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The Woolsworths trouble is not just an internal problem, Entertainment UK (A company I did some work for whilst studying) are owed by Woolworths and are Zavvi’s main supplier.

Zavvi is the new brand for Virgin Megastore’s, bought from Richard Branson by a management and VC team when Branson was looking out of the retail sector.  Management buy outs are funny old things, they generally don’t work out well.  Directors may be good at running other people’s businesses but when it comes to running thier own chequebook, things change, this I have seen first hand.

In this case Zavvi has used the massise buying power of Woolworths and Entertainment UK in order to keep retail prices competitive but in putting all their eggs (or most of them) in one basket its proving to be a very bad decision.

Last week Zavvi had to close its online business, days before the busiest online buying week of the year, stores are reportatly running extremly low on stock as the company tries to find a new supplier to re-stock the stores.

What does this mean?  well no stock, no sales, no cash! its simple.

A lot of retailers will happily run 11 months of the year at a loss or a marginal breakeven relying on December and Early Jan sales to prop up the balance sheet and turn a profit.

This Christmas will prove difficult for Zavvi and with banks not keen to let big businesses run up overdrafts this could prove to be fatal for the successful chain.