Zavvi (retailer)
Zavvi is an ecommerce entertainment retail store formed from the now defunct Zavvi entertainment retail chain in the United Kingdom and Ireland, originally Virgin Megastores. Zavvi was formed in September 2007 when a management buy-out team purchased the company from Sir Richard Branson's Virgin Group.
It was the UK's largest independent entertainment retailer before being placed in administration on 24 December 2008. Store closures took place from January 2009, with the last to cease trading on 20 February. HMV purchased 19 Zavvi stores to be merged into the HMV chain. Former managing director Simon Douglas and business partner Les Whitfield purchased five of the stores to form Head Entertainment, all of which eventually closed in early 2009 after less than a year of trading.
On 2 March 2009, The Hut Group purchased the rights to the Zavvi brand online, and relaunched the Zavvi website with an increased range.
History
Virgin era
started his first Virgin store on London's Oxford Street in 1971. The company opened its first Megastore in 1979, at the end of Oxford Street near Tottenham Court Road. The chain grew throughout the 1980s and 1990s, including through its merger with the Our Price chain whilst under the ownership of WH Smith. Virgin Megastores became an international franchise as part of the Virgin Group; however, during the early to mid-2000s, the Virgin Group decided to sell off most of its Virgin Megastores to various companies, including the French stores to the Lagardere Group and the American stores to The Related Companies.Zavvi era
On 17 September 2007, it was announced that the UK arm of the Virgin Megastores brand was to break away from the Virgin Group. A management buy-out offer was led by managing director Simon Douglas and finance director Steve Peckham, for an undisclosed sum, though reportedly £1. As a result, Zavvi became the largest independent entertainment retailer in the UK. EUK, the company's main stock supplier, also the supplier to chains including Woolworths and Sainsbury's, was not involved with the management buy-out but invested financially to support the new management team as well as employing most of the ex-Virgin buying team. After the change of ownership, all 125 stores traded under the Zavvi brand rather than as Virgin Megastores and Virgin XS stores.Some stores retained an individual Virgin Media concession that operated independently from the Zavvi store.
Zavvi Ireland had made a loss of €3.4 million in the year ending March 2007 as the new chain attempted to turn a profit, without the backing of the Virgin Group. On 21 September 2007, Simon Douglas announced that Zavvi would be making a fresh start in the entertainment retail space. This included the plans to focus more on the sale of games, to compete with Game and Gamestation. Douglas also stated that the company's in-store games department was to expand by 15% due to its success over the 2007 Christmas trading period. Two days later, plans were revealed that Zavvi would differentiate itself from its competitors with limited editions and exclusive products in addition to increasing the stores online market share during the next year. Following a trial period, it was announced on 28 March 2008 that all Zavvi stores would feature a book department.
In July 2008, near to the first anniversary of the Zavvi Entertainment Group, it was announced that the entertainment retailer was to partner with the charity Youth Music who would be hosting in-store events, band nights, sponsorship busking and music quizzes to raise money for the organisation, along with installing collection boxes across its stores. In November 2007, the Scottish pop band Wet Wet Wet were the first band to play two gigs at Zavvi stores, in Glasgow and London.
On 9 January 2008, Simon Douglas released a statement claiming a 10.8% increase in sales on the previous year for the four-week trading period ending 5 January. As a result, the company featured in Grant Thornton's top five performers for the Christmas trading period of 2007.
Entertainment UK
On 5 December 2008, The Daily Telegraph reported that Zavvi was seeking help from the Virgin Group to guarantee millions of pounds worth of its stock payments to Woolworths' Entertainment UK as EUK had entered into administration. On 12 December, The Times reported that Ernst & Young may step in if Zavvi could not pay EUK the value of the stock which amounted to a £106 million debt. Later that day, a spokesperson from Zavvi clarified this position by stating that they had called in Ernst & Young in an advisory capacity. They were not, as The Times reported, called in by anyone to take the company into administration. Zavvi was forced to shut down its internet operations, as it entered talks with EUK and Deloitte & Touche, EUK's administrators. Nick Fox, a spokesman for Virgin, said that a deal had been done with the administrators of Woolworths who accepted £40 million to settle the debt. Zavvi had been trading well, prior to the collapse of Woolworths in November. Zavvi was left without stock of some of the main Christmas best-sellers, and had to obtain the products from other sources, paying cash up front.On 8 December 2008, Zavvi suspended its sale of gift cards citing the problems with its supplier, EUK as the cause.
