The Great Universal Stores plc (GUS) is the leading mail-order company in the United Kingdom with the mail-order brand Kays and a 40 percent share of the market. It is one of the two largest operators in this field outside the United States, the other being Otto Versand of Germany. In addition to its mail-order core, the group derives around one-third of its profits from real property and financial services. Property assets exceed £1 billion and yield substantial rentals. GUS is Europe's largest non-bank provider of consumer and industrial finance, mainly through its Whiteaway Laidlaw and General Guarantee subsidiaries. Retail clothing, represented by the upscale Burberry's Ltd. and Scotch House Ltd., is a relatively small, yet important part of the company. There is a continuing small interest in manufacturing, especially clothing, bedding, and printing. Overseas interests, including mail-order and conventional retailing, contribute around 28 percent of total revenues. GUS maintains a low level of debt, large cash reserves, and a strong balance sheet. Annual pre-tax profits rose for 48 consecutive years from 1948 through 1996, suffering a decline in fiscal 1997. The Wolfson family, which has maintained a significant stake in the company throughout that entire period, continued to lead the company through the mid-1990s.
Turn of the Century Origins
The company's history began in Manchester in 1900. Three brothers, George, Jack, and Abraham Rose, started a general dealing and merchanting business. By 1917, when Universal Stores was registered as a limited, or incorporated, company, it supplied a wide range of consumer goods. Increased success accompanied a move into mail order in the 1920s. The Roses, who had previously relied on newspaper advertising of single items, began to draw up catalogs instead. Early versions were small in format but bulky, containing about 100 pages, with one product illustrated on each page. Agents were recruited to promote sales via the catalog and were allowed discounts on their own purchases. Customers paid by installment, usually over a period of up to 20 weeks. Sometimes the credit club method was employed, by which members paid a weekly sum and drew lots to determine the order in which they would receive their chosen goods. The catalog, the commissioned agent, and installment credit have remained the characteristic institutions of mail-order operations. Another form of direct selling by credit had been established earlier. This was the tallyman--or salesman collector--system, which was later used by some GUS subsidiaries. The salesman made regular home visits to collect installments and deliver goods.
Universal Stores grew rapidly toward the end of the 1920s. Profits averaged £244,000 over the three years 1929 to 1931, reaching a peak of £411,000 in 1931. The company added the word "Great" to its title in 1930, and successfully went public in 1931. A combination of falling demand--induced by the Great Depression--and poor stock control reduced profits by half in 1932 and resulted in a small loss in 1933. The Roses, who had benefited considerably from the public issue, felt obliged to pay nearly £100,000 out of their own pockets in order to maintain the dividend at its previously anticipated level. Several members resigned from the board in late 1932, and three new directors, including Sir Philip Nash as chairman, were appointed to represent the interests of the U.K. securities firm Cazenove's clients. The most significant change precipitated by this crisis was the appointment of a new joint managing director, Isaac Wolfson, along with George Rose, who resigned two years later. Under Wolfson's leadership, GUS was to make the lengthy transition from the unpromising circumstances of 1932 to its present financial strength.
Wolfson's Career at GUS Begins in 1930s
Wolfson was born in Glasgow in the late 1890s, starting his career as a salesman for his father's modest furniture business. Moving to London in 1920, he traded on his own account, selling such items as clocks and mirrors and also building up an informal private banking practice. By 1932 Wolfson had become merchandise controller of GUS, having first met and impressed George Rose at a trade exhibition in Manchester. Wolfson specified that not all his time would be devoted to his employer, and his remuneration consisted at least in part of an option to buy GUS shares from the Roses. The option was exercised when the share price fell heavily in 1932, with the assistance of both his father-in-law, Ralph Specterman, and of his stockbroker friend, Sir Archibald Mitchelson, who later succeeded Nash as chairman of the company. Though Wolfson would not advance to chairman until after World War II, he has been credited with transforming the company over the course of his half-century career. A 1994 profile of GUS in Management Today characterized Wolfson as "the secretive financial wizard who turned GUS from a small trading operation in Manchester into one of Europe's three largest mail order companies."
