Black Thursday For British Highstreets And Employment

Another two big businesses have fallen to the current credit crunch. Woolworths and MFI are the latest victims and the future of more than 31,000 employees was in question as of last night. The directors of Woolworths met at 6pm last night to officially request that administrators take control of the company's operations. Woolworths is one of the biggest retailers with 800 chain stores since it's humble start in 1909. A number of stores are the key business in their town. Accountants from Deloitte had been on standby already so the takeover was fairly fast.

The announcement from Woolworths came just a few hours after a similar announcement from MFI. The major furniture retailer turned control over to administrators after they weren't able to handle their rent payments. 25% of their 111 stores remained closed today and 1,200 employees are at risk for layoffs.

The failure occurred despite the best efforts of a number of officials. A last-minute meeting on Tuesday night called the company's lenders, Burdale and GMAC from the Bank of Ireland, together in an effort to keep the chain open after they feared they wouldn't be able to pay the week's salaries. Woolworth's already had £385m in loans outstanding.

EUK, another company in the Woolworths group, is already under administrative control despite its previous profitability. EUK handled the distribution of DVDs and CDs to a number of retailers and supermarkets like Sainsbury and Morrisons. Their collapse places 5,000 employees at risk. Woolworths' struggle isn't new. New competition from supermarkets, specialty stores, and online options has severely harmed their profits. Past attempts to change to the market have failed. The efforts to become a specialty store for families and children didn't have much of an effect and their efforts to establish themselves online didn't play out against their competitor Argos. The CEO was fired last summer and a new recovery specialist was hired. Malcom Walker, the multimillionaire in charge of the Iceland supermarket company, offered to buy Woolworths for £50m three months ago. The deal fell through when his financial support from the Icelandic bank disappeared.

Steve Johnson, the new chief executive, revealed in September that there was a £100m loss in the past six months. The blame was placed on the last managment and its failure to manage basic retail problems. Special examples involved the issue that roughly half their stock was in warehouses and that they had "54 different types of pencil cases but not women's tights". He believes that their future is still bright, but that they've been harmed seriously by the economic crisis during their strongest sales season. Nearly 80% of their business occurs during the month and a half prior to Christmas.

There haven't been any comments from Woolworths since the meeting, but an inside source reports that they are at an impasse. Stock isn't being delivered by the suppliers. Lenders are requesting that existing debts be repaid now. The employees are also becoming much more nervous. There's another risk to the situation too. The pension fund covering 8,000 people has a £100m debt. Woolworths' parent company isn't going under administration. They will continue to manage their book distribution company, Bertrams, and DVD producer, 2entertain. 2entertain is heavily connected with the BBC and supplies the DVD sets for its shows. The BBC has made a £100m bid to purchase the 40% share Woolworths has in 2entertain.

MFI faced a similar struggle over the past few years. Wages have been paid so far, but cuts are expected to start immediately. The administrators in charge hope to fulfill or at least refund all of the orders placed yesterday.

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