Administration
On Christmas Eve, 24 December 2008, the Zavvi UK group went into administration owing to the loss of its supplier, as the company was unable to source stock in its usual way. Zavvi had attempted to buy supplies from alternative suppliers but experienced difficulties in obtaining stock on favourable credit terms or acceptable prices. As a result, this placed pressure on the company's working capital and when quarterly rents were due, approximately £13 million, on 25 December 2008, the directors were unable to meet their creditor liabilities. Simon Douglas, the founder of the entertainment retailer stated, "We have done all that is possible to keep the business trading, but the problems encountered with EUK, and particularly its recent failure, have been too much for the business to cope with."The companies within Zavvi UK, which entered administration, were Zavvi Group Limited, Zavvi Retail Limited, Piccadilly Entertainment Stores Limited, VR Service Limited, Ablegrand Limited and Ablegrand 2 Limited. Tom Jack, Simon Allport and Alan Hudson of Ernst & Young LLP were appointed joint administrators, and Zavvi continued to trade as the administrator sought a buyer. Ernst & Young said Zavvi Guernsey would be liquidated, while Zavvi Ireland was not at the time subject to any formal insolvency proceedings. At the time of administration Zavvi had 114 stores in the UK and 11 in Ireland, employing 2,363 permanent staff and 1,052 temporary staff. All stores opened as normal on Boxing Day / St Stephen's Day, 26 December, for the normal post-Christmas sale.
On 30 December, Zavvi Ireland entered provisional liquidation with David M. Hughes of Ernst & Young, and officially entered liquidation on 19 January 2009 at a hearing of the High Court in Dublin. On 13 January, Zavvi Entertainment Group Limited entered administration.
A meeting of creditors was held at the ExCeL Exhibition Centre, London on 16 March 2009.
Giftcards during administration
A trust fund was formed on 27 November 2008 when EUK went into administration, which "safeguarded" the money used to purchase gift cards. However, customers who purchased a gift card prior to this date could write to the joint administrators and ask for the debt to be registered as an unsecured claim.The joint administrators refused to redeem vouchers acquired prior to 27 November 2008, with two reasons for their decision. Firstly, Zavvi did not own the stock in their stores. Prior to the administration, if customers redeemed their vouchers in Zavvi stores, Zavvi would pay the owner of the stock the retail sale price of the goods. In the normal course of the business, if a company is able to pay all its debts as they fall due, this is not a problem. At the date of the administration, Zavvi was insolvent and there were approximately 510,000 vouchers with a total value of around £4.1 million which had yet to be redeemed. If the administrators allowed vouchers to be redeemed against stock, they would have had to make payments to the owner of the stock, without receiving any monies from the 'sale' of the stock. The joint administrators believed this would have been to the detriment of other unsecured creditors of Zavvi Retail Limited. Secondly, the administrators stated that they have a duty to act in the interest of all creditors to realise assets and distribute funds according to statutory legal priorities as set out by the Insolvency Act. They are not able to prefer one creditor over another. Consequently, it was not possible to use monies realised from commission on the sale of stocks, or from the realisation of Zavvi's assets, to repay the voucher unsecured creditors ahead of other unsecured creditors.
If any money is left over once the administration process comes to a close, and once those with secured claims such as the EUK have been paid, it may be possible that those customers will receive a refund. The administrators intend to respond to all registered claims with a verified claim status by 28 March. Unlike Zavvi retail stores in the UK, Mr Doherty, counsel for Zavvi, said that vouchers which had been bought since 27 November could be redeemed for cash in any Zavvi retail store in Ireland.
As of 20 February 2009, the joint administrators estimated that approximately 32,000 vouchers had been received in support of claims, at a rate of 100 to 200 claims to day. The average outstanding value of a voucher was £8.12, whilst vouchers purchased since 27 November 2008 had an average value of £15.83. The total value of vouchers sold since 27 November 2008 is £685,814 and the value of funds in the "safeguarded" trust account was £681,879.
The joint administrators announced that the validity of the trust was confirmed at a hearing of the High Court of Justice on 30 July 2009 - vouchers purchased after 27 November 2008 will be entitled to receive a full refund of unredeemed voucher amounts. Claims were asked to be submitted by 30 September 2009, and no later than two years after the voucher's purchase. All valid trust fund claims submitted by 30 September 2009 would be paid in full by 30 November 2009. Valid trust fund claims received after 30 September 2009 would be dealt with periodically commencing in early 2010.
Suitors
On 27 December 2008, The Times newspaper reported that the management of Zavvi approached rival HMV, two weeks prior to going into administration, offering them the company at a significantly reduced price, which was declined.Ernst & Young confirmed that it was approached by a number of parties which were interested in Zavvi group. By 14 January 2009, there had been 70 expressions of interest in parts or all of the company. A news article in The Irish Times reported that HMV was interested in acquiring at least five of Zavvi's Irish stores. On the same day, The Independent newspaper speculated that French entertainment retailer Fnac could be tempted into the UK market by bidding for the 125 stores of the chain.
