Fopp, one the country’s biggest music store groups, with about 80 shops and 800 staff, today called in receivers after a last-ditch bail out by Sir Richard Branson's Virgin Megastores failed to win support from Fopp's suppliers.

All the stores have closed and staff have been sent home, their monthly salaries unpaid. The Times Online has learnt that rival Virgin Megastores, controlled by Sir Richard's Virgin Group, had attempted to merge with Fopp, injecting a big rescue loan and taking a 10 per cent stake in a new entity.

In a deal negotiated by Virign Retail's chief Simon Douglas, with Fopp's managing director David Pryde, who once ran Our Price records, Virgin would have kept the Fopp brand. But a source close to the deal said: "In the end the numbers just didn't add up and suppliers to Fopp would not support it."

Like Fopp, Virgin Megastores sales have been hit by fierce cut price competition from supermarket giants such as Tesco and digital music downloads. It hopes to avoid as bad a battering as Fopp because it has additional revenue from concessions with mobile phone companies.

It is understood that Virgin Megastore also had a discussion with troubled HMV about a tie-up after it was approached by the listed music chain but it could not agree terms. HMV refused to comment on this but said it was not currently in talks.

Tom Burton and Colin Dempster from Ernst & Young have been appointed Joint Receivers.

Mr Burton, commented: “The stores have been closed by management yesterday and shop staff sent home. We are currently assessing the financial position of the companies; once this has been completed we will have a better idea of the future of the businesses.”

Earlier in the day, in a short statement, Fopp, founded by Gordon Montgomery from a single stall in Glasgow 25 years ago, said: "It is with great regret that we announce the closure of Fopp. Our store chain is profitable, well regarded and loved by our loyal customers and staff.

"However we have failed to gain the necessary support from major stakeholders, suppliers and their credit insurers to generate sufficient working capital to run our expanding business."

Other sources questioned whether the chain was profitable and it is thought that it may have over-reached itself with the acquisition of 68 Music Zone stores from the administrator in February.

Of those stores it bought it later had to shut some 37 and now has about 81 stores in total.

The company shut the stores on the day staff were due to receive their monthly wages, raising fears that it does not have enough cash to pay them.

Despite its claim that it is profitable, the statement indicates that suppliers had withdrawn credit and its insurers were refusing to underwrite the company's credit.

It earlier halted credit card transactions and online sales.

E&Y's appointment come a week after Fopp closed its stores, including its flagship on London’s Tottenham Court Road, for a day for an extraordinary stock check.

Mr Montgomery, the chairman and major shareholder of Fopp admitted last weekend that sales were falling. “We are experiencing difficulties. However, I can categorically state we will not go into administration.”

In a statement issued at the weekend the company said: “Fopp continues genuine and lengthy negotiations with its bank, and is not in administration. Stock taking is complete, stores reopened on Saturday and will remain open.”

All specialist retailers of CDs and DVDs have been hit by growing competition from online downloads and supermarkets. HMV yesterday reported a 70 per cent fall in profits. Music Zone’s demise was blamed on the same factors.

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