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Fixit team of accountants go in to sort out Zavvi's troubles
12 Dec 2008High Street music, DVD and video games chain Zavvi has called in an emergency restructuring team from accountants Ernst & Young to help it through its current trading troubles.
Zavvi was forced to close its website and turn to other suppliers after its major supplier EUK was put into administration at the same time as its owner Woolworths at the end of last month.
Ultimately, the team from Ernst & Young could become Zavvi's administrators if they and the management team cannot ensure repayment of its debts.
Formerly Virgin Megastores, Zavvi has been relying on Sir Richard Branson's Virgin Group to keep it in stock in the run-up to Christmas with a rolling loan of between £4 million and £5 million.
But the retailer also owes a total of £100 million to EUK, whose administrators Deloitte asked for the E&Y team to be brought in, with the agreement of Zavvi's management.
Virgin, which sold Zavvi to its management for a nominal £1 just over a year ago, has since then stood as guarantor to stock supplied by EUK on 60-day credit terms. Those terms ceased when Woolworths went into administration on 28 November.
So far, it is reckoned that Zavvi has sold about half the £100 million of stock supplied by EUK and therefore has £50 million of cash to pay its supplier's bills when they finally fall due towards the end of January.
But in the meantime, the retailer will also have to find payments for its shop rents early in the New Year and sort out a longer-term solution to replacing its supplies.
Ernst & Young's team is focusing on a wide range of options for the business, from a full-scale restructuring to immediate ways to improve cashflow.
Meanwhile, at Woolworths, the closing-down sale continued for a second day. Yesterday, when it kicked off, administrators Deloitte said that it resulted in the highest daily turnover in the company's 99-year history.
Reader views (3)
What would happen if Zavvi went bust?
The Zavvi brand would go bust. Not Virgin Megastores!
All profitable stores would maybe cherrypicked by Mr B to be bought back!
The rest maybe left to rot in bankruptcy!
No more ridiculous high st rents to cripple turnover! I wonder how many pitches they have tried to get rid of unsuccesfuly oer the years?
No massive redundancy payments for Virgin to make!
The possibilty was that Mr B did not allow the sale of VM to go ahead with the 'Virgin' name for this very reason. A Virgin branded business could not be seen to 'go under'
Mr B may have known they were in trouble so jumped but still retained an interest! Clever huh!
Now Zavvi may drown in a tide of rising debt!
Poor staff may get nothing for the hard work put in.
I wouldn't be suprised if the Virgin Megastores brand comes back all lean'n'mean.
He's not a billionaire for nothing!
Of course all of the above is just my opinion!
- Steve, Newcastle, 14/12/2008 15:54
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Actually Zavvi will do fine. As said half the debts have been payed and the company will turn over a substantual amount which will mean that debts will be able to repayed.
Not only that but Zavvi is currently running better than it was last year with a healthy growth which is above that of H.M.V's which is being dragged down by its Waterstones arm.
It is just press speculation that Zavvi is in trouble, yes they are experiencing short term stock issues but they are still getting direct supply. When this has totally blown over zavvi can move forward!
- Peter, London UK, 13/12/2008 23:54
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Not surprised Zavvi is in trouble.
A couple of years ago Virgin did a roaring trade in Oxford's premier shopping street, the Cornmarket. Zavvi took over and prices of goods spiralled. Across the road, HMV now do a roaring trade and are much more competitive in price. Very important strategy considering the massive extra student market of the town
- Jenna, London, 12/12/2008 13:14
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