Great Universal Stores has eluded its public for 60 years. But perhaps its best-kept secret today is whether there will be a GUS without a Wolfson pulling the strings.
The phone rings for three-and-a-half minutes. Finally, someone picks up the receiver: 'Yes?' The voice is middle-aged and suspicious. The caller asks to be put through to an executive but the response is curt: 'The lines are down, we'll have to call you back.' No one does. Later, telephone calls are made to the deputy chairman and then the chief executive of the company's largest division. Always the same promise, always the same silence.
For the past 60 years this is how Great Universal Stores (GUS) - turnover £3.1 billion - has successfully eluded its public; shareholders, merchant bankers, City analysts and journalists alike. At the centre of this multi-billion-pound enigma is Lord (Leonard) Wolfson, a man feared, loathed and respected in roughly equal measure. He is the son of the late, legendary Sir Isaac Wolfson, the secretive financial wizard who turned GUS from a small trading operation in Manchester into one of Europe's three largest mail order companies. Today his creation owns Burberrys and the Scotch House, as well as being a leading landlord of retail property and one of the country's largest suppliers of financial services.
Despite the Wolfsons' evident ability to please customers, it has rarely extended the same skills to its shareholders. The 1994 annual report, for example, merited just 20 pages - less than half the size of Marks and Spencer's and less than a third of Kingfisher's. Its brevity is echoed in Lord Wolfson's short, sharp chairman's statement, large sections of which are copied word for word from one year to the next. The impression of reluctant compliance is further conveyed by the report's late publication; it is despatched to investors on the last day of September, a full six months after GUS's financial year end in March - the maximum period allowed by Stock Exchange regulations.
Last year, however, the 60-year permafrost that has chilled relations with investors showed its first signs of thawing. After years of recurring speculation the City was taken aback by the announcement that the company was finally to scrap its system of voting and non-voting shares - the structure that had hitherto guaranteed control of GUS to the family trust, the Wolfson Foundation. It also announced the appointment of four non-executive directors, including a cousin, Lord (David) Wolfson, who was previously believed to have fallen out with Leonard. In the wake of the news the shares rose 60%. Today, GUS is capitalised at £5.7 billion.
For all its size and public status, however, GUS has always been run like a family business - insular, ascetic and financially self-sufficient. Even now, the Wolfson family, in the form of its various trusts, is still the company's largest shareholder; the Wolfson Foundation holds 5.6% of the equity, the Wolfson Family Charitable Trust and Charles Wolfson Charitable Trust a further 3% between them.
Remarkably, it has not had a rights issue since the war. Instead, like corner shops across the land, the making of profit and storing of cash is pursued with near religious zeal. At the end of the last financial year the balance sheet was loaded with £1.5 billion of cash, gilts and certificates of deposit, making GUS, like GEC and Glaxo, one of the country's great hoarding houses. It also has more than £1 billion of trade debtors, who will bring in further surplus cash this year, as will the £247 million of deferred profit that GUS tucks beneath the counter. In most companies this would cause wolf whistles in the City, but many feel that it shows GUS's think tank to be running on empty. The overriding expectation - unfulfilled by July's annual results announcement - is that a share buy back is the only option.
