Zavvi under threat as Woolworths’ collapse takes its toll

Zavvi, the high street music and DVD chain, has been forced to call in Ernst & Young to handle an emergency restructure of the retailer. It comes after the collapse of Woolworths and EUK, its distribution arm.

EUK, Zavvi’s biggest creditor, stopped delivering stock amid the turmoil of the Woolworths collapse. Zavvi, which owes the company £106m, was forced to go to other suppliers for key Christmas products.

It has been reported that the decision to call in Ernst & Young was taken by Deloitte, the administrator of EUK, although the move was approved by the Zavvi management team. The Times is also reporting that Ernst & Young is standing by as administrator for Zavvi in case it cannot pay EUK.

Virgin Group, which sold the chain to Zavvi management last year, could be liable for several million pounds, if the chain also collapses, because it guarantees its orders.

EUK has a number of high profile customers, thought to include Tesco and Sainbury’s. The supermarkets are also thought to owe the distributor money.

The news comes as Deloitte admits that it has not found a buyer for the Woolworth’s group, which means it is increasingly likely to make staff redundant on Boxing Day.