All Virgin Megastores in U.S. to close

150 stores remain worldwide

After nearly two decades of rocking the music world with a mix of brash stunts and splashy CD releases, the remaining six Virgin Megastores in the United States will shut their doors this summer in another blow to recorded music.

The hipster shops received their branding from billionaire founder Sir Richard Branson and remained profitable, but the real estate firms that own the U.S. chain determined they could command higher rent from new tenants.

"I've been pushing back a little bit on the notion that this is just another casualty of the music industry," said Simon Wright, the chief executive of Virgin Entertainment Group Inc.

A slowing economy took its toll. To buck declining music sales, the chain broadened its offerings in the last few years to apparel, books and electronics. The six remaining stores took in about $170 million in revenue a year, down from the $230 million from 23 stores at its peak in 2002.

The lack of expansion plans and a recent decision to close the Times Square location in New York, which had been on track to make $56 million last year until the financial collapse began in September, made supporting the rest of the chain untenable, Wright said.

"Our six best stores from a retail point of view are also our six best stores from a real estate point of view," Wright said.

The joint venture of Related Companies and Vornado Realty Trust bought the U.S. chain in 2007, and with sales slowing, the companies figured they can make more money by simply turning the properties over to new tenants, who will likely pay much higher rents than the level locked in for many of the stores in multiyear leases.

The 52,000-square-foot Times Square flagship closes in mid-April, to be followed by another New York store and outlets in Los Angeles, San Francisco, Orlando, Fla., and Denver, all by June, Wright said. About 1,000 staff and 60 at the corporate level will be laid off.

The first American store opened its doors on Sunset Boulevard in Hollywood in December 1992, but it closed early last year when its lease expired.

Music sales have declined nationwide in seven of the last eight years, largely because of illegal file-sharing over the Internet and the tendency to buy individual songs rather than full albums through Apple Inc.'s iTunes and other stores.

The Virgin Megastores had often opened with the kind of stunts that made Branson famous.

Parachutists descended on a Salt Lake City store opening in 1992. Branson came dressed as the Mad Hatter of Boston when that branch debuted in 2002. And he arrived looking like Guns N' Roses singer Axl Rose for the megastore that splashed into Hollywood in 2005.

The stores also served as a way to break new artists or relaunch established ones. Mariah Carey walked the platinum carpet in Hollywood for the 2005 rerelease of "The Emancipation of Mimi" and singers from Avril Lavigne, Clay Aiken, and Faith Hill have launched albums with signings at various locations with fans sometimes lining up overnight.

"People can go online to buy music, but there won't be any replacement for the events that we held," Wright said. "Times Square was particularly famous for that."

There remain about 150 Virgin Megastores in the rest of the world, in France, Australia, Japan, and the Middle East. All are owned by local companies with licensing agreements that lead back to Branson.

The company is planning a Times Square send-off in the last week of March.
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