The high street retailer, which employs 29 staff at its Berwick branch, has been placed in administration and is expected to close in the near future.
Jennifer Dukovich, vice chairman of Berwick and District Chamber of Trade, said: "It will be a huge loss for the high street and a big blow for the staff, especially at this time of year."
A major concern is whether another 'big name' retailer can be found to occupy what is arguably the prime site on Marygate.
"The last thing we need is a big empty building on the high street, especially in the current economic downturn when we are all feeling the pinch," admitted Ms Dukovich.
"A lot of people have a negative view of Berwick's high street already because of all the charity shops and the loss of Woolworths is not going to help.
"It's been a part of Berwick's fabric for many years, both as a meeting place and one of the few places to buy children's clothes, toys and music so I'm sure it will be missed," she added.
The condition of the Woolworths building is another drawback, with the store forced to close on Tuesday morning because of flooding through the roof.
Ms Dukovich said: "Most of the big retailers are looking for new-build or out of town locations for new stores so who is going to take on an old building in the town centre which has its problems?"
It is a concern shared by Neil Brown, Berwick Borough Council's town centres manager, although he does retain some hope for the site.
"There's no doubt the loss of Woolworths would be a major blow because it sells such a mixture of goods," he said. "However, from the outside it has always appeared the Berwick store has done reasonable business and would be a viable proposition.
"It is a big site and we don't have many big sites in the town centre so even despite the current economic climate I'm sure there would be some interest.
"In an ideal world we'd be hoping to attract retailers such as Marks & Spencer or Next but of course these and other major high street retailers have their own problems at the moment so we'll have to wait and see," he added.
On a wider scale, he said he was aware of the difficulties many traders are going through at the moment.
"Generally speaking, a lot of retailers are saying they are at least 10 per cent down on last year and I know of a couple who are considerably worse than that so times are tough," he admitted.
Ms Dukovich added: "The concern about jobs is a worry, especially at this time of year which is very important for retailing, because the last thing we need is for people to rein in their spending. We have to get the message across that for many small businesses, it's a case of 'use it or lose it'."
Woolworths said its directors hired Deloitte as administrators after an effort to sell the firm's 800 high street stores failed. It has been under increasing pressure in recent years as customers have turned to supermarkets or the internet to gain better value.
The group last month reported pre-tax losses of almost £100 million for the six months to the beginning of August, with sales diving 3.2 per cent on a like-for-like basis.
The team from Deloitte want to keep as many open as possible during the key Christmas trading period and staff are still being paid.
Dan Butters, reorganisation services partner at Deloitte, said: "We will be looking for a suitable buyer for all parts of the business. We have received expressions of interest from a number of parties for both the retail and wholesale businesses. We are working hard to ensure that any sale of the business, in whole or part, will preserve jobs."
Colleague Neville Kahn added: "Woolworths has suffered a number of cash flow problems. Strenuous efforts over recent weeks to keep these companies going have unfortunately failed and the businesses are now looking to be rescued under the administration process. Stores will remain open past Christmas and employees in stores will be paid."