GUS soon recovered. Despite high unemployment, the majority of working-class consumers enjoyed rising real incomes, and the company had prospects of increased sales once the internal problems were under control. By 1934 the new 150-page catalog claimed to be the largest of any mail-order house in Europe. A few years later GUS took over the similar business of its Manchester neighbor Samuel Driver. However, acquisitions were not confined to mail order. A Wembley-based furniture concern, with large factory and warehouse capacity, had already been added to the company. Midland and Hackney, a recent amalgamation of two of the oldest established installment-purchase furniture businesses in the country, joined GUS in 1934. A feature of this firm that made it an attractive proposition was its substantial debts in installment purchases. Collection of outstanding debt and mortgaging of properties--wholly owned properties were mortgaged, then rented back--could unlock valuable cash resources. In 1938 Alexander Sloan of Glasgow, with 20 shops and a tallyman--an installment selling business--and two other similar Scottish concerns, were brought into the group. These 1930s acquisitions were on a cash basis and were financed by a combination of retained profit and debenture issues. Altogether, more than £2 million was raised in this way in 1936 and 1938. Expansion into the retail trade in the prewar years was not very successful in the short run, however. Profits fell in 1935, and thereafter grew more slowly than assets until after the outbreak of World War II.
Acquisitions Pace Post World War II Growth
GUS's profits were maintained during the war. By the late 1940s it had emerged as the owner of a large chain of furniture shops, while the mail-order base had been strengthened further by the purchase of Kays of Worcester in 1943. Jays and Campbells, with nearly 200 furniture outlets, was bought in 1943 for £1.2 million, after the previous owners had run into trouble with wartime price control legislation. In 1945 the British and Colonial Furniture Company sold a controlling interest to GUS for around £1 million. This included some 75 Cavendish and Woodhouse stores in the United Kingdom and a larger number in Canada. Another important furniture business, Smarts, was taken over in 1949, again for about £1 million. Jackson's followed soon after. By fiscal 1953-1954 furniture sales, mainly by installment buying, accounted for about a third of the company's expanded profits of some £15 million.
The major acquisitions of the 1940s owed much to three major factors. One was that wartime trading restrictions, regulating allocation and use of raw materials, plus controls on capital and on profit margins in distribution, were a less severe constraint for GUS--which was accustomed to working on lower margins--than for retail concerns with weaker and more traditional management. Another was that Wolfson was sufficiently confident and farsighted to anticipate a postwar housing boom and a strong demand for furniture on credit. A final consideration was that after the war many retailers continued to hold properties at prewar valuations. Current values understated the potential for a buyer aware of the possibilities of property sales, or mortgage-and-lease-back deals with insurance companies. Property revaluation strengthened the balance sheet of the buyer and lifted the price of its shares.
In the postwar years GUS and Wolfson, who had become chairman in 1945 on the death of Mitchelson, quickly gained a higher public profile. The new leader's growing reputation rested on the rapid growth of the firm and especially on his success as a practitioner of the takeover bid. Some of the techniques employed in the acquisitions of the 1950s were already familiar--notably the targeting of companies with undervalued properties, and the sale, with or without lease-back, of selected properties. A major new element was the creation of new, mostly nonvoting, shares, of which GUS issued more than five million in a new "A" class via a stock split in 1952. Eventually the "A" shares vastly outnumbered the ordinary, allowing the Wolfson family, to maintain control with a minority of the total stock. For the larger takeovers of the 1950s GUS offered a combination of cash and "A" shares. Bids on this basis were frequently acceptable and recipients, like the directors of the women's clothing group Morrison's in 1957, announced their willingness to hold GUS "A" shares as a long-term investment. Similar offers succeeded in some cases where the bid was resisted or contested, as in 1954 with Jones and Higgins, the drapers and house furnishers. Probably the most publicized disputed takeover was for control of Hope Brothers in late 1957, for which Debenhams was also competing. As GUS grew and flourished, the "A" shares were a highly marketable security. As the Economist observed, on July 26, 1958, their holders were generally "content with bigger dividends, scrip issues and high market values."
