Great Universal Stores Struggles and Restructures Business

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MANCHESTER, England -- Great Universal Stores, one of Britain's largest retail, catalog and credit businesses, has undergone a difficult first half of 2000 in its core business at home and with Experian in the United States.


Results of the fiscal year that ended March 31 and first-quarter numbers for FY 2001 showed weaknesses in several areas, beginning with a sharp fall in overall profits.


They declined from last year's 513 million pounds ($760 million at the current exchange rate of $1.50 to the pound but more in 1999) to 459 million pounds ($685 million) in FY 2000, largely because of a precipitous drop in home shopping (big book) sales from 106.3 million pounds to 21 million pounds.


Experian, which GUS acquired in the mid-1990s, did well in the United Kingdom but was battered in the United States for two reasons: the cost of integrating Metromail, another acquisition, and because credit check and credit card processing came under price deflation.


"Competitors, primarily Equifax, but also other players, are offering better pricing deals to clients," a source in the company said, "and in order to compete we had to reduce prices, and therefore our margins are smaller than they were."


To some extent, the source said, the price deflator was offset by rationalization on cost basis and "greater efficiency in what we do, but clearly that was one reason why there was a downturn in our U.S. business."


Experian sales in the United States were up 16 million pounds ($23 million) to 617 million pounds, but U.S. profits were off by 4 million pounds. Strong UK sales allowed the company to eke out a 7 million pound ($10.5 million) gain in profits over 1999.


"Experian's core business remains good," the source said, "but the fringes are not so hot."


The retail and catalog business in the UK is undergoing major restructuring among the "two halves" of GUS -- Argos and Home Shopping.


Argos is the retail store brand featuring catalogs in shops that consumers take with them to order from home. It features hard goods, kettles and other household goods.


Home Shopping is the traditional core GUS business -- fat catalogs featuring thousands of products that shoppers bought on a bundled basis, largely to finance purchases.


As such, the books reflect the down-market character of the traditional British catalog business that basically was a financing and credit mechanism for people shut out from ordinary sources of credit.


The catalogs focused on apparel -- skirts, jumpers, tops and sweaters bought on time over six months. Consumers would buy a sweater for 39.99 pounds, a sum that included a 5.99 pound finance package. The actual price in High Street shops was closer to 34 pounds.


In the past several years, credit became cheaper and more readily available to down-market shoppers who could get financing for 2.50 pounds, a GUS manager said.


"That's the nub of the problem," he said. "Catalogs are still a big cash business, but it hasn't been growing. We have a strong, mature customer base, with 17 million out of the UK's 60 million as active home shopping users.


"So we have big penetration, but it is the same people buying the same thing and that is not attractive to investors. On top of that, we had uncompetitive prices and outdated product."


GUS brought in CEO Terry Duddy to bring back both Argos and Shopping World by leveraging a strong heritage asset into a growth asset. He improved purchasing, chose better products, brought in children's brands, and put Argos toys into Home Shopping books.


"He repackaged the home shopping offer with an unbundled price and no finance offer attached which makes it a price-competitive product, and it seems to be a great success and a first example of synergy between Argos and Home Shopping," another source said.


Duddy also revamped the Argos catalog, which had "an element of tiredness in the product," the source said, by beefing up the books with clothes from Home Shopping, making products better priced, more attractive and more relevant, "which is what the whole process is about."


GUS has shifted its focus to three core businesses -- Experian, the Argos Retail Group and Reality, a third-party fulfillment business. It is getting out of non-core businesses such as a real estate company and a credit business for car buyers.


The Burberry brand is being brought back on a retail basis, after some years of coasting, but it is not considered a core business.


Neither is a South African retail company that sells furniture and electrical appliances. While the Lewis stores are profitable, the rand, the South African currency, has been low on money markets, pulling sterling profits down.
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