We asked some head-hunters to draw up a short list of suitable candidates, but I was most intrigued when Simon Burke applied for the job of chief executive. Simon had joined Virgin a couple of years previously as the development manager. His job was to sift through all the business proposals we receive and see whether we want to follow any of them up.
One of the things that I am always trying to do with Virgin is make people reinvent themselves. I firmly believe that anything is possible and, despite Simon’s having no obvious qualifications to turn a large chain of unsuccessful record shops into a chain of successful ones, I was certain that, if anyone could do it, he could. And, sure enough, as soon as Simon started work at Virgin Retail in August 1988, things began to change as he started to weed out everything we didn’t need or that was losing money.
His strategy began to pay off, and by June 1989 Virgin Retail had produced its first ever profit. In his first presentation to the Virgin board he showed us some slides and asked for £10 million to invest in new shops. He pointed out that Retail was falling apart, and he showed us some pictures of the shops in which tiles were hanging off the roof and the wiring was coming apart. He suggested that, if any airline customers saw this, they would worry about the state of the aircraft. Unfortunately for Simon, Patrick Zelnick was also asking for £10 million, to develop Virgin Megastores in Bordeaux and Marseilles. Flushed with the recent success of the Paris Megastore, I felt more inclined to divert the funding to France than the UK. It must have been galling for Simon. In the meantime, the Sydney Megastore was ready to open, and Ian and Mike were looking at Japan.
In order to create the investment in the UK shops and help pay off the general debt, we set up another joint venture. Ideally we would have liked a financial investor to take a 30 per cent stake but, with the high interest rates and the feeling that high-street retailing was heading for recession, we had no takers. We began talks with Kingfisher, the owner of Woolworth’s. As these talks dragged on, WH Smith got wind of them and called me to see whether they could make an offer. And so, just as Simon Burke was getting on with the job of sorting out Virgin Retail for Virgin, he suddenly found himself with a new boss: a two-headed creature comprising both Virgin and WH Smith. WH Smith bought a 50 per cent stake in our ten UK Megastores, which, unlike the earlier shops we had sold to WH Smith, continued to trade under the Virgin name. Their sale raised £12 million, which we immediately used to pay off borrowings in Virgin Atlantic. It was another case of some frantic juggling to keep one step ahead of the bankers.
While the UK retail arm spun off into a joint venture with WH Smith, and the European retail side started to expand from Paris into Bordeaux, Marseilles and then Germany, several different Virgin companies turned their attention towards Japan.
While many British companies complain about how difficult it is to do business in Japan, Virgin has always enjoyed an excellent rapport with the Japanese. I put it down to the success of my first ever trip to Tokyo. I had gone there as a twenty-year-old, before I was married to Kristen, and rather ambitiously arranged a number of meetings with people in the entertainment and media world to see whether we could set up some kind of joint venture distributing records. I think it was before we started Virgin Music, so I didn’t even have Mike Oldfield to sell them. I was young, impoverished and had very little to offer. I went along to a number of meetings where immaculate geisha girls served tea, and I sat in my jeans and sweater and enthused about business to kind and patient groups of Japanese businessmen. No business deals were forthcoming, but the great success was at my hotel.
When I arrived at the airport and took a coach into Tokyo, I realised that I could not afford to stay at any of the hotels on the list suggested by the tourist board. So I took a taxi and asked for a cheap local hotel. The hotel looked utterly anonymous from the outside, just a plain little concrete building, and my room was very small. But that night, bored and alone, I saw that room service offered a massage. Two beautiful Japanese girls came up to my room, where they asked me to lie in the bath and gave me the most erotic massage of my life. We all ended up in my bath tub. When I breathlessly called up for a massage the next night to repeat the experience, I was confronted by two huge women in severe aprons who explained that the other two girls were having a night off. They proceeded to karate chop and pummel me to within an inch of my life. Nowadays I am booked into huge hotels which are very nice, but nothing compares with that first business trip.
