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Zavvi goes titsup

The artist formerly known as Virgin Megastores

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Music, DVD and game retailer Zavvi UK called in administrators this morning, confirming itself as the latest high street name seriously threatened by the slide into recession.

The firm called in Ernst and Young to run a refinancing bid two weeks ago, but today announced it had formally gone into administration.

Zavvi was hit hard by the collapse of Woolworths, which owned Entertainment UK, the country's largest DVD and CD distributor. According to a statement, "Zavvi has continued to experience significant difficulty in obtaining stock on favourable credit terms. This has resulted in considerable working capital difficulties as a result of the failure of EUK, in addition to continuing operating losses."

The implosion of its biggest supplier also left Zavvi unable to fulfil many web orders. If administrators fail to find a buyer for the stores, 3,500 jobs will be at risk.

In a statement, Ernst and Young joint administrator Tom Jack said: "The administrators intend to continue to trade Zavvi UK with a view to selling all or part of its business as a going concern. We are grateful for the continued support of all employees during this difficult time and would like to thank everyone at Zavvi for their commitment and hard work as the business continues to trade."

Zavvi founders Simon Douglas and Steve Peckham said: "We have done all that is possible to keep the business trading, but the problems encountered with EUK, and particularly its recent failure, has been too much for the business to cope with."

Zavvi was created by a management buyout by Virgin Megastores bosses in September 2007. The retail chain had for years been battling a drift of customers to web-based rivals.

According to the Times, Richard Branson's Virgin Group could be hit by Zavvi's failure, because it guaranteed its Entertainment UK debts as part of the management buyout deal. ®

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