Focus: Polygamous Virgin king

In 20 years Richard Branson has built his business from a mail- order record company to a Japanese-style conglomerate selling everything from cola to wedding dresses. Is he stretching the famous brand too thinly? From the Sex Pistols to the pensions game. In 20 years Richard Branson has gone from underground entrepreneur to head of a global business. Is the bubble about to burst or will the high-flying Virgin brand keep soaring?
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When Richard Branson was 20 he chose the name Virgin for his new mail-order record company because it reflected his lack of business experience. His experience since then has involved making his fortune several times over, selling Virgin Records to expand his airline business, and setting up V2, his new record company, only last year.

The 56-year-old former public schoolboy from Stowe can hardly claim to be a naive, hippy entrepreneur. Branson presides over a constantly expanding network of companies, with a turnover of pounds 1.8bn a year. Virgin is being compared to a keiretsu, one of the great Japanese conglomerates like Mitsubishi, and its success undermines the authenticity of the core values on which Branson has never stopped trading - innocence, innovation and an irreverence for authority. Virgin has lost its virginity surely; the only questions are whether Branson should go on pretending, or whether it matters at all.

The pace of expansion is dizzying. Last month, Branson announced plans for a chain of 24-hour-business centres. Next month, the Virgin Group is launching Virgin Vie and the Virgin Clothing Company, new cosmetics and casual clothing lines. In the near future, there is talk of a Virgin telephone banking service, and of the possibility of a role in Formula One motor racing too. Add to this Branson's recent raids on the bridal industry (Virgin Brides), Internet services (Virgin Net), and the drinks business (Virgin Cola and Virgin Vodka) and you may well ask when and where it will all end.

Can one brand - even one so well-regarded as Virgin - be stretched this far? Cassandras in the marketing business believe that the bubble must burst and the brand will come tumbling to earth - like Branson's failed round-the-world hot-air balloon attempts. Doug Hamilton, creative director at brand specialists Wolf Olins, says: "The danger is that the Virgin Group will cease to be alternative and become part of the establishment, like Marks & Spencer. Virgin could end up looking desperately ordinary."

Virgin's acquisition of the MGM cinema chain of multiplexes two years ago is perceived by students of management as a case study of potential dangers. Virgin has brought little of value to the marriage beyond its own garish red logo; and, despite the heavily hyped assault on Coke and Pepsi, Branson's campaign for Virgin cola has yet to pay the same dividends as some of his other wars, such as the one against British Airways. The Virgin Cola Company lost pounds 2.3m last year and Virgin Trading, the holding company for both the cola and vodka, reported losses of pounds 616,000. And while the new Virgin Brides store off Trafalgar Square has been a big hit with Essex girls and Japanese tourists, Branson's appearance in a white wedding dress at the catwalk show to launch the store last December seemed, even for him, a publicity stunt too far.

But for every failure, there is a success. Branson's personal financial services company, Virgin Direct, has attracted pounds 1bn in funds in a little over two years. And although Branson's recent attempts at the world hot- air ballooning record ended in disap- pointment, Voyager Investments, the subsidiary which owns Virgin's ballooning operations and Branson's investment in the Storm Model agency, makes a substantial profit.

There are no fewer than 200 private companies in the Virgin Group although it is not as ramshackle as it may seem. Disparate operations are now organised into 20 umbrella companies which generate annual profits of pounds 114m. Most important by far is Virgin Travel, which includes Virgin Atlantic. The airline made profits of pounds 84m last year and has just placed an order for 16 new Airbuses - the stretched version. Unlike the Virgin brand, or so says Branson's spokesman, Will Whitehorn. "We're not stretching the brand, we're building it," he says. "Because Virgin is a British company and we tend to launch all our new products here first, people think we are overdoing it. But that's a very anal British point of view. Compared to major Japanese corporations like Mitsubishi and Daewoo we still have a long way to go."

Branson has always trusted his gut instincts and Virgin Group is built in his image, reflecting his passions and interests. That mail order record business Branson launched in 1970, for instance, was originally designed to bolster the fortunes of Student, the magazine he had launched at Stowe. When the mail order business blossomed into Virgin Music, he added the record company, a music publishing arm and, eventually, record shops and a book publishing division. On the same principle, you can fly now from London to San Francisco or Hong Kong on a Virgin Atlantic plane, while watching Virgin-produced videos or playing Virgin computer games. When you arrive at your destination, you can shop at a Virgin Megastore; on the way home you can purchase your duty free Virgin Vodka. While some of the products are clearly connected, others aren't. As Branson himself admits: "Who would have thought 20 years ago that we would have gone from the Sex Pistols to selling pensions?" Who would have thought that railway staff - now employees of the Virgin Rail Group, which operates West Coast and CrossCountry Trains - would be getting as a perk a discount card valid for Virgin cinemas, megastores and air travel, with the prospect of discounted Virgin Direct pensions and PEPs too?