By 1988 Virgin had become quite a well-known brand name in Japan. Several of our artists sold well there, particularly Boy George, The Human League, Simple Minds and Phil Collins. After the British Airways takeover of British Caledonian, we successfully applied for the right to fly to Tokyo. When we looked at ways of reducing our overdraft, we realised that we would have to sell shares in both Virgin Atlantic and Virgin Music in order to reduce our mountain of debt.
Our first deal was to sell 10 per cent of the airline to Seibu-Saison, a large Japanese travel group. Virgin Atlantic had just announced doubled pre-tax profits of £10 million, and Seibu-Saison bought the 10 per cent stake for £36 million. At the same time as this deal was going through, Robert Devereux was signing up a longer-term contract with Sega for Virgin Communications to distribute Sega games. It was becoming clear that Japanese companies shared much of the same philosophy as Virgin.
Like us, they tend to operate on long-term objectives. As well as the constrictions of having to report to nonexecutive directors and shareholders, one of my main frustrations with being a public company quoted on the stock market was the short-term view which investors took. We were under pressure to produce instant results, and unless we paid out a large dividend our share price would suffer. Japanese investors do not invest with the dividend payment in mind; they look almost exclusively for capital growth. And, given that it can take a long time for investments to pay off, Japanese share prices are very high in comparison with the company’s earnings. Hence, Japanese price-earnings ratios are often three times as high as British ones. I once heard of a Japanese company that was working to a 200-year business plan! It reminds me of Deng Xiaoping’s remark in the 1980s, when he was asked what he thought the implications of the 1789 French Revolution were. ‘Too early to tell’ was his reply.
The next part of the Virgin Group to embrace a Japanese partner was Virgin Music. This was the key sale. If we were going to make any sense of having bought back Virgin Group plc, then we had to raise a good price for Virgin Music. Simon, Trevor and I spoke to a number of American companies about taking a stake in Virgin Music. One of them offered the most money but was not prepared to take the role of a passive, long-term investor. We all gravitated towards a Japanese media company, Fujisankei. I think my mind was made up at a meeting with Mr Agichi of Fujisankei in the garden of our house at 11 Holland Park.
‘Mr Branson,’ came the quiet question. ‘Would you prefer an American wife or a Japanese wife? American wives very difficult – lots of litigation and alimony. Japanese wives very good and quiet.’
19 Preparing to jump
1989–1990
BY SELLING 25 PER CENT of Virgin Music for $150 million – £100 million – we had vindicated our argument that the City had undervalued Virgin. The sale was a clear sign that that company alone was worth at least £400 million, and that was without any value at all placed on the various other companies, such as Retail, which had made up the public Group. This was way above the £180 million at which the City had valued us before we offered to buy the company back, and still way above the £240 million price we had eventually paid to go private.
With Japanese partners in our two main businesses, the airline and music, we then turned to our third business and decided to expand the retail side in Japan as well. Ian Duffell and Mike Inman, along with our Japanese adviser, Shu Ueyama, had already started to do their research. Mike had started learning Japanese in Sydney because his brother had married a Japanese girl. Ian sent him to Tokyo, and he himself headed t
o Los Angeles, where he started looking for a Megastore site along Sunset Boulevard.
Mike reported that it would be impossible to set up a Megastore in Tokyo by ourselves: Tokyo is a vast city with few distinguishable regions, and it is extremely difficult for outsiders to identify the key parts. Retail, residential and commercial properties are all jumbled up together, unlike in London, which has easily definable shopping areas – like Oxford Street, Knights-bridge and Kensington High Street – and where it is relatively easy to get your bearings. Tokyo all looks the same. Property is extremely expensive, and in order to rent a shop you have to put down a huge deposit called ‘key money’. Trevor, Ian and Shu had met up with a great many potential Japanese partners, and eventually chose to team up with a fashion retailer called Marui. Trevor formed a fifty-fifty partnership which would be the start of Virgin Megastores in Japan.
