Sanity (music Store) - Brazin and Sanity History - 2000s

2000s

In March 2000, Sanity's first foray into a digital music download service caused consternation within the industry when they signed a five-year deal with Festival Mushroom Records for a three-year online exclusivity window on all tracks downloaded from the label at Sanity's website. Rival retailers or other online services were meant to be blocked from Festival Mushroom's catalogue for that period unless Sanity chose to strike separate deals with their rivals to let them in. Chaos.com and Leading Edge Music both made public threats to boycott Festival Mushroom's content, but HMV Australia (whose website did not offer downloading) followed through, removing all their CDs from their domestic stores, adding they were would do the same overseas. But the next week, Festival Mushroom backed down, stating Sanity would simply be the wholesaler of their digital downloads for the next three years, requiring them to make all products available to other retailers at the time of release. In June of this year, Brazin opened the Gosh Coffee chain with an aim of 50 outlets within the year and ultimately reaching 200 to 300 nation-wide.

In January 2001, Ian Duffell was appointed CEO with Brett Blundy moving down to run Brazin's strategic development, however eight months later he relinquished the position swapping roles with Blundy again. Duffell remained a director until April 2003.

In October 2001, Sanity expanded into the United Kingdom via two related transactions with Richard Branson's Virgin Group, acquiring 77 troubled Our Price music stores for a symbolic £2, and inturn gaining exclusive license rights in Australia for Virgin Entertainment (which last traded in Australia nine years before under the co-ownership of the Virgin Group and Blockbuster Inc.). Brazin paid £7.7 million (A$21.8 million) to the Virgin Group while getting that exact amount back from Virgin for tax reasons. Brazin's managing director, Ian Duffel said that the UK music market was one of the strongest in the world that year and he expected a, "50 per cent increase in music revenues from day one." Further to the deal, Virgin would get 1 per cent of all turnover in the stores in conjunction to offering Brazin a £2 million loan facility. Brazin also made a commitment to restrict the size and proximity of its Sanity UK stores in order to ensure they do not pose a large competitive threat to Virgin's other music shops. In Australia, Brazin re-established the first Virgin Megastore on Chapel Street's, The Jam Factory in April 2002. Brazin also intended to use the Virgin brand to open 45 new stores in addition to converting 55 of its existing IN2 Music stores that had not already been rebranded as Sanity. However, the program stalled as Brazin battled internal disruptions and struggled to separate the target markets for Virgin and its chain of more than 200 Sanity stores (at the time). As a result, the company's entertainment division posted a $27 million loss in financial year, 2002–03, and by mid-2004, Brazin had only managed to open 12 Virgin Megastores. By the end of this year, Brazin sold out of its loss-making Gosh Coffee 16-store chain (of which, six were sold to Freshfood Hospitality Pty Ltd with three still in operation today), and City Live nightclub at Fox Studios in Sydney.

In November 2002, an additional 41 British VShop music and mobile phone stores were acquired from the Virgin Group for £2 million. Earlier this year, Brazin experienced many delays in rebranding the Our Price stores due to landlords, heritage listings, and negotiations with Railtrack. The company also shifted Sanity UK's headquarters from Our Price's central London offices to Alperton. The new British outlets were already starting to return on investments and overall company operating profit rose to 32 per cent in the year to 30 June 2002 to $22.1 million with Sanity-branded outlets then numbering 291 in Australia.

In June 2003, with Brazin's shareprice languishing at $0.55, some business analysts criticised the company's strategy of aggressive expansion in the Sanity brand - which they said may be cannibalising sales from sister stores - instead of concentrating on lifting the performance of existing outlets. Under this cloud, Blundy's retail investment company, Yoda Holdings, made a bid to take full control and privatise the company at $0.78. But after this announcement, shares rallied over Blundy's offer and the Australian Shareholders Association attacked the move, saying it was an abuse of the Corporations Act to use recycled money from Brazin to buy out their own minority shareholders. A month later, Blundy withdrew the bid, offering little explanation, to the public bemusement of some Brazin executives.

In August 2003, Brazin acquired a 50 per cent shareholding in EzyDVD which had 15 stores at the time, while the company also bought the 19-store footwear company, Ghetto, from Blundy's Yoda Holdings. During this period of expansion, CEO, Brett Blundy admitted that the Sanity chain needed to be restructured. He blamed heavy discounting in the DVD market, where large chains such as, Kmart, Target, and Big W accounted for more than one-third of the industry's sales (within Sanity itself, DVD sales accounted for 30% in 2003, compared to just 6% in 2001). More short-term, its six Sanity and Virgin music stores at Sydney Airport, Melbourne Airport, and London Heathrow Airport, were hit hard by less passengers, spooked by the Iraq War and SARS, cancelling many flights. Yet, Brazin continued with their strategy of not discounting its regular line of CDs and DVDs to meet heavy discounters and rapidly expanding rivals, such as, JB Hi-Fi - which was (and still is) eating away at Sanity's market share. Blundy cited the very thin profit margins gained from such discounts as the main reason for keeping prices near the recommended retail price (in August 1996, Sainty's general manager, Daniel Agostinelli told Billboard that each CD sold in the 60-store chain then made 27.5% gross profit before subtracting 24% in costs). Also in this month, Greg Milne was appointed CEO leaving Blundy to again move down to head strategic development.