On 14 January 2009, HMV revealed that it had acquired 14 Zavvi stores where HMV was not currently trading, with five of those in Ireland, including the largest of the Zavvi stores in the Dundrum Town Centre, and nine in the United Kingdom, saving 269 jobs. The purchase price for the nine UK stores was approximately £630,000. On 21 January 2009, Simon Fox, the chief executive officer of HMV, said that the company might still be interested in acquiring further Zavvi stores as Zavvi had performed well and defied the slowdown in the economy.
On 3 February 2009, Simon Douglas, the managing director of Zavvi, and Mark Noonan, the company's commercial director, both resigned from the company to proceed with a bid for some of the remaining stores along with an external third party. Following the closure of a further 17 stores two days later, Ernst & Young joint administrator Tom Jack said, "We are in detailed discussions with two interested parties and it is our intention to continue to trade all remaining UK stores with a view to their sale as a going concern." On 10 February, it was reported that a formal bid had since been made to the administrators.
On 11 February 2009, the retailer Game revealed the company had no intention for acquiring any Zavvi stores.
The Hut Group purchased the Zavvi.co.uk and Zavvi.com internet domain names, and has now restarted it as a sales website.
Branch closures
Zavvi had been planning to close three branches prior to entering administration because their leases were up. It was revealed that 69 out of 120 staff had been made redundant at the company's head office. The administrators closed 22 of the firm's stores on 8 January 2009, resulting in the loss of 178 jobs. This left a total of 92 stores. On 14 January it was announced that a further 18 stores would close, at a cost of 353 jobs. A flagship branch in Piccadilly, London, was one of the 18 stores to close. The same day, 14 stores were sold to HMV. This left a company portfolio of 68 stores.On 20 January, Zavvi in Athlone closed, reducing the branches of Zavvi Ireland to four. On 29 January, Ernst & Young revealed that a further 15 UK stores closed, leaving 48 UK stores still trading, with 295 jobs being lost. The administrators said at the time that there was no formal closure plan for the entire store network. On 5 February, a further 17 UK stores closed, together with two Irish stores leaving a total of 267 employees redundant and 33 stores left within the company portfolio. Joint administrator Tom Jack said in a statement, regarding the latest round of closures, "Unfortunately the current difficulties faced on the UK high street seem to be discouraging retailers from investing in a significant number of new stores."
On 18 February, the remaining 33 stores of Zavvi Entertainment Group closed. However, five stores with 111 employees were purchased by HMV for £160,000. Head Entertainment, a company created by former managing director Simon Douglas and business partner Les Whitfield purchased five stores, and was expected to complete the sale of a further three stores by 20 February but only two of the three extra stores were taken as an agreement with the landlord on the third could not be reached. 222 employees and the remaining Zavvi stock were transferred to Head, and the total purchase cost was £111,000. Head itself was an even shorter-lived venture than Zavvi, having closed all of its stores by early 2010.
14 of the head office employees were kept on after the store closures until 17 April 2009, to assist the administrators with finalising matters.
Impact of administration
Following the news that Zavvi had entered into administration, rival HMV's share prices rose, as it left HMV as the only major high street retailer offering the same products. Similarly, the online retailer Play.com announced that its profit had risen by 24% over the Christmas trading period and despite the economic downturn, sales of entertainment products overall in the industry rose by 0.7% in the fourth quarter in comparison to sales of the same period in 2007.On 13 January 2009, the video games retailer Game attributed the rise in profits to the loss of competition of Zavvi and Woolworths. Chief executive Lisa Morgan said that it will leave 10% of the video games market open, adding "A number of players will benefit including Argos, HMV and the supermarkets".
In the years following Zavvi's closure, many of its major competitors on the British high street also ran into financial difficulty with companies such as HMV and Game entering administration themselves.