The difficulty with a record shop is that you are trying to sell an identical product to that of every other record shop. Virgin had nothing that we could call our own or that was available only at Virgin shops. We knew that our competitors were losing a lot of money in Tokyo, partly because they had had to pay such high key-money deposits on their shops, but also because they had not established any customer loyalty and so did not get the vital return visits.
In order to avoid these pitfalls, we set up the joint venture with Marui. They were the first retailer really to understand the importance of railway stations. They positioned their stores as close as possible to the large railway stations, and so ensured a vast crowd of passing pedestrians. Marui’s clothes were aimed at the young, increasingly affluent generation and they had also pioneered a popular in-house credit card. Marui managed to secure us a fabulous site in Shinjuku, a prime shopping area in central Tokyo, and we took 10,000 square feet. The property belonged to Marui and we agreed a system whereby we paid them a certain percentage of our sales instead of a fixed monthly rent. In this way we avoided paying the ruinous key-money deposit and, although 10,000 square feet was small by European standards, it was still larger than any other record shop in Tokyo. It was the flagship store I wanted.
In order to be different from our competitors, and to attract customers, we installed listening facilities and hired a DJ. The DJ was not only an entertainer: by playing great songs he soon covered his costs by triggering sales. The Tokyo Virgin Megastore soon acquired the same kind of cult status as the early shops in Oxford Street and Notting Hill. Teenagers from across the city flocked there and it became the place to go. Tokyo is an expensive city and so teenagers enjoyed being able to spend a cheap afternoon listening to music, chatting and buying records. The average time spent in our Tokyo Megastores was forty minutes – considerably longer than people spend having a meal in McDonald’s. It was almost an extension of our original 1970s retail philosophy. With 10,000 customers a day, the store was even more successful than we had expected.
With Ian in Los Angeles, Mike was by himself. In due course, he followed in his brother’s footsteps by falling in love with a Japanese girl. They got married on Necker Island.
Within the space of two years, between 1988 and 1990, each Virgin subsidiary had set up a deal with a Japanese company. With Sega, Marui, Seibu-Saison and Fujisankei, we were uniquely placed to begin expanding in Japan. I was also about to become involved in an altogether different venture in Japan: Per and I were planning to take off from Japan and fly across the Pacific to America in our second hot-air-balloon adventure.
Per told me his worst fear when it was too late. We were on the plane on our way to Japan when he confessed that he had been unable to test the capsule in a pressure chamber: he was not 100 per cent sure that it would survive at 40,000 feet. If a window blew out at that height, we would have between seven and eight seconds to put on our oxygen masks.
‘We’ll need to keep them handy,’ Per said in his usual understated way. ‘And, of course, if the other person is asleep then it’ll be necessary to put the mask on and get it going in three seconds and then put on the other person’s in three seconds, allowing two seconds for a fumble.’
I didn’t fancy a fumble with Per, even for two seconds, and I vowed that I wouldn’t go to sleep during the flight.
‘Will we have any advance warning about it?’ I asked.
‘If the capsule decompresses, you’ll notice that it suddenly becomes misty. The capsule will appear to fill with fog. You will hear a screaming in your ears and you will experience the sensation of your lungs being sucked out of your chest and through your mouth.’
When a journalist asked me about the dangers of the flight, I recounted Per’s words.
‘You see, it’s essential that one of us stays awake during the flight,’ I told the journalist. ‘So, rather than using the comfortable Virgin seats which we used to cross the Atlantic, we’ve asked British Airways for two of theirs.’
We were attempting the flight in November, when the jet stream across the Pacific is at its strongest. However, it is also the time of year when the ocean is extremely stormy. We would take off from Japan and almost immediately be above the sea. We would then have to more than double our Atlantic distance record of 3,000 miles in order to reach America.
Per’s team had taken the balloon and capsule to the launch site in Miyakonojo, a small town in the south of Japan which they had calculated lay directly below the jet stream. On my first night there I was called by Tom Barrow, who had fallen out with Per since the Atlantic crossing. We had replaced Tom with Mike Kendrick, but Tom had been following Per’s progress and was extremely worried.
