United Stationers Inc. Business Information, Profile, and History

History of United Stationers Inc.

United Stationers Inc. is the holding company for United Stationers Supply Co., the largest wholesale distributor of business office products in North America. The company serves as a liaison between manufacturers and retailers, distributing over 25,000 office products ranging from cleaning products to furniture to paper clips. United Stationers operates 30 regional warehouses and 28 smaller local distribution centers and sells to traditional office supply retailers, office furniture retailers, mail order houses, computer re-sellers, mass merchandise outlets, and organizations of smaller retailers who band together to profit from volume-buying discounts. United has remained competitive in an increasingly difficult industry by focusing on customer service. For the office products wholesale business, this means providing retailers with the tools they need to profitably sell office supplies. In April 1995 Wingate Partners, a Dallas-based private equity fund, purchased United Stationers for approximately $258 million and merged it with its own subsidiary, rival office-products wholesaler Associated Stationers. The merged companies continue under the name United Stationers Inc.

Until the 1990s, United Stationers was primarily a family-run business. Its roots trace back to 1921, when a trio of businessmen, Morris Wolf, Harry Hecktman, and Israel Kriloff purchased a 15-year-old office supply company in Chicago called Utility Supply Co. Operating as an "industrial loft stationer," Utility sold supplies such as paper, file folders, pens, and ink to businesses in Chicago's downtown "loop" district by making sales calls to nearby offices. The sales representatives would fill the order at Utility's loft space on the top floor of an older building, then return the next day to deliver the order. This was the standard procedure for selling office supplies at that time.

Kriloff, a grocer, brought financial expertise to the business. Wolf and Hecktman brought considerable salesmanship as well as a customer base, having worked as salesmen for two of Chicago's top office supply companies. When the three men purchased the company, it was bringing in little more than $12,000 in annual sales. By the end of their first year in business together, the three partners had increased Utility's annual sales ten-fold to $120,000. The company grew steadily through the 1920s, profiting from the booming U.S. economy of that decade. Although growth was slowed considerably after the stock market collapse of 1929, the company was able to survive the ensuing economic depression.

Following a trend started in 1892 by P. F. Pettitbone & Co., and taken up by Utility's rival Horder's Associated Stationers Supply Co., Utility entered into another era of retailing in 1935 when it published its first catalog. "Acting as an ever-present representative of Utility Supply Co.," said company materials, "The catalog could be sent to thousands of customers anywhere in the country; successfully soliciting orders by mail or telephone." In 1937 Utility expanded again, opening its first retail store in the heart of Chicago's bustling Loop. The company reports that "Business was good," so good that in 1939, when Hecktman and Wolf bought Kriloff's share of the business, Kriloff was able to take his retirement in Florida.

By this time Utility operated five retail outlets and had expanded its loft to serve as a warehouse for its retail outlets, house administrative offices, and also to continue to serve customers through direct industrial sales.

Utility's foundation was shaken however, when the United States became involved in World War II, creating a dearth of office products because most raw materials were used in the war effort. To keep the business afloat, Utility began offering general merchandise in its catalogs, at one time offering over 1,000 non-office products. Ultimately, the venture into non-office supplies was unsuccessful, and by the end of World War II the company was again concentrating solely on office products.

The postwar era was a period of tremendous growth for Utility. The company mailed an extensive series of low-priced office supply catalogs to retailers across the nation, developing a reputation as "the people from Chicago with the low prices." By 1948 the company was mailing as many as two million catalogs per year and enjoying annual sales of $2 million. Forty percent of sales were through mail order, 40 were through the company's retail outlets, and the remaining 20 were through direct industrial sales.

In the early 1950s the company made several major changes in its sales operations. The most important was Morris Wolf's decision to operate a segment of Utility as an office products wholesaler, selling directly to independent office products retailers. There were two potential problems that Utility faced in this decision. The first was the potential for conflict with its existing retail and mail order businesses. Ultimately, Wolf realized, the customers of Utility's wholesale business would enter into direct competition with Utility's own retail businesses. The solution the company devised was to establish a chain of franchised office supply stores, thus creating a "natural outlet" for their wholesale goods, and, they hoped, "expand both retailing and wholesaling." Franchises were opened in Milwaukee, Wisconsin, and Kankakee, Illinois; however, due to the scarcity of foot-traffic in these towns (as opposed to the high-density, heavily traveled Chicago Loop), the stores were unsuccessful. Attempts to boost franchise sales by sending sales representatives directly to potential industrial customers were also fruitless. By the late 1950s, Utility decided to discontinue its franchise operations and concentrate on wholesale, Chicago retail, and national catalog sales.

