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More on Woolies

By | Published on Friday 28 November 2008

woolworths

Woolworths officially went into administration yesterday, with consultants Deloitte moving in to try and find a way of keeping the high street retailer, and its CD/DVD distribution firm eUK, in business.

A statement from the Woolworths Group, which itself isn’t in administration, was issued yesterday thus: “Following, and as a consequence of the termination of [recent takeover] discussions, the boards of Woolworths plc and Entertainment UK Ltd have concluded that there is no longer any prospect of those businesses being able to operate as a going concern. Accordingly, the boards of both companies last night resolved to file petitions for administration in the High Court”.

Deloitte have hired restructuring firm Hilco to manage Woolies on a day-to-day basis while the firm is in administration, which is ironic because Hilco had tried to buy the retail firm in a deal which would have seen the restructuring specialists pay a pound and take on the retailer’s not insubstantial debts. It was the collapse of that takeover deal, reportedly because of objections to it from both Woolworths shareholders and creditors, that immediately preceded the company going into administration.

Hilco are thought to no longer be interested in buying the two Woolworth businesses that are in administration, the high street stores and eUK, though reports suggest possible buyers for both businesses have now approached Deloitte. Insiders seem to think eUK will be bought, perhaps by a major retail or logistics firm, and will continue to operate more or less as normal. Despite reports buyers were also lining up for the high street Woolies business, some more pessimistic experts don’t see anyone really wanting to acquire the whole 815 store Woolworths chain.

For the music industry there are two concerns. First, ensuring the possible collapse of eUK doesn’t have a major financial impact on the record companies it buys CDs from. Some labels had already cut back or cut off the credit it offered the distributor – but it’s not clear how much eUK continues to owe the labels. Second, to ensure the supermarkets and high street retailers who get their CDs off eUK continue to be supplied with stock throughout the all important Christmas market.

Retailers also won’t want to run out of stock during the Christmas rush and, as reported yesterday, Asda has already confirmed it is talking directly to the major record companies about getting stocks direct while eUK’s future is unclear. Other music retailers, including those like HMV who are not supplied by eUK, are also reportedly watching what is happening at Woolies closely because of concerns Hilco will slash the prices on all the stock in the retailer’s stores in a bid to bring in quick revenues. That could lead to a price war on CDs which could damage the specialist entertainment retailers who already struggle to compete with the price cutting tactics of the supermarkets on chart releases. With Woolies generally stocking a bigger range of CDs than Tesco etc, if it slashes its prices across the board HMV and Zavvi et al could find themselves struggling to compete on an even wider range of albeit mainstream releases.

Record label trade body the BPI yesterday confirmed the industry was watching the whole Woolies situation very closely. BPI boss Geoff Taylor told reporters: “EUK played a valuable and profitable role in the music supply chain and it is very unfortunate that Woolworths’ wider difficulties have dragged it into administration. We’ve been advising our members on how they can insulate themselves against the risks of a failure of this type, and over the next few days we will consult further with members as to how they can best respond to this development and ensure continued access to all sectors of retail”.



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