Zavvi calls in the administrators

Independent 24th December 2008



More than 3,000 jobs at high street music retailer Zavvi were at risk today after the company was placed into administration.

Zavvi, the former Virgin Megastore chain, called in Ernst & Young after it was crippled by the collapse of Woolworths' Entertainment UK wholesaling division.

Tom Jack, joint administrator, said: "In the absence of a buyer for EUK, and with dire trading conditions on the high street, the Zavvi group has seen a material fall in sales and the directors have now been forced to place parts of the group into administration."

Ernst & Young has been appointed as administrator of Zavvi UK and liquidator of Zavvi Guernsey, although Zavvi Ireland is not subject to any formal insolvency proceedings.

Zavvi is the third retailer in 24 hours to call in administrators as the high street squeeze claims a growing number of casualties.

Ernst & Young said all 125 Zavvi UK stores will open as normal on Boxing Day for the post-Christmas sales, and will stay open while a buyer is sought.

Mr Jack said: "The administrators intend to continue to trade Zavvi UK with a view to selling all or part of its business as a going concern.

"We are grateful for the continued support of all employees during this difficult time and would like to thank everyone at Zavvi for their commitment and hard work as the business continues to trade."

Zavvi currently employs 2,363 permanent staff and 1,052 temporary staff across the group.

It is the largest independent entertainment retailer in the UK and has 125 stores - 114 in the UK and 11 in Ireland.

Simon Douglas and Steve Peckham, the group's founders, said: "We would like to thank all of our employees for their commitment and support since the launch of Zavvi.

"We have done all that is possible to keep the business trading, but the problems encountered with EUK, and particularly its recent failure, has been too much for the business to cope with."

The EUK distribution business was Zavvi's main supplier and its collapse last month left Zavvi unable to take customer orders.

Ernst & Young said it believes EUK is unlikely to be sold as a going concern, adding that Zavvi had continued to face difficulties in sourcing stock on favourable terms.

"This has resulted in considerable working capital difficulties as a result of the failure of EUK, in addition to continuing operating losses," it said.

Mr Jack said: "Since EUK went into administration, and perhaps before, the impact of problems at EUK on the Zavvi group has been significant.

"Minimal deliveries, no returns and worse trading terms are just some of the areas impacted."

Earlier this month, 700 workers were made redundant from EUK's head office and distribution centres in Middlesex after administrator Deloitte's efforts to sell the business as a going concern stalled.

EUK will continue operating for the moment with a reduced workforce of 375.

Yesterday, tea and coffee merchant Whittard of Chelsea was also placed in administration, but the 122-year-old company will remain on the high street after administrator Ernst & Young sold the firm to private equity company Epic in a rescue deal.

Struggling British menswear retailer The Officers Club also fell into administration last night but was snapped up by management in a deal which saved more than 900 jobs.

A new company backed by David Charlton, chief executive of The Officers Club, took on 118 of the firm's 150 stores. But the remaining 32 stores are to close immediately.

In recent months the high street has witnessed a swathe of retail failures as companies crumpled under the weight of soaring costs, falling consumer spending and the credit crunch.

The festive selling season - which should be the highlight of the retail calendar - long ago turned into a bloodbath as shops fought tooth and claw to retain market share.

Discounting started weeks early across the high street in an attempt to kick-start consumer spending.

Zavvi started its sale on Monday and other retailers have announced plans to slash prices by up to 90 per cent.