Virgin and the Demise of the Megastores: A Cautionary Tale

February 27 2013

With guest blogger, Cedric Littman, The Cheese Advisor

The Virgin Megastore in Paris has closed.  There has been bad publicity, and the unions have said that there are "too many unanswered questions." One union said,  "We are in a fighting mood. We're not going to go quietly.”

This looks pretty bad for Virgin, a company that presents itself as customer friendly, even customer centric. Virgin’s brand and notoriety has been partly built upon the adventurous exploits of its founder, Richard Branson, who attempted an Atlantic crossing on a balloon and is booking flights to the moon. The Virgin Megastores were the retail face of a brand that was considered to be visionary in its day.

          Image via Reuters

The Virgin store in Paris was bought from the Virgin Group ten years ago, although it was imperceptible to the consumer. Why did Virgin allow its name to be used by another company over which it seems to have no control? Even worse, the company they sold it to later sold it to yet another company, so that the retail operations were further and further away from the core brand, and not under the Virgin brand umbrella and management.   

The Virgin group also sold its retail operations in the UK, the US and Ireland, and all of the outlets have closed with at least one of the parent companies going into liquidation. At its height, the French store, on the Champs Elysees, must have been a substantial asset as it was on one of the world’s most famous thoroughfares. But now one of the most visible Virgin stores, as well as the whole chain, have closed with a loss of 1,000 jobs. How did Virgin make such a mistake?  Surely they saw the demise of traditional music retailing on the horizon, otherwise why would they have sold their retail operations? The real question is why they allowed the new owners access to the Virgin name, logo, store design, and brand equity.

This cautionary tale makes it clear that brands equity should be protected by a little, or a lot, of forethought. Even those of us with smaller brands need to take control and take charge of our brand. We may not face the same problems as the Virgin Group and we may never sell part of our operation, but good brand management is key no matter whether you are a solopreneur, a small business, a non-profit or anyone who puts a product or service or offering into the marketplace. As Beth often says in her talks, perception is all. There is the fact of your brand (where you really are in the marketplace right now) and then there is where your audiences think you are. Although they are a thriving company, the closing of the Virgin Megastores (albiet by a third party) would leave their audiences with the perception that the company is out of step with their needs, and that the business itself is in trouble.

The message: Protect your brand equity. Learn how to do it from an expert, and then don’t forget to continue to pay close attention to your brand as time goes on. After all, you have too much to lose. 

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On Diamond Watch

January 17 2013

Marilyn Monroe could not have imagined it when she starred in How to Marry a Millionaire, or in Gentlemen Prefer Blondes. She didn't ever know that a company named Swatch existed, coming to prominence in the 70s with disposable fashion poppy plastic watches. She certainly wouldn't have thought that one day Swatch would add the company she invited to "TALK TO ME!" in "Diamonds are a Girl's Best Friend" to their stable of companies.

Yesterday, it was announced that Harry Winston, the renowned Fifth Avenue jeweler known for their fabulous and fabulously expensive diamonds, had been purchased by Swatch for the tidy sum of $750M. That could definitely buy some ice! I learned that Harry Winston was the first jeweler to lend beautiful baubles for a walk down the red carpet at the Oscars in 1943. And interestingly enough, that they also own Omega watches. Harry Winston is apparently going to focus on diamond mining rather than retail sales, and so was open to being purchased.

Now, I totally understand why Harry Winston might want to get out of the retail business, and focus on mining and supplying high quality diamonds to other jewelers and wholesalers. No doubt it makes sense from a bottom line perspective, as they already have a tremendous amount of brand equity after years of adorning celebrities and socialites. To me, the interesting part of the story is that the choice they made was to sell to Swatch, a company that is looking to expand into the high end of the market (or way high end). It's almost as if they abandoned the brand by selling to a buyer with no real credentials in the uber luxury market.

Established brands sell for many reasons and to wildly different suitors. Family businesses in the third generation are frequently uninterested in carrying on the family business, or want to expand beyond what is possible with their existing capital. That is what happened with Kiehls, when they sold to L'Oreal for an estimated $100 million. They simply couldn't build out the brand, or service the customer in the way they were known for, or move squarely into the global economy and 21st Century without an influx of cash, and so decided to sell.  I don't know if they had to sell, or chose to sell their venerable brand. And I don't know generationally about Harry Winston, but I am a bit curious about this particular suitor winning their hand. What would Marilyn say? 

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