Collapse of Choices chain puts 1,600 jobs at risk

Click to follow

ChoicesUK has called in the administrators after the struggling DVD, CD and computer games chain failed to find a buyer or secure refinancing of the business, a move that puts over 1,600 jobs in jeopardy.

The collapse of the chain comes as no surprise. The retailer is the latest victim of a tough retail market ravaged by online competition and illegal downloading of movies and music.

Fopp, the low-cost music chain, collapsed earlier this year, following in the footsteps of MusicZone and MVC, which also failed to cope with the tough market. The DVD retailer Silverscreen was a high-profile casualty of the market downturn, and even larger players such as HMV and Virgin Megastores have come under severe pressure.

ChoicesUK operates 170 stores across the UK and also runs a more successful distribution business that supplies DVDs to convenience stores, motorway service stations such as Welcome Break and a variety of other retailers. It employs some 1,650 staff, including 375 at its headquarters in Peterborough.

The company unveiled a massive profit warning in April and has failed to attract a buyer for the business or agree a refinancing with its creditors, including Lloyds TSB. The loss-making company has debts of £13m.

"Until very recently, the directors were hopeful that a successful outcome would result. However despite extensive negotiations, it has not been possible to reach an agreement on terms acceptable to all parties. Therefore, the directors have decided that it is in the best interests of the creditors to seek to appoint administrators as soon as possible," the company said.

Shares in the AIM-listed company were suspended at 10.25p, valuing the company at a mere £2m.

Richard Ratner, an analyst with Seymour Pierce, said the collapse of the retail chain was no surprise, although he noted that the recent wet weather should have benefited the company. Woolworths, a rival that has already been linked with ChoicesUK's distribution arm, recently said that its home entertainment business had been given an unexpected boost by the wet weather, but Choices seems to have missed out on the uptick in demand after reducing stock to improve its working capital.

The alarm bells began ringing when ChoicesUK issued the profit warning in April, only two weeks after it had reassured the market that its strategic review was proceeding well and that it was edging its way toward profitability.

Over the previous six months, the company had shut 50 of its worst-performing shops and shed 250 staff as it executed a restructuring plan aimed at shaving £6m in costs. At that stage it had narrowed its losses to under £3m. However the April profit warning, triggered by a collapse in sales over the Easter period, knocked confidence in the company's prospects.

ChoicesUK is the latest brand to disappear from the high street as more consumers look to source CDs and DVDs online from cut-price retailers such as and Amazon.

ChoicesUK was founded in 1985 when Ian Muspratt, Diane Gardner and Geoffrey Hopkins bought the Video Box Office business from the Guild Organisation. The business opened its first video rental store in 1986, before expanding rapidly as the popularity of home entertainment gathered pace.