Page last updated at 13:54 GMT, Thursday, 27 November 2008

Brown pledges Woolworths support

Gordon Brown: "We will help people get new jobs"

The government is working to ensure that Woolworths stores remain open over the Christmas period, Prime Minister Gordon Brown has said.

He said arrangements had been discussed to ensure staff would still be paid and employees threatened with redundancy would be helped to find work.

Administrators were appointed to the struggling chain on Wednesday.

Woolworths was dealt a further blow when lottery operator Camelot stopped selling tickets through its shops.

Camelot said it had suspended trading with Woolworths with immediate effect, "pending the company finding a satisfactory resolution to its current trading difficulties" .

The decision means that Woolworths will no longer be able to sell National Lottery tickets and scratchcards, or process prize claims.

Although the stores will stay open until after Christmas there is still concern over the future of Woolworths' 30,000-strong workforce.

The prime minister said: "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.

"That's why we're going to move in immediately to give advice to employees in the company."

'Interest'

Accountancy firm Deloitte, who have been appointed as administrator, said the search was on for a suitable buyer for Woolworths' stores and the Entertainment UK business, which supplies DVDs to supermarket groups.

WHAT IS ADMINISTRATION?
A rescue mechanism for UK companies in severe trouble. It allows them to continue as a going concern, under supervision, effectively to try to trade out of difficulty.

"In the last 24 hours, we have received expressions of interest from a number of parties for both the retail and wholesale businesses," said Dan Butters, who works for the administrator.

The company had tried to sell itself for a nominal price of 1 to Hilco, a restructuring firm, which would have taken on the firm's debt, but this deal fell through.

Deloitte said Woolworths' employees in stores would be paid.

Woolworths' 815 stores and four distribution centres employ 25,000 staff, while Entertainment UK employs about 5,000 people.

Woolworths' publishing joint venture with BBC Worldwide, 2 Entertain, and its book wholesale arm Bertram have not been put into administration.

The firm said it remained in talks to sell its 40% stake in 2 Entertain to BBC Worldwide, the BBC's commercial arm.

'Eye of storm'

Woolworths is not the only retailer suffering in the current climate. Analysts think more companies could face collapse.

Shoppers: 'To see it go would be very sad'

"The eye of the storm has moved on from the banks to the retailers," said Keith Bowman, an analyst at Hargreaves Lansdown Stockbrokers.

  • Furniture chain MFI has also gone into administration. It blamed falling demand for big ticket items, cash-flow problems and the withdrawal of credit
  • The owner of Currys and PC World, DSG International, has reported a half-year loss of 29.8m, blaming a "tough and volatile" trading environment
  • Retail group Kingfisher said sales at its B&Q home improvement chain were down nearly 9% amid the slump in consumer spending and the housing market

There are also fears that Woolworths' demise could spark a price war if the administrators slash prices to shift the company's stock.

BBC business editor Robert Peston said this would be good news for shoppers but could be devastating for weak competitors.

Struggle

Woolworths had cash flow problems and struggled under the weight of its 385m of debt.

WOOLWORTHS FACTS

First UK store opened in Liverpool in 1909
Has 815 stores across the UK
Owns 40% share of publisher 2 Entertain
Owns distribution business Entertainment UK


Its problems were compounded in the past couple of months when it was forced to pay cash when buying goods from suppliers, because trade credit insurers were no longer prepared to insure suppliers to Woolworths.

Robert Peston said that Woolworths had been one of the UK's weakest retailers for years.

But the sudden deterioration in the real economy and financial markets had triggered its demise.

"It's the suddenness of how everything turned bad that shocks and this means Woolies will not be the last casualty," he said.

Woolworths share price graphic



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