In 1955 the family created a trust, the Wolfson Foundation, to hold its shares. The entity grew to become one of the U.K.'s largest philanthropies, with major beneficiaries including Oxford, Cambridge, and University College. The positive press arising from these donations were perceived as a foil to the veil of secrecy that surrounded GUS. For though the firm was more profitable and paid higher dividends than most of its peers, its stock price lagged behind many competitors' throughout the 1950s and 1960s. Analysts blamed the lower valuation on the Wolfsons' tight-fisted voting control and the dearth of public communication.
Acquisitions promoted the company's growth in the 1950s, and at times did so at a hectic pace. During fiscal 1953-1954, 350 retail outlets were added to the existing 870. In the fiscal year 1957-1958, the contribution of new subsidiaries exceeded the total increase in profits. Takeovers preserved the record of unbroken profit growth. Expansion of this kind resulted in diversification of trading interests. By the early 1960s the established base in mail order and furniture had been broadened not only by large investments in drapery and men's and women's clothing, but also by stakes in footwear, hotels, electrical goods, builder's merchants, food retailing, and a travel agency. Two of the less predictable of these purchases were perhaps most significant for the future of GUS. The arrival in the group of Burberry's in 1956 signaled a move into more specialized and upmarket areas of the clothing trade, and the absorption in 1957 of Whiteaway Laidlaw, an export drapery and finance company, pointed in some new directions. By the beginning of the 1960s the board had indicated its awareness of reduced opportunities for growth by takeover, and of the need for expansion within the existing structure.
Pace of Geographic Expansion Quickens in 1960s and 1970s
Since the 1960s the company has experienced major acquisitions, more disposals, and increasing concentration on a reduced number of principal sectors. However, the high degree of diversification was a factor in spreading risk and in enabling the group to avoid any setback to the growth of profits. The chairman complained in 1974 of 18 changes in hire-purchase--or installment buying--regulations over the previous 19 years. A further contribution toward smoothing the retail cycle came from GUS's own accounting practice, by which revenue from hire-purchase sales was not credited to profit until after the final installment was paid. Thus, when such sales were rising, debt provision rose faster than profit, but when they were falling, profits were boosted by sales made before the downturn. An additional factor in the stability of GUS's profit growth was the rising share from overseas, which reduced dependence on the performance of the U.K. economy. Until the early 1960s there were only modest earnings abroad, mainly from stores in the United Kingdom, Commonwealth markets of Canada and South Africa. Then entry into both the United States and continental Europe helped to lift the overseas contribution of total profits to around ten percent by the end of the 1960s and to 12.5 percent ten years later.
Much of GUS's postwar growth had been in the sector in which it achieved early market leadership--mail order. Even here, some expansion has been bought by absorbing smaller competitors, although the last occasion was the acquisition of John Myers in 1981. A proposed deal with Empire Stores was blocked on antimonopoly grounds in 1982. By then GUS held a position of strength in a market that had expanded since the war to a point where mail order represented perhaps eight percent of nonfood retail sales in the late 1970s. Before the war, mail order had been popular mainly in northern England and Scotland, in rural areas, and among low-income groups. Since the early 1950s it has expanded both geographically and socially. The fastest phase of growth occurred in the late 1950s and 1960s before alternative sources of credit became more readily available in shops. The worst setback to the mail-order market was felt in the early 1980s, when recession and unemployment had a negative impact on installment buying. Some of GUS's techniques were unchanged--for example, the reliance on commissioned agents. The major catalogs were transformed into color-printed, 1,000-page, 26,000-item publications. Computerized stock control was introduced, along with automated storage buildings. The stock itself was to a large extent designed and manufactured to the company's own specifications. Deliveries were handled increasingly by GUS's own national distribution network, which included the White Arrow fleet.
