More than 30,000 retail jobs were at risk last night as Woolworths fought to avoid collapse and the fashion discount chain MK One crashed into administration for the second time in a year. Woolworths' future was hanging in the balance after its bankers objected to a management rescue plan to sell the loss-making 800-store chain to Hilco, which specialises in restructuring distressed companies. The 99-year old retailer, which is a mainstay of town and city centres across the country, is now in last-ditch talks with its lenders in an attempt to avoid bankruptcy. But a source close to the negotiations said the talks had reached "an impasse" and "are not looking good". Some 25,000 staff work in Woolworths stores and another 5,000 for two other businesses in the Woolworths group: EUK and 2entertain. The group also has 10,000 pensioners and pension fund members. EUK distributes DVDs, CDs and books to major supermarkets including Asda, Sainsbury's and Morrisons and if the distributor is forced into administration alongside the Woolworths stores it could threaten the supermarkets' supplies in the vital Christmas shopping weeks. 2entertain is a joint venture with the BBC which produces and distributes BBC programmes on DVD and has had big successes with shows such as Little Britain and Top Gear. MK One, which operates 125 stores aimed at young women and teenagers, has 1,400 staff jobs at risk. The latest potential job losses come amid vast cutbacks in the retail industry, which is slashing staff costs by reducing workers' hours. Argos, for instance, has cut workers' hours by 20%. The specialist magazine Retail Week yesterday reported that across the high street such cutbacks now equal 100,000 full time jobs vanishing in the last year. The retail sector employs 10% of the UK workforce. The stock market fell sharply again yesterday as investors worried about the effects of a recession on the corporate sector. Leading UK shares suffered their third worst week on record with the FTSE 100 slipping to 3,780, its lowest level since April 2003. Woolworths has been battered by other retailers for years, but in recent weeks it has also been squeezed by the economic downturn and the impact of credit insurers - who protect suppliers from non-payment of invoices in the event of a retailer going bust - withdrawing cover to Woolworths' suppliers. That has left the chain having to pay suppliers on delivery - or have empty shelves. Woolworths bosses have tried to sell the chain for a year in order to protect the other two businesses, but without success. A possible offer from Iceland supermarket boss Malcolm Walker in the summer fell apart when Baugur, the Icelandic investor backing his approach, ran into its own, credit crunch-related, problems. Earlier this week Woolworths confirmed it might sell the stores, which are all leasehold, to Hilco. The US-owned group would have also taken on £265m of Woolworths' £380m of debts. Woolworths wanted the other £115m of debt to be transferred to EUK and 2entertain, which last year made profits of more than £40m before interest and tax. In normal banking circumstances, such an arrangement would be commonplace, but a source familiar with the situation said: "The banks just won't let it happen. They seem to want to put the whole lot into administration to get all their money back immediately. The banks have the whip hand here." Woolworths has a range of lenders, and many have been hit hard by the credit crunch. Its lead lenders are GMAC, of the US which is applying to the American bank bail-out fund for support, and Burdale, part of the deeply troubled Bank of Ireland, which yesterday said it had received a takeover approach. Woolworths' other lenders include Barclays, which is raising £7bn from Middle East investors, the American bank Wachovia, which has just been taken over, and GE, which has had two profits warnings this year. A spokesman for Burdale, one of the lead lenders, refused to comment on the discussions with Woolworths. The crisis at Woolworths and MK One will increase fears that other ailing retail chains could collapse in the coming weeks. Casualties - and a fresh round of job losses - had been expected in the new year, when the Christmas winners and losers emerge. But lenders and suppliers had been thought unlikely to force stores into bankruptcy in the run-up to Christmas, when they should be raking in cash. Woolworths, for instance, normally makes 90% of its profits in the six weeks before Christmas. However, in the first six months of this year it crashed £100m in the red. Woolworths shares closed last night at just 1.43p, down 32%, valuing the entire business at just £25m - equal to about three days' sales. Monday Tuesday Wednesday Thursday Total 7,74730,000 jobs at risk as Woolworths teeters on the brink
• Bankers thwart management plan to rescue ailing chain
• Collapse of MK One brings more gloom to high streetJob cuts this week
Citigroup, London 2,400
Avis, Hayes, Middlesex 100
Hoover, Merthyr Tydfil 337
Wolseley, nationwide 2,000
National Express, East Anglia 200
PSL Energy Services, Aberdeen 50
SIG, nationwide 900
Fidelity International, London 300
Deutsche Bank, London 450
Rolls-Royce, Derby 140
AstraZeneca, Macclesfield 250
BAE Systems, nationwide 200
Daily Mail and General Trust 400
Tughans, Northern Ireland 20
Sunday, 23 November 2008
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