The music chain Virgin France is planning to shut its store on the Champs-Elysées in Paris and declare itself insolvent, with reported debts of €22m (£18m).
Company officials said they are drawing up an “emergency plan” to save the firm and some of its 25 stores, which employ about 1,000 people.
Virgin France, which has not been part of Richard Branson’s Virgin empire for more than a decade, has been hit by a collapse in the market for CDs and DVDs as customers shift to digital music and films.
The same seismic shift in the market has left HMV in the UK also teetering on the edge of bankruptcy. The UK chain has admitted dire sales mean it is likely to breach its banking covenants later this month. HMV’s management, led by its chief executive, Trevor Moore, is currently in talks with lenders.
Virgin France is owned by the French investment company Butler Capital, which bought 80% of Virgin from the media company Lagardère in 2007.
Lagardère bought the French chain from Branson’s Virgin Group in 2001 and still holds 20%.
A management spokesman for Virgin France said the company would hold a works council meeting on Monday to officially declare its insolvency and discuss last-ditch measures to avoid closure.
The Virgin Megastore on the Champs-Elysées in Paris, which sells itself as the world’s most famous shopping street, was presented as the “world’s biggest music store”.
But 25 years after it opened the company is no longer in a position to pay the rent and is behind on “social charges” – the equivalent of national insurance – due to the state.
Between January and September last year Virgin France claimed sales of CDs and DVDs had dropped by almost 15%.
The insolvency procedure may trigger a widespread reorganisation of the company, or a legal liquidation.
Virgin France has already closed several shops and cut staff by 200 over the last two years. A new management board, appointed in mid-2012, said that it would take a further two years “to restructure the chain and reduce the size of stores”.
However, the decision last week to terminate the lease on the Champs-Elysées store, which generates 20% of the company’s turnover, was seen as a symbolic step.
Union officials said the firm had fallen victim to rising commercial rents in the city centre.
Laurence Parisot, head of the French employers’ union MEDEF, told BFM TV: “It’s absolutely terrible news. The crisis we are going through is not just an economic one … it’s a new model that is coming to life and many sectors are affected.”
Virgin France is not alone in being hit by online rivals, including Amazon and Apple, and competition from supermarkets selling CDs and DVDs.
A year ago another French high-street media store, Fnac, which employs 11,000 people in France, announced it had to make savings of €80m and shed more than 300jobs in France and a further 200 in its worldwide operations.
Fnac’s owner, the PPR group, has been trying to sell it for three years.
Virgin Megastores closed its remaining music retail outlets in the United States in 2009, and Zavvi, which bought the Virgin Megastores chain in the UK, went into administration in 2008.
Leaders of the five main unions at Virgin France have called for a “big demonstration” by employees outside the Champs-Elysées store next Wednesday.
A statement said there were “too many unanswered questions” and blamed Butler for the crisis, saying it was up to the financial group to “pay the bills”.
“We are in a fighting mood. We’re not going to go quietly,” said Jean Damian, of the Sud union.
However, Loic Delacourt of the CFE-CGC union said: “Given the state of the [company] accounts, we half expected this.” He also blamed company shareholders for not putting enough money back into the firm to allow a “strategic offensive in order to find new markets”.
Report by Guardian UK