Virgin Group

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Virgin Group

120 Campden Hill Road
London W8 7AR
United Kingdom
Telephone: (0171) 229-1282
Fax: (0171) 727-8200
Web site: http://www.virgin.com

Private Company
Founded: 1973 as Virgin Records
Employees: 24,000
Sales: £3 billion (US$5 billion) (1999 est.)
NAIC: 312111 Soft Drink Manufacturing; 446120 Cosmetics, Beauty Supplies, and Perfume Stores; 451220 Prerecorded Tape, Compact Disc, and Record Stores; 453998 All Other Miscellaneous Store Retailers (Except Tobacco Stores); 454110 Electronic Shopping and Mail-Order Houses; 481111 Scheduled Passenger Air Transportation; 482111 Line-Haul Railroads; 511130 Book Publishers; 512131 Motion Picture Theaters (Except Drive-ins); 512220 Integrated Record Production/Distribution; 512230 Music Publishers; 513112 Radio Stations; 514191 On-Line Information Services; 523999 Miscellaneous Financial Investment Activities; 524113 Direct Life Insurance Carriers; 551112 Offices of Other Holding Companies; 561520 Tour Operators; 721110 Hotels (Except Casino Hotels) and Motels

Virgin Group is a diversified grouping of more than 200 privately held companies. The largest of these are Virgin Atlantic Airways, the number two airline in the United Kingdom; Virgin Holidays, a vacation tour operator; Virgin Rail, the second largest U.K. train operator; the Virgin Retail Group, which operates numerous Virgin Megastores, a retail concept featuring videos, music CDs, and computer games; and Virgin Direct, which offers financial services. Other Virgin businesses include beverage maker Virgin Cola, a record label, book and music publishing operations, hotels, an Internet service provider, movie theaters, a radio station, cosmetics and bridal retailing concepts, and a line of clothing. Holding this disparate group of companies together is the combination of Richard Branson and the Virgin brand name. British entrepreneur Branson dropped out of boarding school at the age of 17, in 1967, to start his own magazine. That venture was an immediate success, establishing the foundation for what would become a multibillion-dollar conglomerate during the 1990s. Along the way, Branson would attain cult status in his home country—the result of his business exploits, quests for adventure, and unique personal style. The Virgin brand had meantime become, according to the company, one of the top 50 brands in the world by the late 1990s; a poll of British consumers at that time showed that 96 percent had heard of Virgin.

Pre-Virgin Undertakings

Branson’s entrepreneurial bent emerged during his childhood. “The fact that we never had any money was a very good thing,” explained Branson’s mother, Eve, in the November 1987 issue of Inc. Eve Branson went on to suggest that her son “wanted to help the family.” A friend cited Branson’s love for sports and competition as another major ingredient of his success; “He likes playing the game for the sake of playing the game. He competes hard because he enjoys the competition,” noted Simon Draper in the Inc. article.

Although Branson loved sports as a youngster, he was forced to rechannel that energy following a serious knee injury. He decided, instead, to focus on establishing a business. Branson embarked on his first venture, in fact, when he was around 11 years old, planting 1,000 seedlings, which he hoped to eventually sell as Christmas trees. When rabbits ate the seedlings, Branson tried a different scheme a year later. His plan this time was to breed and sell a type of small, highly reproductive parrot. That effort fell through when, according to Branson, rats ate the parrots; Branson’s mother, however, contended that she released the birds.

Branson was undaunted by early failures. With the same enthusiasm that would characterize his entry into new endeavors as an adult, he initiated his first major success at the age of 15 when he started a magazine called Student. His parents reportedly were under the impression that Branson had been working on a simple school newspaper, but they learned that he intended to launch a magazine for the general public after he traveled to London to sell advertising space. Branson’s father, Edward, had his doubts, but he did not want to quash his son’s excitement. Besides, Edward reasoned, Richard only had £100 (about US$150) to his name, and it would be good for him to learn a lesson about the difficulty of making it on his own.

