GUS plc

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GUS plc

Universal House
Devonshire Street
Manchester M60 1XA
United Kingdom
Telephone: (0161) 273-8282
Fax: (0161) 277-4056
Web site: http://www.gusplc.com

Public Company
Incorporated: 1917 as Universal Stores (Manchester) Limited
Employees: 69,708
Sales: £6.04 billion ($8.56 billion) (2001)
Stock Exchanges: London
Ticker Symbol: GUS
NAIC: 442110 Furniture Stores; 443112 Radio, Television, and Other Electronics Stores; 448140 Family Clothing Stores; 452990 All Other General Merchandise Stores; 454110 Electronic Shopping and Mail-Order Houses; 541512 Computer Systems Design Services; 541860 Direct Mail Advertising; 561450 Credit Bureaus

GUS plc, formerly the Great Universal Stores plc, is one of the leading retailers in the United Kingdom and also is a supplier of business services. The company’s largest division by revenues, generating about two-thirds of the total (and about 36 percent of overall profits), is Argos Retail Group, which includes catalog showrooms, mail-order catalogs, and e-commerce web sites. The group includes the leading U.K. catalog retailer, Argos, which has about 460 outlets located throughout the United Kingdom and the Republic of Ireland. Catalogs run by the group include the U.K.-based Argos Additions, Choice, Kays, and Great Universal, along with Wehkamp in The Netherlands and Halens in Sweden. Argos Retail Group also operates one of the top U.K. retail web sites, jungle.com, seller of electronic equipment and accessories. Outside of Argos Retail, GUS owns upscale retail clothing brands Burberry (known for its plaid fashions) and Scotch House and maintains a retailing operation in South Africa consisting primarily of about 430 Lewis furniture stores and more than two dozen Best Electric specialty electronics outlets. Responsible for about 16 percent of revenue but around 37 percent of profits is the Experian division. Operating in 50 countries, but most prominently in North America, Experian is best known for its credit reporting service, which maintains credit information on more than 200 million consumers and 14 million businesses in the United States. Other Experian services include direct marketing and the processing of consumer transactions. GUS’s Reality division handles logistics, e-commerce, and customer services functions both for Argos Retail Group and for outside clients.

Early 20th-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 called the Universal Stores. By 1917, when Universal Stores (Manchester) Limited 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 salesperson collector—system, which was later used by some GUS subsidiaries. The salesperson 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 from 1929 to 1931, reaching a peak of £411,000 in 1931. The company added the word “Great” to its title—and dropped “(Manchester)”— 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 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 current financial strength.

Wolfson’s Career at GUS Beginning in the 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 of 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. When the share price fell heavily in 1932, the option was exercised 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. Although 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. Acquisitions, however, 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 Paced by 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. The purchase of Jackson’s followed soon after. Also in 1949 the company expanded into South Africa with the purchase of Lewis Stores Group, a furniture retailer. By fiscal 1953–54 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-leaseback deals with insurance companies. Property revaluation strengthened the balance sheet of the buyer and lifted the price of its shares.

Company Perspectives:

GUS is focusing its skills and resources on the three areas of consumer understanding, choice and service in order to satisfy an even more discerning consumer.

Understanding: Through our information solutions business, Experian, we help companies understand the particular needs and circumstances of their customers in order to make better decisions at every point of contact.

Choice: Through our many retail brands, we enable customers to match the shopping experience to their own lifestyles and aspirations.

Service: Through our outsourcing business, Reality, we help companies manage every aspect of their relationship with customers in order to deliver on their brand promise.

In the postwar years GUS and Wolfson, who had become chairman in 1946 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 leaseback, 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, such as the directors of the women’s clothing group Morrison’s in 1957, announced their willingness to hold GUS “A” shares as a longterm 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 United Kingdom’s largest philanthropies, with major beneficiaries including Oxford, Cambridge, and University College. The positive press arising from these donations was perceived as a foil to the veil of secrecy that surrounded GUS. For although 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 Wolf sons’ 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 1953–54, 350 retail outlets were added to the existing 870. In the fiscal year 1957–58, 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 1955 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.

