In 2005, the Virgin Megastore found itself in the middle of a revolution.
As a result of the store’s location in the heart of Martyrs Square the international brand became associated with a series of demonstrations that changed the history of Lebanon.
This may be more than the brand’s founder Sir Richard Branson bargained for when he helped open its doors to the Lebanese public in July 2001. It was certainly more than Lebanese franchisee and CEO Jihad Murr expected when he awoke on February 14, 2005 to what was to become an 11-month headache.
“The assassination of former prime minister Rafik Hariri and more specifically the events that followed from the closure of Martyr’s Square for demonstrations to the ensuing assassinations dealt us a heavy blow,” he admits wearily.
The popular one-stop-multimedia-shop, which at that point represented up to 70% of the company’s overall sales, became a watering hole and staging post for demonstrators. In total, the downtown store was closed for business for 20 days. On those days it was “open” it was a virtual no-go-zone for ordinary shoppers who were faced with negotiating a tent village, a shrine surrounding the grave of Hariri and scores of security barricades (much of the tent village remained until the release of Lebanese Forces leader Samir Geagea in July of 2005) before they could buy a CD. “We were certainly not prepared to suffer losses of close to $2 million in one year,” said Murr. Had stability reigned in 2005, losses would have been kept to a manageable $100,000.
But it was a poisoned chalice. Through the protests, Virgin – with its self-declared associations of youth and energy – arguably became one of the images of those heady days.
But it also suffered for a whole year. (In the week following the assassination of Beirut MP Gebran Tueni in December, sales plummeted from a low -10% as a result of the assassination of Hariri and the ensuing events, to a scary -50% loss. Not even the Christmas shopping period – which represents a third of yearly earnings – managed to get the company back to zero.)
Planting the flag
The Virgin story has always been one of risks and challenges. In the mid-1990s, Murr, who admits to having an enduring passion for music and multimedia, approached the Lagardère Groupe, the Virgin franchisers for Europe and the Middle East, with a proposal to open a store in Lebanon. They weren’t interested but Murr persevered and in 2000 Lagardère Groupe agreed, possibly because Lebanon had evolved into a more credible location and a vibrant tourist destination
Virgin Lebanon became the instant market leader: national sales for CDs almost doubled to $12 million and the DVD sector went from almost nothing to a thriving $10 million niche market. But by the end of 2004 and with a yearly turnover of $25 million, Virgin claimed 70% of the CD and DVD market. It had also become the country’s leading book retailer. “Virgin has successfully increased awareness of these products as well increased their market by at least 30%,”explains Murr. “It has also made for a better and more pleasant retail experience.”
Still, there have been moments of drama. In 2001, a police raid of the premises put the company in international headlines and resulted in a letter of outrage from Branson to then prime minister Hariri. The authorities claimed the outlet was stocking and selling black-listed movies, such as the Marilyn Monroe classic Some Like It Hot but it became clear that the act was a clear message to silence MTV – an anti-Syrian TV station owned by the Murr family. However, being the leader has also forced the company to have a presence in every major retail location. “We found ourselves in a situation where we had to expand or lose our place in the market,” said Murr, adding that it would’ve been preferable to wait a couple of years to allow for a successful consolidation period. Instead, with the boom in malls like the ABC in Ashrafieh and the City Mall in Doura and the increase in traffic at the airport, Virgin felt it had to plant its flag. In 2005, Virgin opened at the City Mall. We had no choice. It was a question of being heavily present in the country or giving an opportunity to smaller CD outlets like CDthèque to become more visible. In many respects, we were rushed into this situation due to the dynamics in the economy and the growth in demand for all things multimedia.” As a result, the company incurred losses close to $400,000 in 2004. The good news is that other outlets, such as the one at the ABC mall in Ashrafieh, eased the pressure on the downtown flagship store in 2005.
On the offensive
But while the demonstrators were marching outside, internally the four-floor megastore identified a glitch. While DVDs, CDs and books were doing well, electronics, situated in the basement were underperforming.
“There was very little traffic going down to the -1 level in our flagship store and we just couldn’t sustain profits with such low margins,” explains Murr. It was time to get creative. Murr sublet the electronics department to the big brands like Sony, the Antaki Group, Mac and others. This made business sense, both to the electronics distributors and to Virgin. “We no longer had to worry about margins and royalties and the agents got an extra outlet to showcase their products in a highly visible location for the cost of space and adhering to the franchise provisions in our agreement with Lagardère Groupe.” The strategy has proven to be very successful so far and the benefit of having such an extensive electronics department is paying off.
No, Murr is not one to buckle under pressure, a quality he attributes to his optimistic nature and his passionate belief in the Virgin brand. This year he’ll focus on consolidating his enterprise and bringing people back to the downtown store. Though he has no control over the political situation in the country, he is going on the offensive by offering value added services. The trick is spreading the word. “People aren’t yet aware that we have free valet parking there and that we’ve opened a fully-fledged Mac store,” he says.
Work in progress
Virgin is also meeting the DVD pirates head on. It recognizes that the government still has a long way to go in implementing intellectual property rights laws and in the meantime is appealing to the consumer by offering competitive prices on the most popular – and therefore most pirated – movies. Murr also predicts that music downloads will eventually supercede CDs and he plans to gradually reduce the space allotted to discs. Seeing an opening in music DVDs, he plans to expand the visibility of that particular medium in all his branches.
So, what happens if 2006 proves to be just as unstable political and economically as 2005? Murr lowers his eyes and shakes his head as if he were mentally assessing the damage that would do to the country and to his businesses. “I am fairly optimistic about 2006 because last year we really hit rock bottom. Unfortunately, [if it does get worse] I may have to consider closing or reducing the hours of opening at our main branch in downtown – which is our most expensive venture,” he sighs.
Murr does not yet consider Virgin Megastore Lebanon to have reached cruising speed. The bottom line is that it is still a work in progress, but, given that he has had his fair share of knocks, Murr can look back on his trials and tribulations with some satisfaction. He is armed with a globally recognized brand, a passion for his craft, the courage to take calculated risks in the face of uncertainty, and the flexibility to seek alternative routes. 2006? Bring it on!