From Record Seller to Record Label: 1970–83

To the surprise of his parents, Branson sold 50,000 copies of the first issue of Student, which was produced in January 1968. In fact, the venture was so successful that Branson dropped out of school when he was 17 to run his business full time. Soon thereafter, in 1970, he launched his second major undertaking, a company called Virgin. Virgin started out as a mail-order record company. A new law had just been passed that allowed people to sell records at discounted prices, and Branson was among the first to take advantage. Like his magazine, Branson’s new company was an immediate success. Sales skyrocketed, and Branson scrambled to find workers to keep up with the tremendous order load. When a postal strike crushed the mail-order endeavor, the resilient Branson responded by changing his strategy. In 1971 he opened a small, discount record shop that was also a hit. A string of Virgin Record stores followed.

Early setbacks, such as the postal strike, were representative of the great obstacles that Branson would be forced to overcome in Britain’s antibusiness climate of the 1970s and even 1980s. Indeed, during the 1970s the country was mired in economic malaise. Tax rates on unearned income were as high as 98 percent, and labor strikes such as the one that nearly destroyed Virgin were the norm. Furthermore, a general disdain for entrepreneurs and “new money” permeated the business and social environment, making it more difficult for would-be capitalists to get their ideas off the ground. A mid-1980s survey, for example, showed that 29 percent of the executives in the United Kingdom viewed business owners as having the lowest status in the country, while only 13 percent thought they had the highest status.

Nevertheless, Britain’s political, social, and economic environments were perfect for Branson; a rebel by nature, he loved a good challenge and enjoyed bucking convention. That characteristic was most conspicuously evidenced by the name that he chose for his company. He used Virgin to signify his lack of knowledge about the businesses into which he entered. While convention demanded that entrepreneurs have experience in the ventures they began, Branson elected to enter businesses that interested him, regardless of his background; he would ask questions and invent his own route to success. Having no preconceived ideas about an industry, he was able to identify unnecessary hurdles that his competitors took for granted, as well as to recognize hidden opportunities.

Branson demonstrated his unique style again when he entered the recording business in 1973. By then, the 23-year-old entrepreneur was becoming bored with his publishing and record store endeavors. Still, he was fascinated by the recording business and wanted to take a crack at running his own studio. Snubbed by the British financial establishment, Branson was able to get friends and relatives to contribute start-up capital for the project. The first act he signed was an unknown artist named Mike Oldfield. They cut a unique album, Virgin Record’s first, titled Tubular Bells. The record sold five million copies, became one of the biggest selling albums of the decade, and was used as the soundtrack for the movie blockbuster The Exorcist

While Branson enjoyed success with Virgin Records during the mid-1970s, by the end of the decade the company was trying to shake its image as an outmoded “hippie” label. To that end, Branson signed a popular band known as the Sex Pistols. A crude, irreverent, hard-core punk band with a flair for the obscene, the Sex Pistols had become popular during the mid-1970s and were credited with spawning the entire hardcore punk movement. Branson had tried unsuccessfully to sign the band before. Then, in 1976, the Pistols were dumped by the company that held their recording contract, following a particularly offensive display by the band on national television.

Although another company was quick to sign the Pistols, within hours of signing that contract the band trashed that firm’s offices and found themselves once again in need of a sponsor. Then, in 1977, Branson moved in to sign a band that would bring the youth market back to Virgin with a vengeance. Under Virgin, the Pistols continued to shock the world—some of their songs were even banned by the British Broadcasting Company (BBC)—and thereby helped Virgin achieve notoriety in the industry. More importantly, though, the Pistols attracted other major talent to Virgin’s studios. Steve Winwood, Boy George, Phil Collins, Genesis, and the Rolling Stones all signed onto the Virgin roster.

Company Perspectives:

“Virgin is about doing things that really work, not just looking the part. We are passionate about running our businesses as well as we can, which means treating our customers with respect, giving them good value and high quality and making the whole process as much fun as it can be.”—Richard Branson, Chairman.

