Virgin is in talks with venture capitalists about selling a stake in its Megastores business, securing finance to improve stores and fund future expansion.
The entertainment retailer, owned by Sir Richard Branson, hopes to complete a deal early next year.
Virgin Entertainment Group chief executive Simon Wright would not disclose how much funding Virgin is looking for or what size stake it would be willing to sell.
Industry sources believed the Megastore business would be valued at no more than£80 million.
Wright said: 'It all depends on value, but ideally Virgin likes to maintain a controlling stake, or at least 50/50. That's not going to be different in this instance.'
He would not reveal how many or which venture capital firms are interested, but said: 'Some are retail specialists, others are more interested in the brand. We need a strong foundation for future strategy.'
Virgin would use the funds to refurbish its 160-strong Megastore portfolio in the same style as its Oxford Street flagship, increase store numbers and reposition its offer.
It is understood that Virgin Megastores would like to push harder into product categories such as books, gadgets and general merchandise. Virgin is also in early discussions to sell a stake in its US Megastore business.
Record stores have been under pressure on price and margin recently, because supermarkets have moved into the market and the popularity of downloading music from the Internet has risen.
According to Companies House, Virgin Retail made a pre-tax loss before exceptionals of£5.78 million in the year to January 31, 2002 on turnover of£390 million.
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