In this light Lord Wolfson's decision to hand every shareholder the same voting rights as the Wolfson Foundation is hardly surprising. For many observers it comes as the clearest indication yet that, at the age of 67, Wolfson is looking for someone to buy the store. John Chataway, a retail analyst at London Wall Equities who has followed GUS for 20 years, explains the logic. 'Wolfson is primarily concerned with the family foundation. I don't think he could rest easy knowing that its wealth was tied up in the company once he is no longer there to act as the guardian.' Chataway's view is echoed by a well-known business figure with close family and professional links to Lord Wolfson. 'I read the enfranchisement of the ordinary shares as a come on, part of a longer term plan to pump up the value of the Foundation's holding,' he says. 'Leonard is very shrewd. He'll sell out when the market gets overheated to some Japanese or American buyer who he'll see coming a mile off.' Such a move would be a fitting final chapter to one of the century's greatest business sagas - and entirely in character for Leonard. Those who knew the father describe him as a genius. The son, in comparison, is viewed rather less favourably. One senior figure who worked closely with both men draws a telling distinction: 'For Isaac the glass was always half full; for Leonard it was always half empty.' The same figure adds: 'Leonard would love to fashion a small, perfectly formed business, whereas under Isaac, GUS might have exploded because of all his wheeler dealing.' History seems to support such a view. At the height of the '80s retail boom, for example, Leonard cut more than 2,000 shops from GUS in what has since come to be seen as an astute paring down operation. Famous names such as Waring and Gillow, Times Furnishing and the Houndsditch Warehouse were sold but their properties kept. The contrast with the father - commonly known as the Emperor of the High Street - could not be starker. Lord Young, chairman of Cable and Wireless, was Sir Isaac's personal assistant between 1956 and 1961. He remembers his skill and appetite for gobbling up other people's companies. 'People used to bring their businesses to him to escape death duties,' he explains. 'We once bought a furniture factory in Manchester for £2 million that had the purchase price in stock on the shelves.' When businesses were not handed to him on a plate Isaac hunted for them. Jim Slater, one of the most aggressive - and notorious - dealmakers of the 1960s and '70s, came up against Wolfson when Slater Walker bought Drages, Isaac's private company, in 1969. 'Isaac Wolfson had a quickness of mind and playful sense of humour,' he recalls. 'He was unmistakably a great man, the most formidable negotiator I ever encountered. Once he handed me a packet of crisps, saying: "Take them. They're the only free meal you'll ever get from me." He was right.' Others distrusted him. Stephen Aris, author of The Jews In Business, observes that 'in those days his reputation was similar to that of Asil Nadir's (today)'. Unlike others similarly maligned, Isaac made little attempt to counter the image, much of which he ascribed to plain anti-semitism. According to Aris, his aversion to publicity and fierce hatred of the press - which he passed on to his son - dates back to an encounter with the Daily Express in 1943. It was then, at the height of the Blitz, that he consented to an interview in his London home. In the article that followed, the chairman of GUS came over as a 'spiv', living in the lap of luxury while fellow Londoners contended with hardship. It was the last interview he ever gave to an English paper.
Spivvy or otherwise, the image fed through into GUS's share price. A lengthy article in the Investors Chronicle over a decade later compared Wolfson's company with Marks and Spencer and Woolworth. At the time, Great Universal was capitalised at £94 million and made profits of just under £14 million. The shares yielded a generous 5%. In comparison, M and S was valued at £128 million, though it was only making just over half as much profit. M and S's shares also only yielded 3%. Even Woolworth, which was viewed as risky, had a higher rating and lower yield. The author, a respected City figure called E Beddington Behrens, pointed out that GUS's steep discount was due to public distrust of the finances and the complicated share structure. With some foresight, Behrens suggested the introduction of non-executive directors could help improve the image. Forty years later it did.
To look back into the history of GUS is to realise that the past is another company. Today it is regarded as the bluest of blue chips, one of the most soundly run public companies in Britain. Its standing outside of business, thanks to the Wolfsons' philanthropy, is equally high. Last year the three principal family trusts donated a combined £18.6 million in grants to various medical, scientific and educational causes. The bulk of the donations came from the Wolfson Foundation, established in 1955 and now one of Britain's largest charities, where Leonard and two of his daughters serve as trustees. Recipients of its wealth include colleges at Oxford and Cambridge - both named after the family - and London's University College.
Such largesse is made easier by the fact that GUS has always made money - in each of the past 46 years, profits have never failed to rise, the longest winning streak of any of its peers. It is this, perhaps, that is Leonard's greatest achievement; in his 32 years at the helm of a public company - even longer than Lords Weinstock and Hanson - he has lived up to his father's formidable legacy. 'No one could run GUS better than Leonard,' claims Lord Young. 'It is thanks to him that profits have increased over all these years.' Nevertheless, Young has admitted elsewhere that if it were not for the fact that Leonard was so difficult to get on with, he might never have left the company.