Virgin Atlantic and Other Risky Endeavors: 1984–89

Branson’s burgeoning operations prospered during the early 1980s. Still, the entrepreneur was restless and continued to seek new opportunities. In 1984 he came across another industry that interested him and about which he knew relatively little: the airline industry. Critics effectively laughed off Branson’s proposal to begin providing long-haul air service between the United States and London. Nevertheless, he purchased a Boeing 747 and began flying people back and forth between London and New Jersey, offering improved service and unique features. Virgin Atlantic Airways wowed observers by posting a profit in its second year. “It’s not so divorced from the music business,” Branson pointed out in the November 14, 1988, Forbes, noting that “if people are traveling for ten hours, they want to be entertained.”

Entertainment was, indeed, an important element of Virgin Atlantic’s success during the 1980s and early 1990s. Passengers were entertained with videos and, in some cases, live performances from mimes or musicians such as cellist Julian Lloyd Webber. In addition, first-class travelers enjoyed such perks as roundtrip limousine service to and from the airport. Furthermore, Branson kept expenses low by growing his airline slowly and focusing on low costs and high profit margins. By 1988, the airline consisted of only two planes, but was boasting the highest occupancy rate and greatest profit margins in the industry. Virgin Atlantic expanded during the early 1990s to include routes to several U.S. cities as well as Tokyo, Hong Kong, and Greece.

By 1985, Branson’s Virgin companies were generating a hefty $25 million in profits from more than $225 million in sales. His holdings included a string of 60 retail stores, a budding videocassette and television operation, the recording studio, and the airline. They also included a luxury hotel in Deya, Mallorca, which had been acquired in 1984 and was the forerunner of Virgin Hotels, which was formed in 1988 and consisted of hotels in the United Kingdom and the Caribbean. In 1985 Branson also formed Virgin Holidays, a tour operator specializing in the U.S. East and West Coasts. Hungry for expansion capital, Branson formed Virgin Group PLC in 1985, which consisted of all of his holdings except the airline company and some miscellaneous businesses. He put the airline and the other ventures, which included a night club business and airfreight operations, into a separate company called Voyager Ltd.

Branson took Virgin Group PLC public in a 1986 stock offering that generated more than $56 million. In typical Branson style, the offering was promoted through a media blitz that included a television commercial with a pinstriped executive dancing on his desk and the ad slogan: “From the rock market to the stock market.” By 1987, Virgin Group PLC’s sales had risen to more than $230 million; when combined with sales at Virgin Atlantic, Branson’s companies were pulling in over $350 million annually. Interestingly, following the October 1987 stock market crash, Branson took the company private again in 1988 through a management buyout, restructured his companies, and sold 25 percent of his Virgin Music Group for $170 million. Also in 1988 the first Virgin Megastore was opened in Sydney, Australia, selling music CDs, videos, and computer games under one roof.

Virgin’s success during the 1970s and 1980s was a tribute to Branson’s unusual management style, which was a radical departure from corporate norms at the time. Branson abandoned the traditional suit and tie in favor of a sweater and slacks. In addition, he operated his unwieldy holding company from the bow of his private barge, relying on telephones, fax machines, and a personal secretary to keep him in touch with his managers. The barge, named Duende, was located in the industrial Regents Canal. Branson’s logic behind his remote office was that it gave his subordinates, spread out in more than 25 London buildings, greater autonomy. “People always want to deal with the top person in a building,” he explained in the November 1987 Inc. , “so somebody besides me takes complete responsibility. He becomes chairman of that company … and I can be left to push the group forward into new areas.”

Indeed, one of Branson’s greatest virtues was his ability to delegate authority and allow managers to take control of the pet projects that he conceived and started. He relied heavily on a small group of hand-picked executives that he could trust. Allowing them to operate their divisions with minimal interference, Branson also offered them high-value incentives based on performance. For example, distant relative Simon Draper ran the profitable music division. He joined Virgin in 1971 after emigrating from South Africa, and had become a multimillionaire by the late 1980s.

