will surge to 10 billion yuan (US$1.58 billion) in 2014.
Yet many have a negative impression of websites that sell erotic merchandise, many of which border on the pornographic, said Lin. This has encouraged some, such as the founders of UpSex, to create sites with cleaner imagery.
Another factor giving the sector a poor image is the lack of quality and industry standards among manufacturers in China, said Lin.
Online retailers also face competition from individual vendors on auction sites like Taobao, who receive far more orders because their low costs allow them to offer lower prices, said Liang Zhi, co-founder of UpSex. According to Liang, an established online retailer can garner net profits of 20%. About 200 (US$32) of every 1,000 yuan (US$158) of sales is spent on advertising, while 100 yuan (US$16) is spent on labor and 50 yuan (US$8) on distribution.
To differentiate themselves from rivals, both Oyeah and UpSex have chosen to go beyond their retail businesses. While Oyeah positions itself as a service provider for sex education, UpSex plans to venture into manufacturing to ensure control over its products.
A positive development for the industry has been the government approval of a commission to oversee the standard of sex products last year, the magazine noted. The sector, however, has yet to reach its climax.
Lin Degang 藺德剛
Jiang Shaowen 姜邵文
Liang Zhi 梁志