Key Dates:

1900:: Three brothers launch a general dealing and merchanting business called the Universal Stores.
1917:: The company is incorporated as Universal Stores (Manchester) Limited.
1930:: The name of the firm is changed to The Great Universal Stores Limited.
1931:: The company goes public.
1932:: The involvement of the Wolfson family in the business begins with the appointment of Isaac Wolfson as a managing director.
1943:: Kays of Worcester, a mail-order house, is acquired.
1946:: Isaac Wolfson becomes company chairman.
1949:: South African furniture retailer Lewis Stores Group is acquired.
1955:: Upscale clothier Burberry’s (later Burberry) is acquired.
1977:: Revenues reach £1 billion and profits amount to £100 million for the first time.
1987:: Isaac Wolfson retires and his son, Leonard, takes over as chairman.
1996:: Leonard Wolfson retires and his cousin, David Wolfson, steps into the chairmanship; Experian is acquired for £1 billion.
1997:: A real estate joint venture is formed with British Land Company.
1998:: Two major acquisitions are completed: Metromail Corporation (for £560 million) and Argos (£1.9 billion).
2000:: David Wolfson retires, ending an era of management by members of the Wolfson family; the company restructures into three core units: Argos Retail Group, Experian, and Reality.
2001:: The company changes its name to GUS plc.

Pace of Geographic Expansion Quickening in the 1960s and 1970s

From the 1960s to the early 1980s the company experienced major acquisitions, more disposals, and increasing concentration on a reduced number of principal sectors. The high degree of diversification, however, 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 and the 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 10 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 was bought by absorbing smaller competitors, although the last occasion—until the late 1990s—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 8 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. Starting in the early 1950s, it 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 also was 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 toward 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. By the early 1990s, criticism came 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.

Management Changes in the Late 1980s and Early 1990s

Sir Isaac Wolfson, made a baronet in 1962 for his charitable activities, stepped down as cochairman in 1986 in favor of his son Leonard, Lord Wolfson of Marylebone, who had become joint managing director in 1963 and later cochairman. In contrast with his acquiring father, Lord Wolfson was credited with a shrewd program of strategic divestment, shedding more than 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 decreased from 6 percent in 1980 to little more than 3 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 important, 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 nonexecutive 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. David Wolfson went on to serve as chief of staff for Margaret Thatcher from 1979 to 1985 and returned to retailing in 1989 when he joined NEXT plc and subsequently helped turn that fashion chain’s fortunes around. The “family reunion” at GUS 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.

Late 1990s and Beyond: Expanding Business Services, Acquiring Argos

With David Wolfson at the helm, GUS shook off its reputation as a “sleeping elephant,” beginning an era of major acquisitions and significant changes in the mix of activities in which the firm was involved, including a rapid expansion in the area of business services. In December 1996 the company made its first major acquisition in more than three decades, the £1 billion ($1.7 billion) purchase of Experian Corp., one of the three major U.S. credit reporting groups. Experian was known for most of its history as TRW Information Systems and Services Inc. It had been a subsidiary of TRW Inc. until November 1996 when TRW spun the unit off, as Experian, to Thomas H. Lee Co. and Bain Capital Inc. for $1.01 billion. Just one month later, the two Boston investment firms turned around and sold Experian to GUS. Experian thus moved from one conglomerate in the United States to another in the United Kingdom with only a brief interregnum of independence, but the more consumer orientation of GUS appeared to be a better fit than that of industrially minded TRW. Experian was merged with GUS’s existing CCN Group, which specialized in marketing databases, and its headquarters was moved to Nottingham. Though bold, the acquisition of Experian 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.

GUS’s commitment to expanding its financial and business services activities was soon evident as a series of acquisitions was completed in the late 1990s. To help fund the acquisitions drive, Wolfson tapped some of GUS’s long dormant financial resources. In February 1997 GUS formed a joint venture, called BL Universal PLC, with the British Land Company PLC to manage the retail conglomerate’s £900 million real estate portfolio. British Land paid GUS £230 million for its 50 percent stake in BL Universal, which began selling off some of the properties it owned, sending more cash GUS’s way. In the first of the post-Experian acquisitions, GUS paid about £182 million in April 1997 for Direct Marketing Technology Inc., a Schaumburg, Illinois, provider of direct marketing services to the U.S. catalog industry. Then in early 1998 SG2, the largest check and debit card processor in France, was acquired from Société Générale for £70 million. Later that year GUS acquired Metromail Corporation for £560 million ($930 million). Based in Lombard, Illinois, Metromail had been spun off from printing firm R.R. Donnelley & Sons Company in 1996 and was a major U.S. database marketing firm. In addition to this vast expansion of its information and financial services activities, GUS also added onto its core cataloging operations with the purchase of Innovations, a catalog of gadgets, from Burton Group plc (later known as Arcadia Group plc) in November 1997 for £20 million. Then in early 1998 the company expanded its personal finance operations, which had consisted of offering home and auto insurance to customers of its catalog operations, by forming a joint venture between GUS Home Shopping and Capital Bank, a subsidiary of Bank of Scotland. Among the new financial services that were launched through this venture over the succeeding few years were personal loans and store and credit cards.

