Music Zone, the UK’s third largest music and film retailer has appointed Deloitte & Touche to run the process.

The private equity-backed music retailer operates from 104 stores across the UK, employing 1,100 staff. Its turnover in the current financial year ending May is forecast at £115 million, Deloitte said in a statement.

Greeting Card Group, whose head office is in Peterborough, is the second largest specialist card and gift retailer in the UK. It employs over 2,500 staff and trades from over 470 stores across the UK, mostly under the brands of Cardfair and Card Warehouse. For the year ended 30 June 2006, the group’s turnover was £70 million, admistrators PricewaterhouseCoopers said in a statement.

The collapse of Music Zone comes a year after the company nearly doubled its size by buying rival MVC.

A spokesperson for Music Zone said: "There is a growing number of high street retailers like Music Zone experiencing challenging trading conditions. Pre-Christmas spending was also poorer than expected.

"The decision by our bankers to recover debts and withdraw credit facilities without notice and with immediate effect left us and our private equity backers with no real alternative other than to appoint administrators."

Bill Dawson, partner at Deloitte, said: "We’re currently trading the business while seeking interested parties to acquire Music Zone as a going concern."

A spokesperson for Lloyds TSB Development Capital, the firm’s private equity backers, said: "Despite the best efforts of a very capable management team, Music Zone has struggled in the face of aggressive pricing and deteriorating sales across the music and DVD sector.

"We’re now working closely with management and the administrators to identify the most favourable outcome for employees, creditors and shareholders."

Manchester County Court confirmed earlier today that a notice of intention to go into administration had been filed by both Music Zone Services Limited and its parent Music Zone Holdings Limited.

The latest accounts filed by Music Zone Services Limited with Companies House, for the year ended May 31 2005, show that the company made a pre-tax loss of £4,000 during the period on sales up from £58.4 million to £70 million and compared with £397,000 profit a year earlier.

The accounts also show that Music Zone Services Limited's bank overdraft fell to £354,000 in May 2005, from £2 million a year earlier. The 2005 accounts also detailed a new £2 million "intercompany loan". All the sums fall due within one year, the accounts said.

Music Zone was founded by Russ Grainger as a market stall in Manchester in the 1980s. Mr Grainger sold the chain - which at the time had 54 shops - in 2005. Lloyds TSB Development Capital, the bank's venture capital arm, backed the deal.

Retailers that depend heavily on CDs and DVD sales have faced fierce competition from supermarkets and online vendors, who aggressively cut prices.

High-street music retailers HMV and Woolworths have both gave profit warnings in the run-up to Christmas.

Mike Jervis, partner and joint administrator at PricewaterhouseCoopers said: "Greeting Card Group is well established and historically profitable, but has suffered from the generic decrease in high street footfall over recent months; additionally the core profitable stores have been impacted by the loss making ones – which have absorbed working capital and management time, out of proportion to their value.

"The core stores have been and are expected to continue to be successful – as a result we expect to achieve a going concern sale and are currently in talks with a number of interested parties with a view to achieving this."

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