Retail Sector Struggles

Woolworths and MFI both went into administration last night, threatening 31,000 job losses in the retail sector. Yesterday Woolworths suspended trading in its shares and confirmed it was continuing talks with potential buyers for its retail business. Those discussions have ended and last night Woolworths, open in the UK since 1909, was put into administration. Its entertainment distribution arm, Entertainment UK (EUK) was also put into administration, despite the fact it is a profitable part of the group’s business. EUK distributes CDs and DVDs to other retailers.

Woolworths shares were suspended yesterday at a price of 1.22p, giving the retailer a market cap of £17.8m, a fraction of its £385m debt.

Woolworths Group itself is not in administration and retains two separate business, a book distributor and a portion of the audio-visual publishing group 2 Entertain Ltd. The parent group remains in discussions with BBC Worldwide relating to the possible sale of its 40% interest in 2 Entertain.

Furniture and fitted kitchens retailer MFI also was put into administration yesterday putting more than 1,000 jobs at the 111-store chain under threat. It has been reported the private company was struggling with rent demands and had been in talks with its landlords over possible rent concessions. It is anticipated the administrator will try and sell the business and in the meantime closing down sales are expected to be seen at MFI stores.

MFI said the company has suffered from severe cashflow pressure as a result of credit insurance being withdrawn across the sector and the general market deterioration, which has led to the failure of certain key suppliers.

Other retailers have commented on the worsening consumer climate. DSG International, owner of the Currys and Dixon outlets, reported this morning it has seen a £29.8m loss over the 24 weeks ending 18 October with like-for-like sales down 7%. DSG said the trading environment remains tough and volatile but that the group is prepared for a recessionary environment and is focused on cash generation and cost reduction. At the half year mark the group said it was fuilly compliant with its financial covenants on its banking facilities.

Morningstar and Hemscott are now one company. You can see the original version of this article on Hemscott.com.