In February 1998, in the boldest move of the David Wolfson era, GUS launched the first hostile takeover in company history, a £1.68 billion cash bid for Argos. With Argos management fighting strenuously to maintain their firm’s independence, GUS secured its prize in April by increasing its bid to £1.9 billion. GUS thus gained a major retailer in Argos, which operated more than 400 catalog showrooms throughout the United Kingdom and the Republic of Ireland at high-street (in town) locations. Argos had been looking to expand into home shopping and delivery, and GUS would be able to take the retailer in that direction by leveraging its burgeoning direct marketing services operation and launching Argos direct-mail cataloging activities. This expansion into direct-mail cataloging also represented a needed deemphasizing of GUS’s traditional—and declining-in-fortunes—agency catalogs (ones in which individual, commission-receiving agents sell products to consumers, mainly those who are unable to secure credit). The acquisition of Argos resulted in GUS going into debt for the first time in more than 40 years. Meanwhile, GUS sold off its Canadian furniture retailing chains in 1998.

In mid-2000 the long-running era of Wolfson family leadership at GUS came to an end with the retirement of David Wolfson, whose tenure, however brief, proved to be utterly transformative. He left behind a company the largest division of which in terms of profits was Experian and which was involved in multiple selling channels. Taking over as nonexecutive chairman was Victor Blank, who had been on the company board since 1993 and was a former chairman of Charterhouse plc. Running the firm on a day-to-day basis, however, would be John W. Peace, who had previously been in charge of Experian.

Also during 2000, GUS divided its operations into three main units: Argos Retail Group, which included Argos, the various cataloging operations, e-commerce activities, and related financial services (insurance, banking, loans, and credit cards); Experian, including the credit bureau, consumer transactions, and database marketing operations; and the newly formed Reality, which specialized in logistics, e-commerce, and customer services for both Argos Retail Group and third-party clients. Falling outside these three units were the retailing operations in South Africa and Burberry. GUS announced in late 2000 that it was planning to offer a partial IPO of Burberry stock by mid-2002—a possible prelude to a full divestment. Burberry had been revitalized and turned into a hot brand in the late 1990s under new managers, and the “s” had been dropped from the name to make it snappier. Other developments in 2000 included a decision to gradually withdraw from vehicle financing and a somewhat belated drive into e-commerce. In regard to the latter, GUS had nine U.K. e-commerce web sites by mid-2000, including sites for Argos and Kay’s, but its online revenues doubled overnight with the purchase of jungle.com in September of that year for a post-Internet bubble bargain price of £37 million. Claiming to be the second most recognized online retailer in the United Kingdom, after Amazon.com, jungle.com sold a wide range of electronic equipment and accessories, including computers, games, and music.

During 2001 GUS sold two noncore home shopping businesses in continental Europe: Universal Versand in Austria and Vedia in Switzerland. In July the company changed its name to GUS plc, officially adopting the name by which it was already best known. In the immediate wake of the events of September 11,2001, a downturn in consumer spending in the United States hit Experian particularly hard. The company was buoyed, however, by strong results from Argos Direct, the catalog and e-commerce arm of Argos, and by strong Christmas 2001 results from Burberry. In March 2002 GUS announced that Experian had agreed to purchase Consumerlnfo.com from Homestore.com, Inc. for $130 million. Consumerlnfo.com was the leading U.S. supplier of online credit reports.

Principal Subsidiaries

Experian Limited; Argos Limited; Jungle Limited; GUS Home Shopping Limited; Kay & Co. Limited; Morses Limited; Family Hampers Limited; All Counties Insurance Company Limited; Whiteaway Laidlaw Bank Limited; Argos Card Services Limited; Reality Group Limited; Reality Solutions UK Limited; White Arrow Express Limited; Burberry Limited; The Scotch House Limited; Woodrow-Universal Limited; General Guarantee Finance Limited; Experian France S.A.; Experian Information Solutions Inc. (U.S.A.); Experian Services Corporation (U.S.A.); Experian Marketing Solutions Inc. (U.S.A.); Burberry USA; Wehkamp B.V. (Netherlands); GUS Ireland Limited; Lewis Stores (Pty) Limited (South Africa).

Principal Divisions

Experian; Argos Retail Group; Reality; Burberry; South African Retailing; gusco.com.

Principal Competitors

Littlewoods plc; Arcadia Group plc; NEXT plc; Otto Versand GmbH & Co.; N Brown Group plc; Marks & Spencer p.l.c.; House of Fraser PLC; Equifax Inc.; Trans Union LLC.