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Woolworths goes into administration

By | Published on Thursday 27 November 2008

woolworths

Woolworths, once a mighty force in the world of music retail, and a century old high street brand, could be about to disappear as the company’s board call in the administrators.

The top men at Woolies are expected to call in Deloitte this morning after attempts to restructure mounting debts, maybe by selling off the company’s retail chain, collapsed amid disagreement between directors, shareholders and major creditors, in particular the banks. The government even stepped in at the start of the week in the hope they could broker a deal to safeguard the future of the company, and the jobs of the 30,000 people they employ, but no agreement could be reached and, with the government itself unable or unwilling (probably both) to prop the firm up, the Department For Business wasn’t able to help.

What all this means for the Woolworths retail chain and its CD/DVD distribution firm eUK isn’t clear. With the whole retail sector suffering as the recession looms (furniture store MFI is also going into administration today) investment types are pessimistic about Deloitte’s chances of finding a buyer for all or even some of the firm’s retail assets. All 815 Woolworths stores are expected to open today, but some reckon up to a third could close as soon as next week.

The eUK business, probably of a bigger concern to the music industry, has performed much better than its high street sister company of late. It has suffered from cash flow issues recently after certain suppliers froze their credit, concerned, rightly it seems, about the financial stability of the wider Woolworths group. eUK would almost certainly be a stronger company on its own, and is more likely to be snapped up in any sale of assets. Of course the CD/DVD distribution sector isn’t the most stable industry either, and we’ve seen a number of small players close down in the last two years, and even bigger players start to suffer, though as supplier to the majority of high street and supermarket music sellers, eUK is stronger than most in the world of distribution.

Neither the Woolies parent company nor its joint venture with the BBC, DVD firm 2 Entertain, will be part of the administration. As previously reported, the Beeb’s commercial arm BBC Worldwide is already in talks with the retailer to buy out its 40% stake in the company.

Woolies has been struggling for years as supermarkets increasingly trod on their territory by selling cheap toys, clothes, stationery and CDs; and as HMV, Virgin and other entertainment retailers expanded their high street presence; and as upwardly mobile parents started to look for more upmarket toys and clothes for their kids. Management at the retailer consistently failed to reinvent their brand, leaving it seeming a little out of its time, while ventures such as adding Argos-style catalogue shopping into their stores was seen as too little too late.

It’s not a foregone conclusion that the Woolies brand will disappear from our high streets, of course, though Seven Investment Management’s Justin Urqhart-Stewart told City AM: “It’s no surprise Woolies has gone under. The wonder of Woolies was that it was still there. It’s s sad tale of yesterday’s brand which failed to modernise”.



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