Key Dates:

1968:: Richard Branson produces the first issue of Student magazine.
1970:: Branson forms a firm called Virgin, which begins as a mail-order record company.
1973:: Branson forms record label Virgin Records.
1977:: Virgin Records signs the Sex Pistols to a recording contract.
1984:: Virgin Atlantic Airways is founded; first hotel interest is acquired.
1985:: Virgin Holidays, a tour operator, is formed; Virgin Group is created.
1986:: Virgin Group PLC is taken public through a $56 million stock offering.
1988:: Virgin Group is taken private again through a management buyout; first Virgin Megastore is opened in Sydney, Australia.
1991:: Virgin Publishing is formed; Virgin Group generates estimated sales of more than $2 billion.
1992:: Virgin Records is sold to Thorn EMI pic for £510 million (US$957 million).
1993:: Virgin Radio, the first national commercial rock station in the United Kingdom, is launched; Virgin Atlantic wins libel settlement of £610,000 from British Airways relating to “dirty tricks” campaign.
1994:: Company enters the soda market with the formation of Virgin Cola Company Ltd.
1995:: Virgin Direct is created, representing the group’s entrance into financial services.
1996:: Euro Belgian Airlines, a low-cost, short-haul airline, is acquired and renamed Virgin Express.
1997:: Virgin Rail Group is formed, following the acquisition of two aging, poorly maintained rail lines.

Another of Branson’s innovative techniques involved breaking his operations up into multiple units, rather than allowing them to grow into large, less personal organizations: he had broken his record enterprise into five separate companies by the late 1980s, each of which concentrated on different bands and artists. His collection of companies had swelled to an assemblage of more than 100 loosely connected enterprises by the late 1980s, each of which was run by a small, streamlined staff. Importantly, he encouraged his employees to innovate and take risks without the fear of failure. “You fail if you don’t try things,” Branson explained in the November 1991 Florida Trend. “If you run a company based on fear, then you’re not going to get the best out of people. They won’t make bold decisions. They won’t make any decisions,” he stated.

Another important, and perhaps the most intriguing, aspect of Branson’s leadership was his penchant for peril. His wild, sometimes daredevil stunts earned him a reputation in Britain and the United States as an adventurer and risk-taker. His first publicized stunt was a speed boat crossing of the Atlantic Ocean. The previous speed record of 30 hours was held by an American boat, and when a sailor told Branson that the record could be beat, Branson became hooked on the idea. In 1985, Branson set out in a speedboat that struck submerged debris just three hours short of finishing. Predictably, Branson tried again in 1986 and succeeded in setting a new world record.

Branson’s second major stunt was a 1987 attempt to cross the Atlantic in a hot air balloon. He combined the adventure with a public relations effort to market his airline, which included television documentaries that aired both before and after the flight. The project was riddled with mishaps: Branson spiraled out of control on his first parachute jump and was barely rescued, mid-air, by his instructor. The televised misadventure sent Virgin Group’s stock price tumbling the day after it was broadcast. Although the harrowing balloon trip succeeded in getting Branson and his copilot across the Atlantic in less than two days, the passenger capsule failed to disengage from the balloon when it landed, and Branson nearly died in the Irish Sea.

Despite such brushes with death, Branson’s exploits succeeded in boosting Virgin’s image and improving the Virgin Group’s bottom line. Branson even decided to start a new company that manufactured balloons, provided balloon flight training, and sold balloon vacations. Branson secured rights to fly over the Taj Mahal and the Pyramids. In addition, he wanted the venture to design and build small balloon airships that would carry observers up for traffic reports, or simply for entertainment, at a fraction of the price that a helicopter operator would charge.

At the same time that Branson was risking his life over the Atlantic, he continued to grow his Virgin Group at an astonishing rate. During the late 1980s, Virgin was reporting over $1 billion in annual sales and was comprised of more than 150 different companies operating in 20 countries. Going into the 1990s, Branson was overseeing holdings related to broadcasting, entertainment, air travel, real estate development, publishing, and other industries. His original Virgin Records enterprise alone had branched into 14 different companies.