Indeed, no one at GUS is ever in doubt as to who pulls the strings. A large part of Leonard's style, former employees recall, was his heavy-handed manner. Frequent contact with managers was made via the telephone and by terse, acidic memos. The chairman would usually visit each business once a year, arriving by train, often smoking a Havana cigar. Few enjoyed his house calls. 'He was not what you would call user-friendly,' remembers a former director. 'In fact he could be appallingly rude. I would say he had more self-confidence than anyone I have met.' His way with figures could be equally disconcerting: 'He was pin sharp on numbers. GUS was not the kind of company to come up with Mickey Mouse forecasts.' The director's uneasy experience is backed up by that of a City figure, possibly the only analyst ever to be entertained to lunch at Great Universal Stores. Like many others who have encountered Leonard he prefers, though now retired, to remain anonymous. 'I can't say his presence was good for the digestion. Everyone froze when he came into the room - the other directors always referred to him as "Sir".' He was, he says, 'the hardest man I have ever met'. It is a side of Lord Wolfson that even those close to him see. 'I think he prefers books on history and economics to people,' observes a family friend. 'He is very difficult to get on with, a man who often acts irrationally and bears grudges.' Aside from its idiosyncratic management style, GUS is famed for the rigour of its accounting. Mail order bad debts, for example, are written off after just two months. The company's extensive hire purchase operations are run in the same way, with a three-month write off. No profit is taken on any of the products and services sold until the last payment has been banked. Such stringency is key to the company's startling profits record. All the costs associated with making a sale are taken up front. The result is that GUS has a fat profits cushion with which to prop itself up in lean years. When business is good, profits are held back by the heavy cost associated with expanding the business. When business is slow, profits from the good years surge through to flesh out poor results.
Another view of how the company maintains its position comes from a former director who spent 22 years at the company but now works for a competitor. He remembers that at GUS, competent managers were able to win responsibility from a comparatively early stage. 'Costs were broken down into minute components so we could identify how to make profit,' he says. 'But the single figure that interested Lord Wolfson was the cash collection period.' He also remembers that investment in new technology and warehousing systems was rarely withheld. It is a view backed up by Lord Young, who recalls the company buying one of the first IBM mainframes in the mid-1950s.
Not everything at GUS was intended to smooth operations. The former director recalls: 'We always had the feeling that property was what interested the chairman the most. Businesses were often shuffled into smaller premises to earn more advantageous rents to GUS.
Lord Wolfson was a bit irrational in his constant pursuit of a higher rent. I don't think he realised the disruption all that moving around did to a business.' All questions about GUS inevitably begin and end with the mail order business, the division that produces the bulk of the group's profits and much of the cash that fuels the financial services businesses centred on its General Guarantee subsidiary. There are storm clouds on the horizon, however. Last year the American giant Sears Roebuck decided to kill off the Big Book, its world famous mail order catalogue, in the face of intense competition from new-style rivals. Foremost among these was cable television, in particular the home-shopping channel.
The Big Book also lost out to specialist mail order books dubbed 'specialogs'. With experts predicting that mail order in the UK will change more in the next five years than it has in the previous 60, the fear is that the same could happen to GUS's domestic business.
A report recently published by Verdict, the retail market research consultancy, estimates that the traditional mail order catalogue market is worth just under £5 billion. The backbone of this business is the millions of agents in households across the country who typically buy from the catalogues and promote their wares to a limited circle of friends. GUS dominates the sector, with 4.5 million agents selling the contents of Great Universal and Kay, its two main catalogues, to an average of three customers each. GUS also has some 'specialogs' and, through Marshall Ward, a direct sales business - a part of the market currently enjoying strong growth. Many, however, fear the agency market is increasingly reaching a dead end. In 1980, for example, mail order represented a little over 6% of non-food retail sales. Today it has fallen to just over 3%.
GUS's nearest competitor is the privately owned Littlewoods, followed by Freemans, part of the Sears Group; Empire Stores, owned by La Redoute of France; Grattan owned by Germany's Otto Versand, the world's largest mail order company; and N Brown. Together they control 80% of mail order sales in Britain. Of these, GUS represents 40% of the sales but just under 70% of the profits. That split, more than anything else, defines Wolfson's strategy, with profits and cash as the company's Alpha and Omega. Last year, tight control of costs meant that while its home shopping sales only grew by 5%, to almost £2 billion, trading profits - at £194 million out of a total of £394 million - were up by nearly a quarter.
