Filthy lucre

Melanie Stern is section editor of Families in Business magazine.

Theresa Flynt is no successor waiting in her father's shadow. The daughter of controversial publisher Larry tells Melanie Stern how her Hustler-branded retail spin-off is bolstering LFP's bottom line, as it arrives in Europe

Exploitation is the Flynt family's business – but not how you think. An eye for untapped markets and the nerve to drive them forward, even against opposition from all quarters, has paid off handsomely for controversial pornographer Larry Flynt and his family. No one knows exactly what it rakes in each year, but recent estimates of annual revenues at multi-media publisher, club owner and retail empire Larry Flynt Publications (LFP) point to a ball park figure of half a billion dollars to $750m.

"We don't disclose figures but we wouldn't be in anything that doesn't turn a profit," LFP's head of retail operations, Theresa Flynt Gaerke, tells Families In Business. Theresa, 35, is one of Larry's five children and is in the UK to replicate the Stateside success of Hustler Hollywood, the sex-and-shopping chain she founded in 1998 that now takes over $5m per store and opened in Birmingham's Bullring shopping complex this October.

Now the second generation family is making its mark, it seems identifying and exploiting niches others run screaming from, then extrapolating piles of cash from them by employing a love of risk and innovation, is in the blood. There's definitely something of the Icarus legend about the family's approach to business; they like flying perilously close to the sun, rather than not too high or not too low. Larry's infamous run-ins with the law over the editorial approach of Hustler magazine – such as the December 1980 issue featuring a woman being fed through a meat-grinder, or his 1983 victory in the US Supreme Court over Moral Majority leader Jerry Falwell after invoking his First Amendment rights to publish a cartoon depicting Falwell engaged in incest – might be consigned to the past, but the Flynt credo of following one's instincts and taking risks definitely lives on. As the man himself says: "Once I began following my own instincts, sales took off and I became a millionaire. And that, I think, is a key secret to every person's success, be they male or female, banker or pornographer: trust in your gut."

Many eggs, one basket
If LFP wants to remain a company that has no unprofitable businesses, the Flynt clan knows it has to go with the commercial current and break into new markets. Theresa's instinct is to do this by franchising the valuable Hustler and Larry Flynt brands as far as possible to do this, principally through Hustler Hollywood.

"It's all about carrying Hustler through to the next generation and doing that by diversifying the business, because that's how you keep any brand alive," says Theresa, citing Penthouse publisher Bob Guccione's downfall as his own lack of diversification. "We started out as a publisher but we moved into clubs, casinos and apparel."

The stores also diversify into non-Hustler branded stock, in contrast with arch-rival Playboy's smaller retail outlets that offer just their own products, "because whatever our customers want, we want to provide." It's clear that US punters want more spicy stuff; in 2006, Playboy's owner Hugh Hefner will re-launch the famous Playboy brand with a high-end Las Vegas nightclub/casino complex, complete with retail outlet to provide customers with a lasting memento of their visit, making Hustler Hollywood's transit to Europe all the more important for LFP's financial future.

Theresa is mindful of Beate Uhse, the German family-controlled erotica powerhouse whose own efforts at launching shops in the UK a couple of years ago failed. European market leader, Beate Uhse is to Germany what Playboy and Hustler are to the US, but the reason for the failure was deemed to be the British high street's distaste for hardcore smut – the lifeblood of the company and the demand of its domestic market. Gleaning an education from this case, Theresa has adjusted Hustler Hollywood UK strategy to operate on a standard business licence, banning the sale of R-rated adult videos or DVDs, or any 'extreme products'. Only 10% of the merchandise sold under this license can be sexual products.

Purpose and profit
Theresa's motivation is quite different from what originally fuelled Larry's entrepreneurial engine. Born in 1942 into a farming family in deepest Kentucky (then the poorest state in the country) Larry strove to claw his way out of grinding poverty against a backdrop of sparse education and even sparser job prospects. Theresa was seven when Larry founded Hustler magazine, a direction that within months brought fame and fortune; she readily admits when it was time to think about a career, it was hard to find the drive.

Stints spent shifting subscriptions between college semesters didn't give her any flavour for the business. "All those years ago we were just a publishing house, which didn't interest me and wasn't my thing," Theresa recalls. "I did want to be involved somehow and I did want to work with my family, but at that time there was no place for me."

As do so many business family successors without a solid path to follow, Theresa returned to LFP in 1996 to see herself through a Bachelor of Arts' degree in Business Administration and Marketing, taking on a senior role in editorial production. While LFP now had a range of titles, Hustler's circulation had shrunk to around 500,000 from over 3 million in its heyday. Though Flynt Snr stemmed some of the attrition by launching a range of successful online ventures, most other adult publishers had the same idea and revenue became harder to come by.

In 1998, just as Theresa finished her BA, Larry and Theresa created Hustler Hollywood in a typically Flynt-esque, split-second decision.

"I remember my dad called me from his car to tell me that he had just passed a building on Sunset Boulevard he thought would be a good place to start opening stores. He asked me if I could think of anyone suitable to run it, but the idea really grabbed my interest," says Theresa. "Twenty minutes later I called him back and told him that if he didn't have anyone in mind, I would be interested. Ten minutes later he called me back and said he'd love me to do it. It just fell into place for us; it was kind of an accident, really."