The Ever-Expanding Virgin Brand: 1990s

The giant, privately held Virgin Group generated estimated sales of more than $2 billion in 1991, and the 41-year-old Branson continued to deal. He signed pop star Janet Jackson, for example, in a contract valued at $30 million, and was rapidly expanding his Virgin Atlantic airline operations. He also purchased an airline company in Florida. In fact, the buy reflected the company’s increasing emphasis on the U.S. market, particularly in Florida, beginning in the early 1990s. Branson planned to build a 40,000-square-foot Virgin Megastore there, as he had at 20 other international locations, and was considering making Florida the home office for Virgin Records. In 1990 Virgin and Japanese retailer Marui created a 50-50 joint venture to operate Virgin Megastores in Japan. Back in Britain, Branson relocated his barge-based office to a three-story Victorian villa backing up to London’s Holland Park; he also formed Virgin Publishing by merging WH Allen pic, Allison & Busby, and Virgin Books into a single U.K. book publishing firm.

Branson’s office move reflected the immense growth and complexity of Virgin Group. Despite his monstrous financial gains, however, the entrepreneur was generally respected by his fellow capitalist-wary countrymen—he was even selected as the third most popular Brit in a late 1980s poll. “People can recognize him in a very English sort of sense of fair play and decency and modesty and good manners,” explained Mick Brown in an Inc. article. “He’s that unusual combination, really, of all the things that people expect success and money to corrupt out of people,” Brown wrote. Backing that assertion was the fact that Branson drove a 1959 Bristol automobile, for which he paid $5,900, and continued to wear casual clothing.

Virgin Group expanded during the early 1990s, despite a global economic downturn that started in the United States and spread to Europe. Branson diminished his holdings significantly when he sold Virgin Records to Thorn EMI pic for £510 million (US$957 million) early in 1992, evidencing his intent to focus on his airline operations. He also further expanded his retail operations. Late in 1992, for example, Virgin announced a joint venture with Florida tycoon and entrepreneur H. Wayne Huizenga of Blockbuster Video. The two decided to combine their knowledge of record store and video store retailing to run Virgin Megastores in the United States, the first of which opened in December 1992 in Los Angeles.

Among other innovative ventures during the early 1990s, Branson fired up an airline charter service connecting Key West and Orlando, using refurbished DC-3 planes and requiring the flight attendants to wear 1940s attire. In 1993 Virgin launched an AM radio station aimed at music listeners in the 25- to 44-year-old group—the first national commercial rock station in the United Kingdom. That same year, Virgin Atlantic Airways won a libel settlement of £610,000 from British Airways Pic relating to an ongoing campaign of “dirty tricks” perpetrated by BA against the upstart airline. Among the deeds BA was alleged to have undertaken were the interception of Virgin customers in airport terminals, the theft of Virgin customer lists from the company’s computers, and the spreading of false rumors, such as ones claiming that Virgin was on the brink of bankruptcy. A related US$1 billion suit brought in the United States was dismissed for lack of evidence in late 1999, but Virgin Atlantic announced that it intended to appeal the ruling.

In addition to building new businesses, Branson continued to seek adventure. Noteworthy was his hair-raising attempt to cross the Pacific Ocean in a balloon. The craft floated into the jet stream and was blown into the Yukon territory in Canada. After crashing on a frozen lake, Branson was tracked by radar and rescued before he froze to death. Later in the 1990s, Branson failed in three attempts to make the first round-the-world flight in a balloon, a feat finally accomplished by others late in the decade.