Critics who fear that GUS is in danger of going ex-growth are perhaps in danger of underestimating its outstanding operational skills. One American management consultant with an intimate knowledge of British retailers notes that though 'other mail order companies have caught up in terms of their hi-tech warehouses and information systems, GUS is still miles in front when it comes to execution'. He points to the management template it uses that rigidly defines how each business in the group is managed day to day. Its effect is to reduce the chances of error and leave senior executives more time to develop strategy. GUS also differs from other mail order operators in that the firm's suppliers are commonly regarded as company assets. 'In many retailers when buyers change they often want to bring in their favourite suppliers,' he says. 'That doesn't happen at GUS.' Others are equally confident that it will be able to make the switch to the much-vaunted world of interactive shopping. 'GUS will not be left behind,' claims Philip Kowalcyczk of retail consultants Kurt Salmon Associates. 'It has the cash resources and is fully aware of all the new developments.' He points to the fact that GUS has recently teamed up with Quelle of Germany, Europe's second biggest mail order company. The pair are to investigate new, hi-tech methods of reaching customers and are understood to be looking closely at cable television.
It is perhaps this need to look ahead that most easily explains last year's re-appointment of Lord (David) Wolfson. Leonard and David reportedly fell out in the late 1970s when David left GUS, where he had been chairman of the mail order business, to become secretary to the Conservative shadow cabinet, later its Downing Street chief of staff. He is currently chairman of retail chain Next, where David Jones, another former GUS director, is chief executive. His return to GUS, however, inevitably triggered talk of succession.
To many, David is the natural heir apparent. Those who know him socially, such as Jim Slater and Lord Young, believe he has a first-rate mind. At GUS, where he was widely credited with modernising the company's information systems, he was, according to a former director, 'popular and knew how to motivate people'. One friend, who knew Isaac as well, offers a more precise evaluation: 'On a scale of a hundred Isaac would rate 90-plus for adventurousness. David I would give 70 and Leonard 30.' He adds that of all the Wolfson's, the chairman of Next is perhaps the most talented: 'He is a well-rounded person, very bright and much better at handling people than Leonard, who is rather staid. He is good at detail but has vision, too.' The theory that favours David's accession has several major flaws, however. If he is the heir apparent, he can - at age 59 - only ever be a stopgap. More critically, in the view of one close friend, a senior business figure, he may also lack the ambition. 'You can never tell what people want until they are offered it,' he reflects. 'But I would be surprised if David really wants to run GUS now.' Viewed in this way his appointment is simply that of a gifted retailer who has spearheaded the turnaround of one high street giant and whose expertise will be invaluable in helping GUS to confront a new era.
Such doubts merely serve to reinforce the argument that the future being planned for GUS is likely to involve a break-up or complete sell off. Indeed, there is nothing in the chairman's past to suggest he could bear to see another step into his shoes.
Taken together, Leonard's advanced years and the rapid advances in shopping technology will ensure that GUS - with or without a Wolfson at its head - is poised for radical change over the next few years. For GUS's shareholders, merchant bankers and City followers, meanwhile, the longest running mystery in British business is far from over.
GUS: THE CREED OF CASH AND PROFITS
Turnover/profit before tax* (£m)
Home shopping 1,946.8 194.2
Burberrys and Scotch House 200.9 41.1
Overseas retailing 181.2 35.4
Finance, banking, business info 783.5 67.3
Property rentals - 56.2
Non-trading activities - 124.7
Inter-divisional turnover (18.1) -
Total 3,094.3 518.9
BALANCE SHEET *(£m)
Other fixed assets 106.0
Net current assets (ex-cash, etc) 1,330.4
Cash, gilts, certificates of deposit 1,465.7
Other liabilities (99.9)
Deferred profits (247.0)
Shareholders' funds 3,617.0
Number of employees 30,154
* for year to 31 March 1994.