Corporate identity
On 8 October 2007, Zavvi Chief Executive Officer, Simon Douglas unveiled his "clear and simple" logo for the Zavvi stores and website. The distinctive portion of the logo was the Z in the dot of the i. Zavvi also appointed creative marketing agency Live & Breath to lead the rebranding of the stores. The process of rebranding began in November 2007. In January 2008, the online system was rebranded to Zavvi.co.uk and Virgin Megastores Ireland changed to Zavvi Ireland. Zavvi launched its first advertising campaign over the 2007 Christmas trading period. Media planning and marketing agency, The7Stars, had Zavvi as one of its clients.Retail acclaim
On 11 April 2008, Zavvi's Oxford Street outlet won the MCV Industry Excellence Star Store award for its "fine retail experience". On 15 January 2009, a survey published by Verdict Research found that Zavvi was the UK's third favourite music and video retailer, behind first place Amazon.com and Play.com, which came second.Merchandising
Zavvi operated primarily with prices of its back-catalogue products at round figures, similar to Fopp. In September/October 2008, the company revamped its chart merchandising with the re-introduction of a numeric system of ranking the stock, as well as ditching the round pound method in favour of prices ending with.99p. This was because the company's products had initially appeared more expensive than those of its competitors. In addition, prominent red and white stickers were used to highlight bargain offers in the chart, usually £7.99 and £8.99 products. The managing director ruled out 'crazy discounting' of its products. Items can be returned within 28 days as long as they are in perfect condition. Zavvi stated an aim to differentiate itself from its competitors by introducing limited edition and exclusive products.Zavvi remained partnered with the Virgin Group, and Virgin Money cardholders were entitled to 10% off both online and in-store and stores also continued to accept Virgin vouchers after the split. Virgin Tribe members received 10% off most purchases and 5% off hardware. Staff members are entitled to 20% off most purchases and 10% off hardware. Students were able to qualify for a Zavvi student card when a valid form of identification is provided such as a NUS card, which gave a 10% discount.
Product range
Zavvi stores were divided into three primary sections: visual media, games and music.The games department comprised games and accessories for all of the major consoles from the Xbox 360, PS3, PS2, Wii, DS and PSP along with some PC games.
The visual media department primarily consisted of DVDs. By March 2008, with the demise of the HD DVD format, Zavvi stores only stocked the Blu-ray High-definition video format. The visual media section was sub-divided into animation, children's, comedy, documentary, DVD boxsets, chart/new releases, health & fitness, martial arts, music, world cinema, TV drama and films.
The music department featured a chart wall of the top 100 albums. The stores' back-catalogue was sub-divided into blues, children's, classical, country, pop, rock, easy listening, folk, jazz, metal, dance, R&B, hip-hop/rap, reggae, soundtracks and world music. As of September 2008, Zavvi stores no longer stocked singles or featured a separate chart wall for the top ten singles.
Music merchandise included badges, magazines, posters and stickers were also stocked along with board games, MP3 players and wall art, among other things. Following a successful trial period for books, all Zavvi stores began stocking books in March 2008. In July 2008, 19 Zavvi stores began stocking T-Shirts, which was rolled out to all stores soon after.
Technology
The computer system at the heart of Zavvi was ELVIS, that was designed for Virgin Megastores in 1991. ELVIS collects data from shop's point-of-sale terminals for stock and sales reporting, provides instant information for customers on all the shop's product lines and allows for electronic re-ordering from suppliers. In September 2006, ELVIS was updated to utilise "RealTime Polling", with inventory updates every 15 minutes providing accurate on-hand stock information and producing up-to-date sales reports. Zavvi also used an in-store customer ordering system named Zavvi Delivers. This service was withdrawn from use in November 2008 due to supplier issues relating to EUK.Retail website
Zavvi's website, zavvi.co.uk, was operated by Zavvi Guernsey Limited as a subsidiary of Zavvi Entertainment Group. It was registered in Guernsey, and also entered administration with the rest of the group. Hybris, a multi-channel communication and commerce software vendor and its implementation partner Javelin Group assisted in the 70% increase in Zavvi's online during its first Christmas in 2007.Prior to entering administration, Zavvi was in the process of creating an online download service, named Zavvi Downloads, intended to compete with services including Napster and the iTunes Store. It was planned the service would offer music which would not carry any digital rights management, meaning that it could be transferred to any portable music player without restrictions. Furthermore, the service would also have a catalogue of films and TV shows, games and mobile content.
Zavvi.co.uk stopped taking orders in December 2008, after the main supplier Entertainment UK entered administration. On 15 January 2009, Ernst & Young announced that they cancelled Zavvi's plan to launch their online download service as Zavvi Guernsey Limited, the trading name for Zavvi.co.uk and Zavvi Downloads entered the process of being liquidated.
The website's domain name was sold following an online auction that finished on 27 February 2009. It was relaunched by new owners The Hut Group on 2 March 2009. The website was renamed Zavvi.com in October 2009.
Stores
This table contains the numbers of Zavvi stores, at the company's peak in 2008.| Country | Number of stores | Largest store |
| England | 97 | Oxford Street, London |
| Northern Ireland | 5 | CastleCourt, Belfast |
| Scotland | 15 | Buchanan Street, Glasgow |
| Wales | 2 | Capitol Centre, Cardiff |
| Ireland | 11 | Dundrum Town Centre, Dublin |
| Total | 130 | - |