During the mid-to-late 1990s, the Virgin Group was particularly active building up its travel-related businesses. In 1994 Virgin Atlantic commenced service from Heathrow to Hong Kong, then added Manchester-Orlando, Heathrow-Washington, D.C., and Heathrow-Johannesburg flights in 1996. That same year Virgin acquired Euro Belgian Airlines for £38 million. Renamed Virgin Express, the low-cost, short-haul airline offered flights from Brussels to Madrid, Barcelona, Rome, Milan, Vienna, and Nice. In 1997 the Virgin Rail Group was formed following the acquisition of two aging, poorly maintained rail lines as part of the privatization of British Rail. Within two years Branson had secured £4 billion in private sector financing in order to completely overhaul the lines by 2001-02, including the introduction of high-speed (140 m.p.h.) titling trains.

Meanwhile, a host of deals were struck and new ventures launched in other areas. Most of the new initiatives were attempts to leverage the increasingly recognized Virgin brand into new areas; they also typically involved partners outside of Virgin putting up most of the equity, while Branson contributed the Virgin brand and agreed to manage the venture in return for a controlling stake. In late 1994 the Virgin Group joined with Canadian private label soda maker Cott Corp. to form the Virgin Cola Company Ltd. and attempt to go head-to-head with two of the world’s top brands: Coke and Pepsi. Virgin in January 1998 bought out Cott’s interest in the venture, which had gained only a negligible share of the market. In March 1995 Virgin entered the personal financial services arena through the formation of Virgin Direct, which began offering investors shares in a new U.K. mutual fund and initiated sales of life insurance through telemarketing. Virgin Direct saw Branson teaming with Australian Mutual Provident and the Royal Bank of Scotland. Also in 1995 Virgin acquired MGM Cinemas, the largest movie theater operator in the United Kingdom; it soon sold a number of the chain’s smaller cinemas to concentrate on multiplexes. In late 1999, however, Virgin announced that it would sell its cinema interests in Britain and Ireland to Vivendi of France. The group continued to operate a Virgin Cinemas Japan unit, and announced, also in late 1999, that it would spend up to US$200 million to develop 20 multiplexes in Japan by the early 21st century; a number of Virgin multiplexes in the United States were also under consideration.

Other late 1990s ventures were the 1996 launchings of a new record label called V2 Music, an Internet service provider called Virgin Net, and a chain of bridal retail stores dubbed Virgin Bride. The following year came the debut of Virgin Vie, a cosmetics retail store. In 1998 the Virgin Clothing Collection—a line of men’s and women’s wear, footwear, and accessories aimed at 18- to 35-year-olds—made its debut in U.K. retailers and department stores. Virgin Sun was also launched in 1998 and marked Virgin Holidays’ first foray into short-haul vacation tours. Endeavors planned for the early 21st century included a major Australian airline, the marketing of mobile telephone products, the selling of music over the Internet, and even commercial space travel under the name Virgin Galactic Airways (the last planned for 2007). With the ever expanding roster of Virgin-branded endeavors, it was clear that Branson was serious when he told Business Week in late 1998, “I want Virgin to be as well-known around the world as Coca-Cola.”

Principal Subsidiaries

Virgin Travel Group; Virgin Atlantic Airways; Virgin Holidays; Virgin Entertainment Group (70%); Virgin Retail Group; V Entertainment Group; Ginger Media Group (20%); Virgin Express Holdings PLC (50.1%); Virgin Hotels Group; Virgin Direct Limited (50%); Virgin Direct Personal Finance Limited (25%); Victory Corporation PLC (49%); Virgin Rail Group (41%); V2 Records (66%); Virgin Net (51%).

Principal Competitors

AMR Corporation; Compagnie Nationale Air France; Airtours pic; Bertelsmann AG; British Airways Pic; Cadbury Schweppes pic; The Coca-Cola Company; EMI Group pic; Japan Airlines Company, Ltd.; KLM Royal Dutch Airlines; Deutsche Lufthansa AG; MTS, Incorporated; Marriott International, Inc.; The News Corporation Limited; Pearson pic; PepsiCo, Inc.; The Rank Group PLC; The Seagram Company Ltd.; Sony Corporation; Starwood Hotels & Resorts Worldwide, Inc.; Thomson Travel Group pic; Time Warner Inc.; UAL Corporation; Viacom Inc.; The Walt Disney Company.