Pump It Up

By  Dave Kelley — July 27, 2006

It takes a certain amount of cheek to self-brand your outlets as Megastores, but cheek is something neither Virgin Entertainment Group nor Richard Branson, the companys larger-than-life founder, have in short supply. And as has been famously said, its not bragging if you back it up. Virgin backs up the boast, with each of its 17 Virgin Megastores stocking an average of 255,000 products ranging from CDs to fashion items. Yet, as Robert Fort, director of information technology for Virgin Entertainment Group, says, Virgin is at an interesting crossroads. Were in a state of transformation. Virgin began its life as a record store, and music is still at the heart of the Megastores. So, as the music industry continues its glacial move into the digital age, Virgin also must adapt to the new paradigm. A major step in that direction came in September 2005, when 150 digital listening stations were deployed in the companys Times Square Megastore, allowing customers to listen to a sample of almost any title in the store at any station.

On our old CD-based stations, Fort explains, all you could listen to was up to four titles. Now, our customer can listen to almost anything in the store.And the customers are listening. In December 2005, Fort reports, customers used the kiosks IBM Anyplace Kiosks using a Microsoft WEPOS platform running an in-house-developed application over a Cisco caching engine to hear more than 432,000 sample tracks.

Of course, thats just the beginning. Customers also can view sample video clips at the kiosks. It was always intended that we would go ahead and roll out to the other stores, but for now we have added 56 kiosks in the Hollywood Megastore. While customers arent currently able to place orders directly from the kiosks, adding that capability is certainly a future goal.

Turbocharging the POS

POS is one of the critical infrastructure requirements for Virgins vision of the future. As CD sales have shrunk (while digital music downloads are skyrocketing) and DVD sales have flattened (with digital downloads looming large on the horizon), Virgin realizes that the Megastores must simultaneously follow and anticipate the wants of its customers.

We saw it all coming, Fort says. Weve been bringing in fashion and accessories, around the entertainment lifestyle, and are looking to expand the line further. Weve always had a small degree of electronics, usually impulse-buy type things, and now were moving into a higher-end products.

Advanced POS is a critical element in adding new product lines and revenue streams in a retail setting, but a planned POS upgrade was temporarily postponed from last year. Our POS project got delayed, Fort explains, because the demands to support the Times Square retrofit and new Hollywood store opening were higher than anticipated, and we didnt want to rush the project. We probably could have committed to the POS upgrade platform from day one, but we decided to first go live with Windows 2000 and then put the new SAP Triversity software on a WEPOS later.

This new vision represents a sea change for Virgin, especially in terms of the technology needed to hit the right notes. Fort explains: We tend to buy CDs two to three weeks before the release date. We hold them about 90 days past the release dates, and we can return any excess stock. If something comes out on a Tuesday, and our real-time data warehouse reports that its burning really fast, we can place another order Tuesday afternoon and have it back in stock for the weekend.

However, this approach is not ideally suited to selling clothing and accessories. Fashion, Fort sighs, you have to buy further out. You have more dimensions: size, color, style. You have to process it differently than our backrooms have been set up for in the past, and its not just returns you have to deal with, its markdowns. Electronics introduce higher ticket items and more security issues. Welcome to the transition were in.

Ironically, the JDA merchandising system Virgin currently uses was originally a fashion system that was reworked to handle hard goods. To handle CD sales on the system, Fort says, People started using different fields in the system for things other than clothing parameters and ultimately destroyed the softwares ability to be useful for fashion processing. Now our growing business line is in fashion and Im sitting on a system that used to be able to handle it, but cant right now.

As a result, Forts long-term vision is to clean up the back end by implementing a single ERP system, replacing the side-by-side JDA and JDE (now Oracle) systems currently in place. Since Forts tenure at Virgin has been one of enthusiastic and successful adoption of new technological tools, having a full agenda to deal with is nothing new. One of Forts first projects was the implementation of a Microsoft SQL server data warehouse that pulls data from the stores every 15 minutes, and feeds reports right back to the stores. The implementation was a major success.

The very week we went live, Fort recalls, we could see every one of our KPIs making immediate upturns. Conversion rates went up, sales went up, average dollar sales went up, units per transaction went up and we had a great Christmas season. We paid off our investment in 15 weeks.

Next Steps

For his next hit, Fort is contemplating a customer loyalty system integrated into the digital listening kiosks. Once I can do that, he says, I have the customers number at the listening station, and Ill be able to correlate what they listen to, what they buy, and on their next visit, I can say, I saw you were listening to this album last time you were here, this time Ill give you one dollar off on it. The kiosk can then turn into a purchasing station. Our initial goal was to get the infrastructure up and running. Once we do that, we can go many places from there.

Systems integration is at the top of Forts technological agenda. Two digital signage projects currently in progress are prime examples. In one, a projection of the cover of Nirvanas Nevermind CD (a picture of a baby floating in a swimming pool) is projected and is interactive, so customers can cause the baby to move around. The other is designed to work with any media file, using a set-top box that retrieves contents off the same Cisco engine used by the kiosks. This project is currently in the pilot stage. Once all the media content is going through the same device, its very easy for us to write software that would understand whats going on, Fort says. One potential use would be to build a closed-circuit network so an event that takes place with Mariah Carey at the Hollywood store could be shown live at the Times Square store.

Then things really start to rock. We can also open the kiosk in the future to actual sales, Fort says, because we can add on the reader that IBM offers and integrate it so all credit transactions go through the POS. This way, all sales will be reported within our POS system and it would fully integrate in the back end.

The integration is critical, because Fort wants to ensure that a stores general manager gets credit for every kiosk sale occurring in his or her store. Every decision weve made, he continues, positions us to put pieces together that integrate into another system and keep our costs down. For example, using the infrastructure we already have in place, we can begin to expand our use of digital signage.

Forts vision is ambitious, but hes confident. There are times when you need to do something, you have to go out on a limb, he says. Were trying to make sure everything fits together.

In the words of Pete Townsend, the music must change. This mantra holds true for retailers, too, and few have morphed as successfully as Virgin, from the first Virgin store on Oxford Street in London in 1971 to the debut of the Megastores in 1988 and the transformation currently underway. It was a song before it was a clich, so its appropriate to say that as far as Virgin Entertainment Groups concerned, the future really is so bright, they gotta wear shades.

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