Entrepreneurialism needs expediency
If the front-end of entrepreneurialism is spying a new market, the back-end is filling it before anyone else gets a chance. Armed with a budget of $1m and with Larry's mandate that the stores "should be somewhere a school-teacher would visit," Theresa, without any experience of setting up a stand-alone business, welcomed the first customers to Hustler Hollywood Sunset Boulevard in time for Christmas that year. "I was really scared. I kept looking back and thinking, 'I can't believe I'm doing this' because anything over and above managing salespeople and office-based stuff was completely new to me. But I had a lot of support, and I had already met some good people in the industry who didn't mind sharing their recipes with me, letting me behind the scenes to check out what systems they were using and what suppliers they recommended." Theresa was also quick to poach the experts with the best supplier contacts by hiring London retail operations manager Marianne Tosh and senior buyer Suzanne Fells from Ann Summers.

To spread the financial risk of such a start-up and keep outlay low, the UK venture is a joint operation with Andrew Joseph, a British entrepreneur with interests in fashion manufacturing for major clients including Hennes & Mauritz, and owner of hotels chain Desilu Group (also a family-run business) who approached Theresa with the suggestion to license the store's brand in the UK. Joseph is majority owner of the UK project and head of an investment consortium supporting Hustler Hollywood that includes a throng of private investors, many of whom are trusts operated by wealthy business families. As the brand licensee, Theresa will bring home a healthy royalty payment to LFP, in its first such agreement.

Outlay is conservative versus the expectations, which are typically Flynt. Six UK stores nationwide are planned between now and 2009, with £25m earmarked to outfit new locations over the next three years. Theresa has projected over £100m in turnover inside five years – and each store is expected to bring in £4m annually on a 30–40% profit margin.

More knickers, less fur coat?
Theresa acknowledges that British shoppers, while sufficiently permissive to be frequenting sex shops for naughty things, are not quite on a par with American sexual voraciousness – so the UK concept is more Gap than Soho. 'Erotic department stores' is the angle, selling chiefly to couples Theresa believes will pop in après-cinema for a browse; friendly mixed-sex staff welcome punters to an environment of sleek wooden floors, shiny fixtures, and a café serving skinny lattes and paninis. It's all indicative of the vast change in societal attitudes to a bit of good old sex – that and the fact that British pharmacy chain Boots is in talks to sell Durex-branded sex toys and supermarket giant Tesco is about to stock up in Vielle 'female sexual dysfunction' stimulators.

Of course, the commercialisation of erotica is not that new. Gold family-owned Ann Summers rules the UK market with its 110 nationwide stores and party-plan operations, while newer rival Harmony is already at work on the couples niche, its shop windows sporting images of happy couples pillow-fighting in their pyjamas. Its front door has two entrances; a pink and white coloured one for the ladies, and a black one for the men, stowing the darker side of sexuality in the basement. The high-end is fulfilled by lingerie store Agent Provocateur, New York outfit Myla, Anita Roddick's daughter's shop Coco De Mer and an increasing number of fashion stores like Selfridges offering concessions of outrageously-priced lacy things. Theresa's idea is to serve a neglected customer sandwiched between those who strictly go for the luxury side of the erotica business and those who stick with Ann Summers-style slap n' tickle – herself.

"In Hustler magazine recently, we published a statistic revealing that for every ten men that buy videos from us, six of them have a female at home to watch it with. I thought, "then why aren't those six women visiting the stores themselves?" Theresa explains.

"I was never comfortable going into adult stores – they just grossed me out," she concedes. "I didn't like the customers or the way the shops looked. So I created a shop for me, or a first-time visitor to the adult industry."

De‑facto leadership
Although Theresa's cousin Dustin and uncle Jimmy work closely with Larry in promotions and retail respectively, and an extended network of family members from Larry's fourth wife's side work in the company, Theresa remains the heir apparent to the future leadership of LFP. The notion of a woman running this icon of the global erotica industry ($500m corporation) sounds like the day feminists can finally take a tea break, and events are already conspiring this way. "Working with your family can create tension because it can be a case of 'too many cooks'," says Theresa. " I used to butt heads with my family quite a lot, until I realised our goal is the same – to make the company the best it can be, to make money, to know that anyone who buys anything from us will never want to return it.

"But it seems we're all a little short on patience, with everyone wanting things done yesterday, and that can be hard on our staff because they don't know who to take direction from. So I've trained the staff to always call on me for final direction from the family whenever there's any confusion." Job done.

But even though she reveals that her father reminds her every day "how proud he is of all the money I'm making for the company," it's the lady herself who throws a possible spanner in the works. Theresa says she's having too much fun with this project to swap the shop floor for the top floor.

"I'm already involved in so many other LFP divisions and I definitely want to continue playing that role, focusing on growing our brand through our retail businesses. Sitting at the head of the table, like the schoolteacher grading everyone's papers with red ink just isn't my personality. I don't want to spend my time going over our financials – I want to be helping our customers, talking to my staff, knowing exactly what's going on," Theresa concedes.

Even if Theresa's plans did include the chairman's office, she knows the family business succession drill. "A lot of people in a family company feel like they'll never get a chance to go to the top because the current leader doesn't look likely to be moving any time soon. My dad has no intention of retiring, so I don't look at my future that way and I don't feel like I want to run the company."

Maybe the executive suite wouldn't suit her after all. "When you're growing up you say that you want to be a doctor or a lawyer… you don't usually say 'I want to be in retail'. But what I constantly look for is untapped markets to exploit. The retail business is extremely rewarding to me – when couples come in and they're a little shy, and then you see them leave the stores happy and giggling, you're helping people become comfortable with themselves, and that's a part of it I really like. In launching Hustler Hollywood, I've found my niche."