But while the wide spread of Virgin products may sometimes baffle brand consultants, Branson insists the core values do indeed remain the same. "It's about being innovative, offering value for money and being better than our competitors," he says, calling from his holiday retreat on Necker island to explain the philosophy behind Virgin's growth. "But most of all, it's about having fun. Far from slapping our brand name on products, we have teams of people who research the industry first. Only when we are satisfied that we can truly offer something different do we move in."

Whitehorn declares that in Japan, where the concept of a keiretsu is taken for granted, nobody would be questioning Branson's strategy. Only in Britain, where the idea has taken root that brands such as Persil and Mars must be identified with specific products is the Virgin strategy disparaged. "The reason we are expanding the Virgin brand is not because we are desperately looking for new businesses to get into, but because there is a real opportunity for us to build Virgin as a global British brand name," insists Whitehorn.

All this may now be true, but Branson's critics argue that it is justification after the fact. They insist that the structure of the group is dictated by his Peter Pan-like enthusiasm for new products rather than a pre-arranged intention to build a keiretsu. Consequently there is a danger that what was once Virgin's strength - the crusading image of its founder - could become a tiresome pose. "In the 1980s Branson was the people's champion, a sort of Robin Hood in a sweater who cut out the chump in the middle and made the tedious fun," says Doug Hamilton of Wolf Olins, marketing consultants. "But these days many of the innovations he introduced, like video screens in seatbacks, look tired, and Virgin Brides is a joke. It's about doing anything to keep the brand in front of the public."

Concerns about the direction or directions in which Virgin is headed is focused on the autumn launches of its new cosmetics and clothing lines. Doubting Thomases wonder what Branson can possibly offer that is different from the Body Shop or Levis and The Gap. And since these are new Virgin products, why does Branson appear to be distancing himself from potential failure by launching them via a new publicly quoted corporation, Victory, in which Virgin is simply a 50 per cent shareholder?

According to Brad Rosser, Branson's director of corporate development, the answer to the question about what's new is "wait and see". The clothing line is still under wraps, but Rosser says Virgin will be using "innovative designers and fabrics". And while it is true that, like the Body Shop, Vie cosmetics will be unisex and "head to body", Virgin is planning to sell the line direct into the home. "It will be a fun brand, not snobbish," insists Rosser. Like Avon's ladies then, but different.

As for using Victory, Rosser points out that Branson will be chairman of both the cosmetics and clothing companies and everyone working there will be Virgin employees. The reason the cosmetics line will be known as Vie is because Virgin was not thought to be appropriate for lipstick and toiletries. The jeans won't carry the usual Virgin logo either, but a new simpler version that is easier to embroider.

Rosser charges Virgin's critics with trying to have it both ways by saying that the group is stretching the brand while seeking to distance itself from the brand. "We are going into cosmetics and clothing for the same reason we go into any industry - because we believe the margins are obscene and that we can offer something special. The doomsday prophets said the same thing about financial services and we proved them wrong. Look at the score: the runs are on the board."

Is there any area where Virgin is prepared to admit that the brand may have been diluted? It shouldn't have pinned its hopes on MGM cinemas so quickly, concedes Rosser. But they are now being refurbished and will soon be operating as high-service multiplexes. And, while Whitehorn admits that Virgin Cola has yet to knock Pepsi off its perch, the cola has just been accepted by three more retailers and is gaining market share gradually. As for those newly privatised but still creeking Virgin trains, judge us in four years, says Branson. Renewing worn out rolling stock takes time, but he insists that by the the year 2000 Virgin Trains "will be the best in Europe".

Like his critics, Branson also wishes to have it both ways, but what distinguishes him from other business people who talk a good game but can't play it is that he goes on taking risks. Sometimes they come off, sometimes they don't. But whether he's hopping in and out of hot-air balloons with Per Linstrand or on and off trains with Tony Blair, most of his customers are still prepared to forgive him his mistakes - and allow him his photo opportunities.

Raymond Perrier of brand consultants Interbrand, which advises Virgin Atlantic's rivals British Airways, suggests that all this talk about branding is, perhaps, beside the point. For what is Virgin but a shop window for Richard Branson's shifting obsessions? "The difference is that, unlike Harrods say, they can't all be found in the same department store in Knightsbridge," says Perrier. At least, not yet.