The second obstacle was the need to convince office products manufacturers that the Utility was serious about wholesaling, and not simply looking for a means of purchasing products at lower prices. Wilson Jones Co. was the first manufacturer to take interest in Utility as a wholesaler, which paved the way for other manufacturers to sell through the company.

Wholesaling became an even larger part of Utility's operations as office supply retailers began to appreciate the advantages of ordering from a wholesaler, as opposed to ordering directly from the manufacturer. Many office supply businesses were family operations that catered to a limited customer base. At that time, retailers were offered two options when purchasing goods for their stores: either buy them from a wholesaler or purchase them directly from manufacturers who frequently required dealers to buy large quantities of an item in order to receive a price discount. Although Utility's prices were slightly higher than manufacturers' discount prices, often it was to a retailer's advantage to buy small quantities from a wholesaler on an as-needed basis, as opposed to buying large quantities of an item when only a few were needed. The fact that many retailers needed only small quantities of certain items on an irregular basis served Utility's wholesale business well.

During the 1940s Howard Wolf, Morris Wolf's son, began working in the business and assumed the position of vice-president in charge of wholesale operations in 1952. Utility's burgeoning wholesale business grew. By 1956 the company had expanded to larger quarters, purchasing a building at 641 West Lake St. in Chicago, a move that doubled its warehouse and administrative office space. By 1960 the company's business volume had grown so much that Utility expanded into neighboring buildings, doubling its warehouse space again to over 300,000 square feet. In March 1960 Utility adopted the name United Stationers Supply Co. for its wholesaling business; its chain of retail stores retained the name Utility Stationery Stores.

Catalogs also served to boost sales of Utility's wholesale division. Early on, Utility realized that to generate its own sales, the independent retailers using Utility's business would need to generate sales. In 1959 Utility borrowed a concept from Horder's Associated Stationers Supply, its closest competitor, and began "syndicating" its office supply catalogs. For just under $2.50 each, retailers could buy 100 catalogs from Utility, with the store's name printed on the front cover. Utility took the concept a step further than its competitor, offering retailers a rebate on the price of catalogs based on a percentage of the products bought through the catalog from Utility Wholesale Supply Co. Benefits to retailers were twofold. The catalog served as a marketing tool for retailers, and the more the retailer purchased from Utility, the less the overall cost of catalogs.

Utility's wholesale division grew rapidly during its first decade of operation. By 1966 coordination of activities was becoming a difficult and time-consuming task. Howard Wolf addressed the problem by purchasing an IBM 360/30 to track and record invoices, accounts receivable, and item demand. When the company began planning construction of a new warehouse in Forest Park, Illinois, Utility once again hired IBM to install a computerized inventory management system. The system was the first in the office products industry and represented a bit of a gamble for the company. However, the system was so successful that IBM proudly published numerous articles on the project.

In 1967, having grown their company's sales from $12,000 to $10 million, Morris Wolf and Harry Hecktman retired, and Morris's son Howard assumed the position of president and chief executive officer. The company's wholesale business grew quickly under the younger Wolf. By 1970 two-thirds of United's $15 million in annual sales came from its wholesale division. In addition to its catalog subscription program, Utility instituted a number of programs such as pricing services and promotional specials aimed at providing valued-added services to retailers. In addition, Utility began furnishing retailers with a computer system that provided a direct ordering link to its warehouses.

United also grew sales by expanding its catalog line. A promotional service launched in the early 1960s offered around 100 items at discount prices on color flyers printed with the retailer's name. Later Utility began publishing abridged catalogs targeted to specific groups or market segments. An office furniture catalog was introduced in 1967, a data processing catalog appeared in 1970, and in 1976, United's Basic Office Needs Directory debuted, offering a collection of frequently requested office supplies.

