Virgin Group’s sale of its 50 per cent share in loss-making design consultancy Rodney Fitch & Co last week (MW April 15) is not the start of a long-awaited rationalisation of Virgin’s interests, according to the company.
The move coincides with speculation this week that Virgin is to make its operations more transparent in preparation for a flotation of Virgin Atlantic.
But Virgin Group director of communications Will Whitehorn says the sale – under which Rodney Fitch has acquired full control of the agency he founded as a joint venture with Richard Branson in 1996 – was made because Virgin did not need an “in-house design capability”. He stresses it does not indicate any new plan by Virgin to concentrate time and money on a few core businesses.
Whitehorn is reported to have said that owning design companies “does not form part of Virgin’s core strategy”. The deal effectively eliminates Virgin’s financial interests in the design sector. He says: “We’ve found our different businesses are better off with the freedom to choose their own marketing services agencies.”
Virgin director Ian Burroughs sat on the board of both Rodney Fitch & Co and Wickens Tutt Southgate, the design agency in which Rodney Fitch sold a controlling stake to acquire sole control of his namesake company.
Burroughs was appointed as a director of 90 of Virgin’s 200 companies last November, though Whitehorn denies speculation that he has a remit to analyse the businesses and decide whether they should be closed or sold off.
However, two and a half years after Virgin committed itself to an initial 2.25bn investment in the franchised rail services business, observers say there is a discernible move within the group away from “non-core” ventures.
The perception is that the sprawling empire is shifting more and more of its energies to a core group of companies, of which Virgin Rail forms a major part.
One senior advertising agency source says: “Certainly in the past year there has been a feeling at Holland Park (Virgin’s British HQ) that it is concentrating more on core businesses. Branson will do what it takes to raise the cash for Virgin Rail – that is a key company priority.”
It is a view which, combined with an increasing focus on Virgin’s main companies, has also been pointed to by deals outside the design sector, particularly Branson’s decision to increase his original 20 per cent interest in the Victory Corporation.
The Corporation, which was set up as the holding company for the Virgin Clothing Company and the Virgin Vie cosmetics chain, has struggled since its launch in October 1996.
Against a background of poor trading conditions, store opening plans stalled and shares collapsed from the launch price of 58 pence to 10 pence in August last year, when Branson acquired a further 11 million shares for just 1.1m, taking his interest to 55 per cent.
The move supports suggestions from some sources that clothing is a sector in which Branson has taken a keen personal interest and one in which he feels the Virgin name could earn significant sales.
This personal stamp of interest could bring the clothing company into the main group of businesses which Whitehorn identifies as forming the “core” of Virgin. They include Virgin Travel Group, which owns Virgin Atlantic; Virgin Rail Group, the holding company for the West Coast and Cross Country rail franchises; Virgin Direct, Branson’s financial services division; and Virgin Entertainment Group, which controls the cinemas and Megastores operations.
However, Whitehorn says that despite this central grouping, Virgin is by no means limiting its traditional expansion into other markets to concentrate on its current portfolio. But observers suggest the days of dabbling in new sectors are over, at least for now, to be replaced only by major pushes in its existing industries.
MT Rainey, managing partner of Rainey Kelly Campbell Roafe, which handles Virgin Atlantic, Virgin Rail, Virgin Cola and its financial services arm, says: “I would say Virgin has an extremely clear idea of what types of business it should and shouldn’t be in.”
Whitehorn indicates that one new area of investment might be in telecoms, an industry which fulfils many of the criteria for a Virgin assault. He explains: “In deals, such as taking on British Airways, we look at whether we can challenge a market and change it. We ask if we can achieve value by bringing the Virgin approach to the sector.”
BT would surely hold as little fear for Richard Branson as British Airways did. Yet new investments by the Virgin enterprise machine, which Whitehorn describes as “a brand-led venture capitalist”, by no means preclude a change of strategy within the walls at Holland Park.
One source suggests that Branson has pushed his limits too far and needs to concentrate his well-known energies on the businesses he considers to be at the heart of the Virgin structure, or face a terrible price.
The source says: “It has more than 200 companies, most of which it has no idea what they do. I think there is certainly a need to sell off some of these companies.”
Of course, Virgin has seen and heard it all before. At no point in its 30 or so years has Branson ever undergone a venture without criticism, and in the past 20 years, each new departure has been dogged with similar warnings that he is stretching the brand too far.
Virgin fans argue, as does Whitehorn, that the Virgin name is like no other in British industry – it can be translated to any industry sector where its values of innovation, irreverence, and non-conformism can be applied.
Branson, as his 30-year track record shows, is fully aware of the tough financial needs involved in running large businesses. But it would be rare for such a prominent figure to admit to having stretched his business to a point where a shift in strategy might be needed.
Sales of peripheral businesses suggest that Virgin may now be facing up to its responsibilities, and considering exactly what direction its charismatic figurehead would prefer the group to take in the next 30 years.