Sir Richard Branson, the chairman of Virgin, has sealed his retreat from the loss-making Our Price chain, swapping the remaining stores for a toehold in the Australian music market.
The deal, announced yesterday with Brazin of Australia, will create a chain of 55 Virgin Music stores in Australia, which, like their UK counterparts, will stock Virgin mobile phones alongside chart music, DVDs and videos.
Brazin, a lingerie-to-music retail group, will buy the remaining 77 Our Price stores for a nominal sum. Brazin, which approached Virgin three months ago, will re-brand the struggling UK chain under its Sanity nametag – well-known across Australia.
A Virgin spokesman said: "No money changed hands as such. We will get a [profit-based] royalty from the Australian stores when they start trading." In addition, Virgin also received 1.5 million share options in Brazin stock at a strike price of 1.27 Australian dollars (43p) a share. Brazin shares soared 11 per cent to A$1.47.
The new Sanity stores will continue to stock Virgin mobile phones – a coup for Sir Richard, who is keen to expand Virgin Mobile into a global brand.
Brazin will re-brand 55 of its IN2 Music stores in Australia as Virgin Music, later expanding to 100 outlets. It will manage the Virgin Music stores alongside its existing Sanity chain, which has captured 25 per cent of the Australian music market since its launch eight years ago.
Ian Duffell, Brazin's managing director, said: "Our aim is to complete the re-branding of Our Price in the UK to Sanity; and IN2 Music to Virgin Music in Australia by late 2002."
Virgin acquired the 230-strong Our Price chain as part of a package from WH Smith two years ago. It paid £158m for the 75 per cent of the Virgin Megastore chain that it did not already own. Earlier this year, the group converted 100 Our Price stores to its V.Shops format, which sell a narrower range of music, videos and DVDs alongside Virgin mobiles.
While yesterday's disposal does not add to Sir Richard's £250m war chest, it removes a drain on the group's financial resources. Our Price contributed heavily to the £127m loss reported by Virgin's retail arm last year after the group wrote down the value of the remaining 77 stores to zero and paid off £100m of bank debts.
Sir Richard will hope that solving the problems at Virgin Atlantic will be as simple. Question marks hang over the transatlantic carrier's future after it was forced to axe 1,200 jobs and slash 20 per cent of its capacity in the wake of the 11 September terrorist attacks.
In July, Sir Richard's Virgin empire attracted speculation that it may be heading for leaner times after he sold his stake in Virgin One, his personal finance venture, for £45m and sold the group's 16-strong Virgin Megastore chain in France to Lagardère Media. But the tycoon – worth an estimated £1.2bn – said the disposals were aimed at ensuring his empire would be cash rich if there is a recession.
Yesterday's deal marks a further expansion for the Virgin Retail division. It intends to pursue a franchise approach, making the sale of mobile phones conditional to any future deals.
BRANSON'S CASH-RAISING DRIVE FOR VIRGIN
July 2001: Sir Richard Branson sold the 25 per cent his group did not own in Virgin One, his personal finance venture, to Royal Bank of Scotland for £45m.
July 2001: Sold group's 16-strong Virgin Megastore chain in France to Lagardere Media for £100m.
June 2000: Sold the 20 per cent the group still owned in Virgin Radio to Scottish Media Group for £55m.
April 2000: Sold 49 per cent of Virgin Atlantic to Singapore Airlines for £600m.
November 1999: Virgin Cinemas sold to UGC of France for £217m.Reuse content