Five months after leading the deal to buy the former Virgin Megastores, Simon Douglas is a relieved man. Tim Danaher meets him

The 10 per cent festive sales jump revealed by entertainment retailer Zavvi last week surprised a lot of people. Managing director Simon Douglas admits he was one of them.

After all, when he led the management buy-out of Virgin Megastores in September, he was taking on a loss-making company in one of retail’s most challenging sectors and ditching one of the most iconic brands in retail in the process.

“We put up pessimistic plans at the time of the deal,” says Douglas. “We didn’t know what the reaction would be to taking the Virgin name off the door.”

A 10.2 per cent increase in Christmas like-for-likes was a dream start for Douglas and proved the sceptics who thought Sir Richard Branson was fleeing a dying sector wrong. But this year he still faces a big job to establish the high street’s newest brand in the minds of entertainment shoppers.

The rapid rebranding of the stores – more than 110 in 14 days – meant that many of them have looked like a messy muddle of Zavvi and Virgin, but this is now changing. Last week, new windows were launched explaining what the Zavvi brand is, and new point-of-sale material is being rolled out across the estate.

The web site, which enjoyed a 70 per cent increase in Christmas sales, was due to be rebranded this week, having been running as a dual site since the deal. The Virgin stores in Ireland will be rebranded in the next fortnight and a brand marketing campaign in the specialist press is due to kick off imminently.

Getting the brand known will be key to ensuring Zavvi’s Christmas wasn’t just a flash in the pan. The demise of retailers such as Fopp, Music Zone and MVC has led some observers to doubt whether there is a future for music specialists on the high street, if not altogether, then at least beyond the dominant HMV.

But Douglas – who spent 20 years at HMV before joining Virgin four years ago – begs to differ. “We’ve seen a lot of retailers in this sector disappear in the past two or three years and undoubtedly that has created a gap. There is a dominant number one, but I see an opportunity there to give the consumer choice.”

He says that the new brand has helped internally. “Our staff have been galvanised by the MBO,” he says. “They’re no longer part of the enormous Virgin empire and being independent means we can react quickly to what’s going on in the market.”

The rebranding hasn’t been Zavvi’s only big challenge. It has also had to get used to its new supply arrangement with Woolworths subsidiary EUK and, while Douglas admits it has had a difficult birth, he says the potential is huge. Crucially, he says, Zavvi still retains direct relationships with the suppliers while EUK focuses on logistics and buying terms.

Sales of games were what drove Zavvi’s Christmas success, making up more than a quarter of the sales mix. Like-for-like game sales soared by what Douglas described as a “phenomenal” 62.7 per cent, despite the shortages of key consoles such as the Nintendo Wii.

Douglas is particularly pleased, because it vindicates his decision to increase the space given to games, put a games expert in each store and make the category the focus of the company’s store managers conference in October.

DVD sales were solid with a 6.4 per cent like-for-like growth, although price deflation was an issue, but music performed badly. Music like-for-like sales were down 11.6 per cent and, for the first time, the category was outsold by games.

Douglas says a feeble release schedule – two of the top five Christmas titles were released in 2006 – was the problem. But things should improve, with Oasis, Coldplay, U2 and Madonna releasing albums this year. And, with catalogue sales up 40 per cent, Douglas is confident there is a future for music retail on the high street. While illegal downloads are a huge concern, he says legal album downloads have yet to catch on.

The digital download service, Virgin Digital, didn’t come as part of the MBO and Douglas remains undecided on whether to enter this space. Steve Kincaid has been moved from marketing director to the new role of e-commerce director and one of his first jobs is to assess whether there is a potential for such a service.

Stores will be key, however and a vital part of Douglas’s strategy is to diversify ranges to include books and fashion, making the stores a destination for entertainment and related merchandise. Four new shops will open this year and Douglas says he is committed to keeping the estate – with stores ranging from 1,200 sq ft to 60,000 sq ft – intact.

Christmas was Zavvi’s first major hurdle and Douglas will be relieved to have got through it in such good shape. While many challenges lie ahead, if the company can continue as it has started, it might just prove the doubters wrong.

That’s entertainment

Age: 42
Family: married with four children

Career history
2007: joint owner and managing director of Zavvi after management buy-out
2005: becomes managing director of Virgin Megastores
2004: joins Virgin Megastores as executive director (retail)
2000: becomes operations director, HMV Europe
1984: joins HMV as a sales assistant, rising to
divisional manager