Administrator sheds 700 staff at Woolworths' CD and DVD unit

Almost two-thirds of the staff at Woolworths' entertainment division lost their jobs yesterday as the fallout from the collapse of the group continued to spread.

The administrator Deloitte said it was "scaling down" its work to find a buyer for Entertainment UK (EUK), which supplied CDs and DVDs to retailers including Asda and Sainsbury's, and made 700 employees redundant at its head office and distribution centre. Deloitte said EUK would continue trading with a reduced workforce of 375 while it tries to realise value from its assets.

The announcement came as Zavvi, the entertainment retailer whose main supplier was EUK, denied reports that it had appointed Ernst & Young ahead of a possible administration, but confirmed that the firm was now advising it.

Deloitte's chances of finding a buyer for the 813 Woolworths stores, which are holding a massive stock clearance sale, are also receding because no firm offers have emerged. Woolworths' retail division and EUK are likely to close over the coming weeks, with a number of stores shutting before Christmas. The first day of the Woolworths' sale on Thursday delivered record takings.

The ramifications of the collapse of Woolworths are being felt throughout the retail, entertainment, film and wholesale sectors. Retailers such as HMV, Toys R Us and Game are likely to feel short-term pain from Woolworths' massive discounting, but could benefit when the chain closes. Woolworths owes millions of pounds to toy suppliers, including Character Group, while EUK is in debt to film studios such as Paramount.

Dan Butters, of Deloitte, said: "We have been unable to identify a suitable buyer for the business. While we will continue to consider offers for the sale of the business as a going concern, we will now focus on realising value from the company's assets."

Retailers including Iceland, Morrisons and Sainsbury's have signed contracts to acquire the leases on 350 Woolworths branches. However, more than 450 shops may close, putting thousands of staff at risk.

Iceland has bought the leases for 50 stores, which it will convert into Iceland stores and create up to 2,500 jobs, some of which could be filled by Woolworths' staff. However, it will take a few months to refit the premises and Woolies' employees will have to apply for vacant positions.

Meanwhile, a statement by Zavvi, which owes EUK £106m, failed to quell speculation that it is heading for a financial crisis. Zavvi, formerly Virgin Megastores, said: "Contrary to speculation, Zavvi can confirm that its creditors have not appointed Ernst & Young. However, Ernst & Young has been providing invaluable advice and expertise to the group over the past few weeks since EUK – Zavvi's main supplier – was placed into administration."

Sainsbury's lifted some of the gloom yesterday when it said it had secured all 900 jobs at eXPD8, a Bristol-based company which installs promotional displays and restocks shelves, that had a contract with EUK. Sainsbury's has signed a new contract with eXPD8 and paid it the money it was owed by EUK.