‘You’re going to end up in the water,’ he told me. ‘Your first priority is to be prepared for a safe, survivable ditch in the sea. If, against all odds, you reach the mainland, you’ll have a 60 per cent chance that it’ll be dark. In November it’s dark for fifteen hours of the day in North America, particularly the further north you go. You can’t land in the dark, so you may well have to fly for another fifteen hours. Even at 30 miles an hour this’ll take you 1,000 miles inland and you could well be in trouble then. You should assume that there’ll be storm conditions – it’s hardly likely to be a still, calm day. Up in the north you get people trapped in cabins waiting for the weather to clear, so for God’s sake have your search and rescue team in place. Don’t be dependent on calm weather for your landing.
‘Check all the systems before you take off. Don’t get pressured into taking off. Even if everything’s well built and works, the flight is still terribly dangerous.’
I thanked Tom for his advice.
‘My last word on the matter,’ he told me. ‘The Atlantic crossing was a successful flight that was out of control. We all know that. It was fully out of control at the end, but both of you survived. You both taught yourselves to fly that balloon as you went along. In the Atlantic you can ditch near a boat. In the Pacific you’re dead. So you’ll either ditch in the sea and die, or you’ll hit land in the dark and that’ll be a close call.’
I put down the telephone. I was sweating. I had hardly finished scribbling down what he’d told me when it rang again. It was Joan. It was Holly’s eighth birthday. She came on the line:
‘I’m keeping a diary, Dad,’ she told me. ‘We can swap diaries when you come home.’
‘Yes, darling,’ I said, swallowing hard.
When I mentioned to Per the improbability of surviving if we ditched in the sea, he agreed.
‘We don’t need to bother with health insurance,’ he said casually. ‘It’s only worthwhile taking out life insurance.’
As Per’s team assembled the electrical systems in the capsule, Per and I sat down together and went through the flight operations. It was hard to believe that we were going to be once again incarcerated in this tiny capsule, surrounded by all these gadgets – which were our only means of communication with the outside world.
‘Look,’ I found myself saying to a reporter who was running through a list of everything that could go wrong, ‘it’ll either be a piece of
cake or it won’t.’
The jet stream above the Pacific is a different shape from the one above the Atlantic. The Atlantic one is a V-shaped polar jet stream, like an upside-down Toblerone. As you rise, the jet stream becomes wider and the wind becomes faster, so you gradually increase your groundspeed. At 10,000 feet the air current might be 50 knots, then at 27,000 feet it will be 100 knots, and so on. A balloon can ease into it without being buffeted. The Pacific jet stream is a different beast altogether. It is a subtropical jet shaped like a single-bore cable. At 20,000 feet the air current could be completely still. At 25,000 feet it could be the same. Then suddenly at 27,000 feet you hit the jet stream, which is moving at between 100 and 200 knots. Nobody had ever flown a balloon in the Pacific jet stream before, and we knew there was a danger that when the top of our balloon hit the current it could be sheared off from the capsule suspended below. If that didn’t happen we knew it would be a pretty rough buffeting. With the capsule travelling at 5 knots and the balloon at 200 knots, we knew it would initially be like being pulled along by a thousand horses.
If we managed to get into the jet stream, we knew that it would have an inner core which is generally about 4,000 feet in diameter. To keep within this tube would mean constantly monitoring the altimeter, and watching out for any buffeting which would imply that the balloon and capsule were in different streams.
The atmosphere at Miyakonojo was almost like a carnival. A Shinto priest even came to bless the site. My parents had arrived, but Joan had chosen to stay at home until the balloon went up and then take a plane to Los Angeles so that she and the children could meet me at the end of the flight. By Sunday night our weatherman, Bob Rice, was forecasting perfect conditions for Tuesday, but by Monday these had been delayed to Wednesday. Per and I spent another day in the capsule going over and over everything that could go wrong.
Losing My Virginity Page 24