Virgin stumps up £90m in quest for Megastore profit

Virgin is to invest£90 million in its Megastores chain over two years to modernise stores and return the business to profit.

The decision to plough cash into the chain came after consumer research into Virgin's companies put Megastores at the top in terms of customer service and brand perception.

Last autumn, a 40 per cent stake in Virgin Megastores went up for grabs when the retailer held talks with venture capitalists. After discussions collapsed, tycoon Richard Branson decided to stump up the cash, showing his faith in the Megastores business.

Virgin Retail chief operating officer Dennis Henderson said the£90 million will be a combination of a cash injection and working capital. He was tight-lipped about exact plans, but said refurbishment of many of the 174 Megastores and an improved product offer were on the agenda.

'We have a plan that will make Virgin Megastores a solid and profitable business in the next couple of years,' he said.

Virgin Megastores made a loss of£10.9 million in the year to February 1. Virgin has also simplified the business and now trades as one company - Virgin Retail Ltd - rather than the complex structure that existed as a result of its former ownership of Our Price and acquisition of Tower Records in the UK.

Store staff have received a pay increase, and their bonus scheme has been improved in an attempt to reduce employee turnover. The retailer will rebrand the 19 XS factory outlet stores acquired from Sound and Media last autumn to Virgin XS in July, and will convert the Tower Records Piccadilly store to a Megastore this summer.