Management edited by Robert Jones

Case Book


In search of competition:
John Chudley (left), managing director of Letraset, and Dennis Bloor, sales manager for their new range of products

Photograph by John Manning

How Letraset, unhappy with its one-product image, spread into industrial fields — and toys

"It has a very wide spread of customers throughout industry, and probably some potential still", wrote a commentator on Letraset in 1964, when pre-tax profits beat the forecast £175,000 by £40,000. "We took it rather to heart", John Chudley, 42-year-old managing director of Letraset recalls, referring to another comment, this time in The Times and in 1963, "that you called us a one-product company when we went public". Both the first caution and the second have been firmly overtaken by events in the following five years. A few days ago, at London's Café Royal, Letraset unfolded a new product range that has been several years in the making, and incurred development costs of £100,000. It provides industrial marking systems which when linked together make it possible to decorate automatically a huge variety of products from cosmetic tubes to golf balls. Seminars are to be held in key cities all over the country between now and February to advertise the range, and last week a gathering of overseas agents were told about it. Already, Letraset has won a $75,000 American order for "software" — spools carrying designs to be fed into the equipment and thus printed off on to cups, containers, crockery and ovenware.

…This latest operation ties together many of the changes that have been taking place at Letraset. Not much more than a decade old (it started with £3,000 of borrowed capital in 1959) and forecasting pre-tax profits of £650,000 for the year ending next April (against £416,000 last year, depressed by bad results in the American offshoot), Letraset is famous for the sheets of transferable letters it sells to designers.

Such sheets and associated products still provide around 65 per cent of Letraset turnover, but "though there is enormous potential still in the graphic arts business we expect the industrial applications side to be as big in five or six years". If that sounds a heady prospect, John Chudley adds, "we have worked out our projections forward in some detail". So far, industrial applications provide around 10 per cent of sales.

Besides the graphic arts and industrial divisions, Letraset's main raid out of "one product" precariousness has been into toys — now contributing about 25 per cent of turnover. The company has been in these for about four years, first in conjunction with Waddington's, then with Royal Sovereign Group. The "toys" are dry transfer packs which Letraset believes could be "as versatile as the jigsaw".

"An interesting aspect", comments John Chudley, "is the way the industrial process side has come about. Having made our name with the industrial designer" — now wooed also by the British offshoot of Dymo, the large American concern — "and having given the designer tools, we are working to free him from the limitations of the manufacturer. He can design multi-coloured patterns for plastics knowing they can be put on without increasing costs."

Unlike the graphic arts end of Letraset, which has been a spectacular enough enterprise to capture an estimated 90 per cent of the £6.5m. British market, the new product range starts off against well-known competitors: Peerless, for example, of the United Kingdom, and Electrocal and Howmet of the United States, Letraset does claim that one aspect of its new systems, an "in-mould foil inserter" is unique. This decorates injection moulded thermoplastic products automatically during the production cycle, handling up to 12 products at a time.

Broadening out of single-product dependence carries two great problems: diversifications rarely match up to the profitability of the original product and organization can fall apart under the strain of becoming a generalized business in place of the craft enthusiasm which started everything off. Of the first problem, John Chudley says with precision: "I can say that our intention is to keep our earnings-per-share growing at the same rate as in the past — which, of course, does mean higher turnover growth."

As to the organizational problem, the Letraset board brought in P.A. Management Consultants between January and June this year. Objectives were "the establishment of clear-cut" turnover and profit objectives for the next five years with emphasis on growth in earnings per share and vigorous expansion in the world-wide marketing of the company's graphics, toys, premium and industrial products. Another objective" say the directors warningly, "is for Letraset to become a truly international group while remaining independent."

The international side is an extremely important point. Last week's gathering of overseas agents at the Café Royal represented 25 countries, and export sales of existing products go to around 88 countries, representing nearly three-quarters of turnover. Troubles, presumably managerial since too much stock and too little sale effort were to blame, made the American operation a loss-maker in the latter part of last year. The Canadian Letraset president took charge, and "I believe some good groundwork is now getting done there", says John Chudley.

The P.A.-recommended reorganization now provides an international operations division to supervise problems such as the American one. Graphics, the cornerstone of the business, have a division of their own, so do services, and so does a technical back-up operation, while toys, premiums (labels on promotional material) and the industrial side have one division between them.

Inside that industrial side, and an essential ingredient in the recent launch of new products, is Masson Seeley. Letraset in its original form has produced the software but the machinery for transferring it has been elaborated by this subsidiary, bought two years ago for £70,000, and a loss-maker in the last Letraset accounts. Now the purchase has come into its own.

"It gets a bit wearying" says John Chudley, not altogether unhappily, "being the leader all the time."

Never mind: perhaps competition ("it has been fairly strongly competitive for about five years") will get worse.
Andrew Lumsden