United continued to focus on its wholesale operations, expanding its business with the 1971 purchase of the wholesale division of Mutual Papers Co. of Detroit. United converted the newly acquired facilities into its first regional distribution center, directly linking operations at the Detroit warehouse with United's new computer system in Chicago. The venture was difficult and complex; however, after a year of operational difficulties that severely strained the company's financial resources, United's regional distribution center began to turn a profit. When United opened a third regional warehouse in Pennasauken, New Jersey, in 1973, the company experienced no start-up troubles.

The company then developed a number of Local Distribution Centers, low-cost redistribution points where shipment from its larger warehouses could be broken down for delivery to individual retailers nearby. This system assisted United in penetrating new markets and also offered lower costs to retailers as well as overnight delivery to most locations. In the mid-1970s, United established LCDs in St. Louis, Milwaukee, Kansas City, and Minneapolis/St. Paul, Boston, and New York.

In 1978 United sold its retail centers and began concentrating solely on expanding its wholesale business. Net sales that year were $106 million. Three years later, in August 1981, the company incorporated United Stationers Inc. (USI) to serve as a holding company for United Stationers Supply Co. USI went public on the NASDAQ exchange later that year and proceeds from the offering were used to construct a third regional distribution center in the Los Angeles area. Earnings in USI's first year as a public company were $4.8 million on sales of $200 million.

Sales grew steadily in the early 1980s, fueled by an increase in the number of white-collar workers and demands for computer-related office supplies. With its network of local and regional distribution centers, United was poised to profit from the demand, growing at a faster rate than both the wholesale and retail segments of the office supply industry. Increased sophistication of computers greatly aided in inventory management, allowing retailers to order goods through a computerized system and have them delivered by the following day.

The boom in the office supply industry was short-lived, however. Around 1985, office supply superstores and warehouse clubs began to threaten the existence of independent office products retailers, which made up United's traditional customer base. Independent retailers sold to two types of end markets. The first (and largest) was the corporate market, which was reached through outside sales representatives and catalogs, and remained unaffected by superstores. The second, smaller market comprised walk-in and small-purchase customers, whose business was more at risk of being attracted by the new superstores. United responded to the changing marketplace by developing marketing concepts to help independent retailers recapture some of the walk-in market segment. At the same time, the company sought to benefit from the changes by aggressively marketing to superstores and mail-order houses.

Sales in 1987 hit $720 million. However, the corporate market (which had remained unscathed by the growth of superstores) was beginning to shrink as many business began downsizing and laying off large percentages of their white-collar workforce. United responded by lowering prices and instituting volume-buying incentive programs and as well as targeting the specific needs of regional and local markets. To do this, the company continued to fortify its warehouse operations. By 1987 United had build nine more LCDs, providing access to markets in California, Texas, and the Eastern, Midwestern, and Southern regions of the United States. The following year, it opened a regional distribution center in southern Illinois, and another in upstate New York, bringing the total number of regional distribution centers to 14.

Sales from 1989 to 1991 hovered just below, but never broke, the $1 billion mark. The slumping office supply market was taking its toll on United, and in 1990 the company instituted a decentralization plan, laying off 15 percent of its staff at its headquarters near Chicago. The following year United expanded into the Canadian market by purchasing certain assets of an office supply wholesaler with warehouses in Canada and establishing its first foreign subsidiary, United Stationers Canada, Ltd. In 1992 sales broke the $1 billion level, fueled by the acquisition of Stationers Distributing Company, a general office products wholesaler with $425 million in sales and distribution centers across the United States. While much of the company's growth in the early 1990s was fueled by acquisition, United constantly sought new ways to market its products, creating a furniture division and a "Custom Source" division to market personalized products, as well as establishing its own line of office supplies, marketed under the "Universal" brand name. Sales in 1994 were $1.47 billion, slightly higher than 1993 sales. Net income declined 26.3 percent, due to unexpected expenses arising from merging Stationers Distributing's operations into its own.

In April 1995 Wingate Partners, a private equity fund, purchased United Stationers for approximately $258 million and merged it with its own subsidiary, office-products wholesaler Associated Stationers. While the merged companies assumed the United Stationers name, the purchase placed 81 percent of United's outstanding stock under Wingate's control, and effects of the merger have yet to be determined.

Principal Subsidiaries: Delaware Valley Pen Sales Inc.; MircoUnited, Inc.; United Stationers Supply Co.; United Stationers Canada, Ltd.