NEW YORK (Billboard) - The planned U.S. closure of the Virgin Megastore chain by mid-June will mark the end of the British music retail invasion.
HMV was the first to land in November 1990, with an East Coast incursion, followed soon by Virgin’s entry on the West Coast and W.H. Smith’s focus on the country’s heartland malls.
The three chains came in thinking they could teach the Americans a thing or two about merchandising music. But their high-handed attitude wasn’t directed at their competitors, like Tower Records, Camelot Music, Record World and other long-dead music chains. Rather, it was targeted at the record labels.
“They were arrogant,” a label sales executive told Billboard about the British chains before Virgin confirmed its U.S. closings. “They thought they knew everything. They thought they were going to take the U.S. by storm. But I grew to love them. They were all good music guys and their stores were great.”
The British merchants were especially known for championing certain kinds of artists and genres. But their fatal flaw was a failure to understand the U.S. real estate market. HMV and Virgin had a history of overpaying for locations, which meant both chains usually had more unprofitable stores than profitable ones.
At its peak, the Virgin Megastore chain had 23 stores and revenue of $280 million annually, but at least 12 of those stores weren’t profitable. After a four-year store-closing spree, the chain was down to six stores by January, all of them profitable, and combined they were doing a very respectable $180 million in annual sales. The chain’s New York Times Square location generated $55 million, with $6 million in profit, while its Union Square store downtown had $40 million in sales and a few million dollars in profit, according to sources.
With CD sales sliding, “I tried my hardest to come up with a new model, and we were making a lot of headway with it before the holidays,” said Virgin Entertainment Group North America CEO Simon Wright.
Virgin outlasted HMV and W.H. Smith, with the former pulling out in 2004 and the latter selling out to Camelot Music in 1998. But Virgin couldn’t withstand the combined blows of big-box loss leaders, chain-store exclusive releases and digital cannibalization.
“We have made a great contribution to music retailing, but it’s time to move on,” Wright said.
In August 2007, Virgin Entertainment Group North America was bought by two real estate companies, the Related Cos. and Vornado Realty Trust, which hold stakes of 51 percent and 49 percent, respectively. In June 2008, a Vornado executive told Reuters that the Times Square store would shut down in first-quarter 2009 because the company could make more money on the real estate.
Virgin was destined to lose its Times Square space, but it might have been given a shot next door in the much smaller Vornado-owned space formerly occupied by the Bar Code bar and gaming arcade, sources said.
“But the holidays were what they were and the economy is what it is since then,” Wright said. “The economy is so bad, it’s all about batten down the hatches.”
Just as Tower Records once helped transform Broadway from a warehouse district into a top-notch retail street, the Virgin Megastore was key in revitalizing the Union Square area, which 10 years ago was filled with bargain stores and pot dealers.
“We changed the face of Union Square,” Wright said. “What will happen there now with both us and Circuit City leaving at the same time?”
Editing by Sheri Linden at Reuters