Zavvi May Be Next To Tank

CD and DVD chain Zavvi is trying to protect millions of pounds of customers’ money as the company totters on the brink of collapse.

The company has been hit hard by the demise of Woolworths and its distribution company.

It’s hoped that opening a separate bank account to hold the money that customers have paid for gift vouchers will protect Zavvi from an administrator in the event that the company is forced to cease trading.

Although Zavvi looks to be preparing for the worst, the company has denied a Dec. 12 report in The Times that said its creditors have appointed Ernst & Young as receivers.

“Ernst & Young have been providing invaluable advice and expertise to the group over the past few weeks since Entertainment UK (EUK), Zavvi’s main supplier, was placed in administration,” a company statement explained.

Zavvi, which is among Britain’s biggest entertainment retailers, has continued to trade, although its Web site has stopped accepting orders.

The company employs 2,000 people. A team from Ernst & Young has been drafted in to advise Zavvi’s management team on the situation.

EUK, the distribution division of Woolworths, is believed to be owed about £100 million by Zavvi, which was previously called Virgin Megastores and continues to have a relationship with Richard Branson’s Virgin Group.

Branson’s company is the guarantor of the supply arrangement between EUK and Zavvi.

The decision to call in the administrators at Woolworths and EUK, topped by Zavvi’s difficulties, have underlined the desperate situation facing many retailers in the run-up to Christmas.

Analysts expect the next few weeks to herald a bloodbath on the High Street as consumers tighten spending after Christmas and store rent payments fall due.

About 30,000 jobs are at risk from the closure of Woolworths, with many of them likely to be made redundant on Boxing Day, the day after Christmas.