The collapse of Woolworths into administration is devastating news for its employees. It is a severe blow for shareholders. It is a rebuff to the Government, which tried to find a buyer for the company. And it is a terrible augury for the retail sector in the month before Christmas.

But it would be a mistake to regard Woolworths as purely a victim of the credit crunch. The chill economic climate has merely aggravated weaknesses that have plagued the company for years. Burdened by heavy debt and with its market share eroding, Woolworths made persistent losses. Despite a recognisable brand and a significant presence in the retail market for confectionery, toys and children's clothes, the company no longer catered effectively to consumer tastes. Its strategy of bulk selling at budget prices attracted keen competition from retailers such as Argos. Woolworths' products were of indifferent quality, while other high-street names gained loyal followings for their brands in clothing and other goods. Its previous management's poor buying policy had left the company saddled with excess stock that it could not sell profitably.

Woolworths survived - though it did not exactly prosper - in an economic environment of low interest rates, and an expansion of consumer and business credit. That expansion was, however, an unsustainable bubble that has now burst with widespread collateral damage. As Woolworths' sales declined, the company was forced to pay its suppliers in cash for Christmas stock. In doing so, it came up against the limits of its £385 million borrowing capacity, and its lenders decided not to extend further lines of credit.

Many who have childhood memories of Woolworths' Pick‘n'Mix sweet counters will feel regret at the company's demise. But the fate of commercial enterprises is ultimately decided not by nostalgia but by competition. That is how it should be.

Shops are businesses, not institutions. They prosper or fall according to their ability to anticipate and meet consumers' preferences. Were this not so, then there would be good reason to sympathise with complaints that corporate power is eroding democracy and dissolving social ties. But companies have no assurance of survival - even those that are fixtures of the high street and that potentially are able to benefit from economies of scale, such as Woolworths with its 840 stores nationwide. Numerous large commercial concerns with famous names have dropped from public prominence during the company's 99 years of trading. Nos- talgia is a fond feeling; a bailout would be a reward for failure.

The damage resulting from Woolworths' failure will be extensive. Workers will lose their jobs; suppliers will lose orders; the Pension Protection Fund will probably have to meet some of the company's pensions liabilities. The underlying weakness of the economy, however, is not the battered state of consumer demand and its effect on the high street. It remains the freezing of credit markets.

Stronger companies than Woolworths are struggling. The most direct way to help them is to recapitalise the financial sector so that banks cease to hoard cash and begin to lend again. It is better to remedy that systemic weakness than regret the passing of a company that failed to adapt.