December 13, 2008 2:00 am

Creditors and suppliers circle Zavvi

Music labels and creditors to Woolworths are circling the assets of Zavvi, the CD and DVD chain, with both sides looking to get their hands on cash raised from Christmas shoppers.

EUK, the Woolworths wholesale arm, is owed "tens of millions of pounds" by Zavvi, according to people involved in talks over the fate of the company's stock.

EUK, in turn, owes substantial sums to the music and DVD labels that produced the stock.

But the original suppliers are concerned they will lose out to EUK's creditors, led by GMAC and Burdale, which are owed £385m by the collapsed Woolworths group.

Deloitte, administrator to Woolworths, said yesterday that it was to "scale down efforts to sell" EUK as a going concern after failing to find a buyer. It is making two-thirds of the staff redundant.

Suppliers could claim they have "retention of title" over millions of pounds of stock, potentially allowing them to reclaim the goods from Zavvi stores.

People working with Zavvi are concerned that the company may be forced to choose between returning some stock at its most crucial time of year or continuing to sell it in defiance of the music labels.

A third option could see a deal between all the interested parties, including Sir Richard Branson's Virgin Group, the former owner of Zavvi and guarantor of the EUK-Zavvi supply arrangement.

Some cash going through Zavvi's tills could be earmarked for suppliers, though such a procedure would be complicated to put in place.

Zavvi appointed Ernst & Young several weeks ago to help deal with a complicated and potentially legally sensitive situation.

EUK was a profitable business supplying CDs and DVDs to retailers such as Wm Morrison and Asda.

However, Zavvi will be most affected by the distributor's collapse. The retailer, formerly Virgin Megastores, relied on the wholesaler for the majority of its products and has found replacing supplies difficult.

Dan Butters, the Deloitte partner leading the administration of EUK, said: "Regrettably, despite our continued efforts, we have been unable to identify a suitable buyer for the business.

"While we will continue to consider offers for the sale of the business as a going concern, we will now focus on realising value from the company's assets."

There will be 700 redundancies at EUK's head office and distribution centres in Middlesex, while a core team of 375 employees will stay on.

Deloitte's inability to sell EUK follows this week's decision to launch a "closing-down" sale at the Woolworths retail chain after failing to find a buyer. Some 30,000 jobs are at risk. *The John Lewis website experienced its best week's trading although the partnership's traditional department stores languished, illustrating the diverging performance of conventional versus online shopping.

Sales across all department stores declined in the week to December 6, with 19 out of its 25 established stores experiencing double-digit falls.

But sales at johnlewis.com defied the gloom, rising 9.4 per cent.

The website's performance was helped by strong sales of entertainment, home and technology products as well as fashion and seasonal ranges.

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