UK retailers MFI and Woolworths collapse

Friday, November 28, 2008

Two major retail chains in the United Kingdom — general retailer Woolworths Group and furniture vendor MFI Group — have entered administration. Entertainment UK — which distributes videos and DVDs to retailers and are owned by Woolworths — have also entered administration.

"The boards of Woolworths PLC and Entertainment UK Ltd have concluded that there is no longer any prospect of those businesses being able to operate as a going concern," said a Woolworths statement.

Woolworths, who sells household goods, music and other items, owns 815 stores nationwide, and MFI owns 111. MFI CEO Gary Favell said he had "secured the future of the MFI business" in September when he led a management buyout, but cracks rapidly appeared. Favell revealed administrator Kroll were to take control of the property division and half the stores were surrendered to the administrators. He also asked landlords to grant a three-month period of no rent for the 'new' MFI, which only some agreed to, leaving Kroll to seek payment for the rest.

Now the entirety of MFI is in administration, with MCR as the administrator. "Closing down sales" have been announced by MCR. Analysts predict that while in the short term consumer confidence will be damaged by the collapse, in the middle term it will help the situation as excess competition and capacity are removed. MFI employs 1,500 people.

The administrators for Woolworths and Entertainment UK are consultancy firm Deloitte Touche Tohmatsu. "In the last 24 hours we have received expressions of interest from a number of parties for both the retail and wholesale businesses," said Deloitte partner Dan Butters. "We are working hard to ensure that any sale of the business, in whole or part, will preserve jobs." The 25,000 Woolworths employees have their positions safe until Christmas.

Shares in Woolworths have been suspended at just over a penny each. The firm also owns 2Entertain, a DVD publishing joint venture with BBC Worldwide, and book wholesalers Bertram Books. Both are currently operating as usual, although Woolworths is seeking to sell 40% of 2Entertain to the BBC.

"The important thing is in the long run that employees in this company - where the businesses and the shops are not going to stay open in the longer term - can get other jobs quickly," Prime Minister Gordon Brown said. "That's why we're going to move in immediately to give advice to employees."

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Sources

Helen Power, Philip Webster and Dan Sabbagh. "Bidders sought as beleaguered Woolworths and MFI stores go up for sale" — The Times, November 28, 2008
"UK retailer Woolworths files for administration" — Associated Press, November 27, 2008
Richard Fletcher. "MFI enters administration" — The Daily Telegraph, November 27, 2008

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