In September 2003, even after increasing profitability across their store network, Brazin Limited sold all 118 Sanity UK stores (those, being the rebranded Our Price and VShop stores) to an investment firm called, Primemist Limited, for an estimated ₤5 million (A$16.67 million), citing higher expectations not met. The Sanity name lived on in the UK for a very short while as rebranding was yet to occur, until Primemist immediately struggled to operate the chain due to difficulties with credit and stock purchasing, thus, entered administration in December 2003, progressively shutting 99 outlets as buyers for the entire business or individual parts of it could not be found. By April 2004, administrators, BDO Stoy Hayward, then closed the last 19 Sanity/Our Price stores.

In July 2004, Brazin entered into an agreement with Coles Myer to open 62 Virgin concept stores within the Myer department store chain. Brazin agreed to buy all of Myer's remaining CD and DVD stock, recruit, train and pay their own staff, and work within Myer's systems and promotions. These concept stores were marketed separately to stand-alone Virgin Megastores (due to their more limited stock availability) and branded, Virgin At Myer. This solved Brazin's problem since 2002 by separating the Virgin and Sanity target markets by making Virgin more "family orientated" while leaving Sanity's "street edge" to continue. Exactly a year later, Brazin stated that after a rocky start (with staff recruitment issues and aligning products with the typical Myer customer), Virgin At Myer was up 45 per cent on comparative sales and was performing well.

In December 2004, Brazin acquired Perth-based candle and gift-ware retailer, Dusk, which operated 41 oulets at the time.

In October 2005, Brazin acquired the Australian operations of HMV. The HMV Group's agreement with Brazin was to phase out the HMV brand in Australia by 2010. Immediately after this acquisition of HMV's 32 outlets, this put Brazin at its peak with its 74 Virgin stores in addition to Sanity's 215 and EzyDVD's 63 outlets around the country (not counting non-entertainment retail chains within Brazin such as, Bras 'N' Things) and was by far Australia's largest entertainment retailer with close to 43% of the music retail market. However, most HMV stores in Australia had very high overhead costs due to their large footprints and expensive locations, thus most were gradually closed upon the end of rental leases. The remaining stores were re-branded to Sanity over the next five years. The one notable exception to closing HMV stores in 2005 saw Brazin instead close its large Sanity store 60 meters away on the corner of Bourke Street Mall and Causeway Lane, Melbourne which had operated since 1996 (that space in now occupied by a Forever New clothing store). Also in this month, Brazin officially launched its Pulse loyalty card after a year of testing in the market. It worked by giving the customer one point for every dollar spent across the Sanity/Virgin/HMV/IN2 Music/EzyDVD/Bras 'N' Things/Dusk/Diva/Ghetto/Insane store network, receiving a $5 discount voucher or other offers once 100 points were reached. Earlier in 2005, Brazin dropped the underperforming Ghetto and Insane chains while picking up women's fashion accessories retailer, Diva - the former raising questions about Blundy's role at Brazin.

In February 2006, Brazin rolled out in-store kiosks where customers could select their own songs to either burn on a CD or download directly into an MP3 player. Fast Tracks Kiosks were initially installed in Sydney's Sanity/Virgin/HMV stores, with plans to go country-wide if successful. Yet, Brazin chose not to proceed.

In May 2006, the company's entire 344-store Sanity/Virgin/HMV network withdrew sales data from the ARIA Charts, with Brazin CEO, Greg Milne citing the need for more updated day-to-day charts over ARIA's reliance on weekly information. However, it was reported that allegedly Brazin attempted to make ARIA pay an annual fee between $200,000 and $300,000 for their data through Sydney-based research firm, GFK. This was denied by Brazin, but six months later, the company resumed data collection for ARIA. At that stage, Brazin's Entertainment Division included 254 Sanity, 22 HMV, 6 Virgin Megastores, and 62 Virgin At Myer stores. Some record label executives estimated their combined music retail market share at between 28% to 35%.

In November 2006, after more than a year of a falling shareprice while average S&P/ASX 200 prices had gone up 21 per cent in the same period, Brazin's founder and majority shareholder, Brett Blundy, used his fully owned private retail investment company, BB Retail Capital, to buy the remaining 37.6 per cent of the company he did not already own and make it private. He said, "stagnant profits, market uncertainty around Brazin's entertainment business and challenging retail market conditions," the company would be better off in private hands without the pressures of the sharemarket. Brazin's board and remaining shareholders agreed to Blundy's offer, leaving Brazin to be folded into BB Retail Capital and ceasing to exist in its own right.

In November 2007, BB Retail Capital bought an 80 per cent stake in specialty manchester and soft furnishing retailer, Adairs, from its long-term owners, the MacLean family. Adairs operated 90 stores at that stage.

In March 2008, after months of delay and development, Sanity responded to the expanding Internet media environment by launching an online music subscription service in partnership with Microsoft called, LoadIt. Yet, the service was scrapped only four months after its launch as its popularity was hindered by uncompetitive pricing, restricted usability and heavy competition from BigPond and iTunes services. According to IBISWorld, the tough times experienced by Sanity after being folded into BBRC resulted in its revenue declining 16 per cent in financial year 2008-09 and a further 21 per cent in 2009-10.

In September 2009, CEO, Brett Blundy sold the Entertainment Division of BB Retail Capital - which included the remaining 238 Sanity/Virgin/HMV store network - to BBRC's Head of Entertainment, Ray Itaoui, in a management buy-out. Still retaining their Milperra headquarters (which Brazin used to operate in), Sanity Entertainment became a private company in its own right. As a result of the split, Pulse cards could only be used in BBRC's remaining store portfolio of Bras 'N' Things, Dusk, Diva, and Adairs.