Richard Branson, founder of the Virgin Megastore chain, unveiled a redesigned version of his music retail store in downtown San Francisco Wednesday that is his response to the threat of online music and declining album sales.
The strategy includes adding technology that allows customers to sample music as they walk among the shelves. The store’s product selection has also been expanded with the addition of yoga mats, clothes, belts, candles and Hello Kitty purses.
Branson is clearly hoping that diversification will cushion any decline in compact disc sales.
“Unless you invest and evolve, you die,” Branson said at the Market Street Megastore.
During a three-year slump in the music business, compact disc sales have declined 31 percent, a drop that has been particularly painful for retailers such as Virgin.
Competitors, including Sam Goody, Warehouse and Tower Records, have closed hundreds of stores nationwide to stem the losses.
Companies blame some of the downturn on free online music available through Web sites such as Grokster, Kazaa and Gnutella. The music industry has its own fee-based Internet downloading services.
Record store executives also say that overpriced compact discs have hurt sales, along with the bad economy.
Customers entering the Virgin Megastore in San Francisco will now see an array of clothing racks. The DVD area has been expanded along with the selection of DVD players and digital cameras. Sex books and videos are now available. And two motorcycles parked conspicuously on the second floor illustrate Virgin’s effort to become a marketing venue for other companies.
“People have diversified their needs more today,” Branson said.
Branson, a Briton, leads a business empire that spans music, travel, book publishing and an airline.
Music comprises about 60 percent of all revenue at Virgin Megastores, according to Glen Ward, chief executive of Virgin’s North American entertainment group. With the addition of new merchandise, music should decline to about half of all sales.
Virgin is hardly giving up on its music business. It is trying to use technology aimed at getting customers to listen and learn about music so that they buy more of it.
One gadget allows customers to roam among the shelves, zap the bar code label on any compact disc and immediately listen to a 30-second sample of every song on that disc through headphones. Previously, customers had to take the disc to a kiosk to listen to a sample.
In addition, Virgin will now allow customers to bring flash media cards to the store and download 30 of Virgin’s “favorite” songs. Customers will also be able to browse film trailers and music samples from the 1960s from a kiosk. Shoppers will be able to buy compact discs and DVD’s from outdoor vending machines just outside the store.
Similar changes may be forthcoming at Virgin stores around the country, Branson said.
Virgin stores have always had a broader selection than just music. Books, video cassettes and a limited amount of clothes have been a part of the mix at the San Francisco store since it opened on Market Street in 1995.
Phil Leigh, a senior analyst for Inside Digital Media, a consulting company, was skeptical about Branson’s efforts to revitalize his business. He gave Branson credit for trying, but said that the music industry is gradually transitioning online.
“In 10 years, music stores may end up looking more like a youth oriented, music-focused Starbucks than a CD record store,” Leigh said.
Ward, the Virgin executive, said that his company is planning to launch an online music download service in conjunction with some other companies. The kickoff date is sometime in early 2004, he said.
In other Virgin news, Branson spoke of his plans to create a budget airline in the United States. He said that the carrier would probably launch sometime this summer and that San Francisco is on the short list among four or five other cities to be a hub.
Staff writer Benny Evangelista contributed to this report.
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