Sir Richard Branson

Never mind the high street: Branson sells his Virgin Megastores.

Sir Richard rids himself of the business that brought him to public attention in the 1970s

Owen Gibson, media correspondent
Tuesday September 18, 2007
The Guardian

Sir Richard Branson yesterday severed his last remaining link with the high street, offloading his Virgin Megastore chain at a time when record shops are under unprecedented pressure from the internet and supermarkets.

The sale of 125 stores throughout the UK and Ireland to a management buyout group for an undisclosed sum marks a final retreat from the music industry after more than 35 years.

After setting the company up as a mail order business in 1970, Sir Richard opened the first Megastore in Oxford Street, London, the following year and founded the Virgin record label in 1973, selling millions of vinyl copies of Mike Oldfield's Tubular Bells.

The Virgin brand - which has been attached over the years to everything from trains to credit cards and wedding dresses to vodka with varying degrees of success - will disappear from store fronts from November to be replaced with the name Zavvi.

Fresh start

The new owners, led by the Virgin Megastore managing director Simon Douglas and finance director Steve Peckham, promised to safeguard all 2,500 jobs and overhaul the stores to compete more effectively in the iPod age.

Mr Douglas said the name change gave the group the opportunity for a fresh start, saying it would concentrate on providing an independent alternative to the "corporate" HMV and develop ways of appealing to new generations of music, games and DVD buyers.

"Most of my generation know all about Sir Richard Branson and what he has achieved in music," he said. "But it's an opportunity to reach out to people who now associate him more with his other businesses."

He admitted the music market was "under the spotlight", partly blaming the release schedule for this year, but he remained confident that the store could battle the combined threats of digital download stores such as Apple's iTunes, costcutting by supermarkets and the devaluation caused by piracy and free CD covermounts.

"There is still very much a place on an increasingly homogenised high street for an independent entertainment specialist that puts customers, product, service and personality at the top of the agenda," Mr Douglas said. The new name was a "modern and independent take on the word savvy".

Sir Richard had previously pledged to overhaul the Megastores for the digital age, introducing instore downloads and other innovations. But a spokesman for Sir Richard's Virgin Group said the Megastores were increasingly an "anachronism" in the company's portfolio, with other Virgin stores around the world already franchised to new owners. The company contributed only 5% of the group's UK turnover in 2006.

Under its "branded venture capital" strategy, Virgin is increasingly looking to float its businesses or sell stakes in them to joint venture partners. In addition to his airline, train and communications networks, Sir Richard has put the Virgin name to personal finance, health clubs and space tourism.

"Our most recent investments have also included renewable energy and clean technologies, in line with the group's desire to become one of the world leaders in that field along with sustainable transportation and travel," he said yesterday. "In the last six years we have been withdrawing from entertainment retailing, which is no longer viewed as core to the group's future."

V2, the record label he set up after selling Virgin Records to Thorn EMI, was sold to Universal last month. By that time the label, home to the Stereophonics and Patrick Watson among others, was 95% owned by Morgan Stanley with Virgin retaining only 5%.

Virgin Media, the cable group in which Sir Richard is the largest shareholder, will soon launch a high-profile TV channel called Virgin One. The company, which is embroiled in a bitter regulatory row with BSkyB, is up for sale and the chief executive recently departed but Sir Richard is expected to retain his stake.

Virgin Media and Virgin Mobile will retain their concessions in the new Zavvi stores under the terms of the deal.

Mr Douglas said he was confident the chain had a bright future despite the pressure on all high street entertainment stores from the rise of internet shopping and digital downloads, as well as the increasing activity by supermarkets in the sector.

Smoothie bars

Famous names such as Andy's Records, Tower Records, MVC and Music Zone have disappeared in recent years and the Fopp chain lives on in just six locations after being rescued by HMV.

HMV, under pressure from the City to rebuild collapsing sales, last week unveiled a bold concept store featuring a wider range of entertainment products, smoothie bars and internet terminals designed to lure shoppers back to the high street and encourage them to spend more. If successful, it will be rolled out nationwide.

But, despite criticism from analysts who said they were too slow to react, industry bodies insist the death of the high street record store has been exaggerated. "The fact that the management has been able to secure funding for this deal shows the robust prospects for entertainment retail," said the Entertainment Retailers Association's chairman, Paul Quirk. "The computer games and DVD markets are buoyant and even in music, despite misguided predictions that somehow record stores are finished, 90% of sales are still on physical formats."

According to ERA figures, in 2006 specialists accounted for the biggest slice of the music market with 46.5% of CD album sales by value. Supermarkets had 25%, high street multiples such as Woolworths and WH Smith 12.2%, the internet 11%, mail order 2.5% and others 2.7%.

The rise of Sir Richard

1950 Born in Shamley Green, Surrey

1970 Launches the first Virgin business - a mail order record store

1971 First Virgin Megastore opens on Oxford Street

1973 With Nik Powell, Branson launches Virgin Records. One of its earliest releases is the prog rock instrumental classic Tubular Bells by Mike Oldfield, which sells more than 5m copies. Other signings include Tangerine Dream and Faust

1977 Amid huge controversy, Virgin signs the Sex Pistols after they had been sacked by EMI and A&M. Other successful acts through the 1970s and 1980s include Genesis, Simple Minds, Janet Jackson, Phil Collins and Human League

1979 Opens flagship Virgin Megastore on Oxford Street, which remains the world's largest entertainment store.

1986 Virgin Group floats, funding expansion into Birmingham, Brighton and Dublin

1988 Sells 67 smaller shops to Our Price for £63m

1992 WH Smith takes 50% stake in Virgin Retail. Sells Virgin Music Group to Thorn EMI for $1bn to fund expansion of Virgin Atlantic

1994 Virgin Megastores and Our Price merge

1996 Launches V2 label, home of the Stereophonics and Moby

1998 Virgin Group buys back Our Price from WH Smith

2004 Takes ownership of Tower Records brand in the UK

2006 Launches Virgin Megastore "store of the future" in Manchester

2006 Sells V2 Records North America for £15m

2007 Sells Virgin Megastores to management

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