Apart from its home-shopping division, GUS was also expanding vigorously in the 1970s and 1980s in property and finance and was disposing of its less successful retail interests. Two important milestones were passed in 1977, when turnover first reached £1 billion and profits £100 million. A new orientation towards property became apparent in the growing tendency to retain the owned property and longer leaseholds when a subsidiary was sold, as in the cases of the Paige clothing shops and Times Furnishing in 1986. By then, the company had long since discarded the image it had sported during earlier phases of growth. Its shares had once been regarded as volatile and speculative, and concern was sometimes expressed about the size of borrowings. More recently, criticism had come from a different angle. The group made appearances on lists of British firms with "cash mountains." Some well-known GUS characteristics did not change at all--the relatively conservative accounting policies and the ungenerous rationing of public information about its activities. Shareholders had to wait a long time for full lists of subsidiaries and even longer for breakdowns of turnover or profit by sector.
Late 1980s, Early 1990s Bring Management Shifts
Sir Isaac Wolfson, made a baronet in 1962 for his charitable activities, stepped down as co-chairman in 1986 in favor of his son Leonard, Lord Wolfson of Marylebone, who had become joint managing director in 1963 and later co-chairman. In contrast with his acquiring father, Lord Wolfson was credited with a shrewd program of strategic divestment, shedding over 2,000 shops via the sale of such chains as Waring & Gillow, the Houndsditch Warehouse, and Times Furnishing. The new leader kept the units' real properties, renting them back to their new owners in a move that essentially transferred these businesses into GUS's real estate management division.
Some industry analysts observed that competition within GUS's core mail order business was heating up in the mid-1990s. The U.K. mail order market's share of nonfood retail sales shrunk from six percent in 1980 to little more than three percent in 1994, and challenges from French and German catalog powerhouses began to encroach on GUS's home turf. Nonetheless, the British firm maintained a 40 percent share of the nation's catalog sales and, more importantly, earned more than two-thirds of the industry's profits.
GUS surprised many observers in 1995, when it extended voting rights to all shareholders and appointed four non-executive directors. One of the new board members, Lord (David) Wolfson of Sunningdale, a cousin of Leonard's, had served the company as chairman of the Home Shopping Division from 1973 to 1978, but was believed to have had a disagreement with Leonard that precipitated his departure. The "family reunion" sparked speculation with regard to the line of succession, and indeed, the 69-year-old Leonard relinquished the day-to-day responsibilities of the chairmanship to David in the summer of 1996. Leonard was given the title of Honorary President.
David Wolfson tapped some of GUS's long dormant financial resources. He set the ball rolling in February 1997 through a deal with British Land that took advantage of the retail conglomerate's £900 million real estate portfolio. The new leader quickly parlayed that nest egg into back-to-back investments in GUS's financial and information services operations. In 1996 the company made its first major acquisition in more than three decades, the £1 billion (US$1.7 billion) purchase of Experian Corp. (better known as TRW Inc.), a U.S. credit reporting group. Experian was merged with GUS's existing CCN Group and its headquarters was moved to Nottingham. A second acquisition in this segment, that of Direct Marketing Technology Inc., followed in April 1997. The moves, which bolstered CCN's ranking in the U.S. credit bureau industry, signaled the British company's global aspirations. Though bold, David Wolfson's moves had a major drawback; the company announced in December 1996 that its nearly 50-year string of uninterrupted profit increases had come to an end. Whether the newest Wolfson to lead Great Universal Stores had launched on his own earnings trend remained to be seen.
Principal Subsidiaries: G.U.S. Home Shopping Limited; Burberry's Limited; The Scotch House Limited; G.U.S. Canada Inc.; CCN Experian Limited; All Counties Insurance Company Limited; Whiteaway Laidlaw Bank Limited; G.U.S. Property Management Limited.