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Grolier Incorporated

Grolier Incorporated

90 Old Sherman Turnpike
Danbury, Connecticut 06810
U.S.A.
Telephone: (203) 797-3500
Fax: (203) 797-3197
Web site:http://www.publishing.grolier.com

Private Company
Wholly Owned Subsidiary of Scholastic
Incorporated: 1936 as The Grolier Society, Inc.
Employees: 2000
Sales: $380 million (2001)
NAIC: 511130 Book Publishers; 511140 Database and Directory Publishers

Grolier Incorporated is a leading publisher of reference books and multimedia reference products in the United States, and, under its Childrens Press and Franklin Watts imprints, is the countrys major publisher of childrens nonfiction. The company is a wholly owned subsidiary of childrens book publisher Scholastic, which purchased it from the French media conglomerate Lagardère in 2000. Grolier publishes encyclopedias, childrens books, reference sets, educational materials, and electronic products. The companys best-known titles include Encyclopedia Americana and the New Book of Knowledge, a childrens encyclopedia. Groliers electronic products include the Guinness Multimedia Disc of Records and the Grolier Multimedia Encyclopedia. The company also manages direct-to-home and e-commerce childrens book clubs which ranks include three million active customers. By company estimates, half of all American children participate in a Grolier book club by the time they reach kindergarten.

Early History

The company originated with the Grolier Society founded in 1895 by a group of Boston scholars. Named after Jean Grolier, a designer and collector of French Renaissance books, the Society produced deluxe editions and memoirs in elegant bindings and sold them on a subscription basis. The Society was incorporated as a business under the name The Grolier Society, Inc. on May 22, 1936, under the laws of Delaware after being purchased by one of the Societys top salespeople, Fred Murphy. In 1960 the company changed its name to Grolier Incorporated. Soon after purchasing the Society, Murphy acquired Encyclopedia Americana, which became one of Groliers major products. Under Murphy, Grolier became a sales-oriented company. He divided it into discrete businesses, giving managers wide leeway to run their divisions and instituting an incentive plan providing division managers a percentage of sales and profits Generaled by their respective operations. The incentive plan helped to boost company morale and productivity as individuals could earn substantial money, while being given the freedom to run their areas with minimum interference.

In the beginning Grolier worked much like a finance company, operating largely on installment sales. The company might borrow money, for example, at 4.5 percent and receive 12 or 15 percent in return on its installment accounts. Due to rapid expansion, by the late 1960s and early 1970s Grolier became the largest hardcover publisher of encyclopedias and reference books in the United States, earning about $317 million in sales. In 1969, the 74-year old publicly owned company recorded higher sales for the 30th consecutive year and held about 30 percent of the total encyclopedia market.

In the same year the company purchased Scarecrow Press in Metuchen, New Jersey, a supplier of catalogs, anthologies, and other specialized publications to libraries and schools; and Haddon Bindery, Inc. of Camden, New Jersey, a provider of binder facilities for Groliers single-volume publications. Western Wood Mfg., acquired in 1967, produced bookcases for Groliers major multivolume sets. Groliers juvenile book division also included the subsidiary Franklin Watts, Inc., a publisher of childrens books. The company further pursued the educational market through another subsidiary, Grolier Educational Corporation.

While Grolier published the popular 30-volume Encyclopedia Americana, its bestseller was the 20-volume Book of Knowledge, which gained wide acceptance as a basic reference work for children in middle elementary grades. Other Grolier products included the 50-volume set of the Worlds Greatest Classics, the 20-volume Encyclopedia International, the 20-volume American Peoples Encyclopedia, the 10-volume Grolier Universal Encyclopedia, the 10-volume Book of Art, the Book of Popular Science, the Encyclopedia Canadiana, and several other encyclopedias, yearbooks, and references in French, Spanish, and Japanese. In 1969 the companys subsidiary Grolier International sold these products in 40 foreign countries. Most of its revenues came from door-to-door sales by 7,000 salespeople on commission. Grolier also operated a mail-order business, accounting in 1968 for about 26 percent of the companys net income.

Hard Times During the 1960s and 1970s

Despite these early successes and sound products, in the 1960s and early 1970s Grolier embarked on misguided diversification and expansion programs. The company borrowed heavily, becoming over-leveraged while diversifying into mostly unrelated areas, including trailer parks, water-skiing manufacturing, trailer manufacturing, woodworking products, vending machines, and South American publishing. In 1973 Grolier wrote off three of its domestic subsidiarieswater-skiing manufacturing, vending-machine financing, and bookbindingfor $5 million. Two years later Grolier ended its mobile-home operations, writing off another $11.9 million. In the 1960s Grolier also expanded into the fast-growing foreign encyclopedia market, an expansion that proved to be ill-advised. By 1976 company losses included special charges of $25.4 million for divesting 23 foreign operations in 15 countries. In the same year steep foreign exchange losses hit the company, amounting to $23.2 million. As a result of these missteps, between 1973 and 1976 Grolier lost nearly $160 million, about $77.8 million in 1976 alone. These losses, which showed a consolidated negative net loss of $45.5 million, prompted the New York Stock Exchange to delist the company.

During this period Grolier also saw its share of the U.S. encyclopedia market slip by 15 percent, stemming largely from the industrys image of slick, fast-talking door-to door salespeople and high prices of encyclopedias at $300 to $500 a set. The industrys tarnished image was to some extent justified. In 1972 a complaint filed with the U.S. Federal Trade Commission (FTC) accused Grolier of fraudulent and deceptive practices in door-to-door and other sales techniques, recruitment of personnel, and debt collection. Encyclopedia Britannica and about 30 other companies were found to have engaged in similar practices. In 1976 an administrative law judge upheld the major provisions of the Grolier FTC complaint. Grolier appealed the decision to the FTCs five-member commission, which one year later unanimously sustained the 1976 decision. Grolier was ordered, therefore, to cease and desist all deceptive practices, and to ensure that the companys sales force properly represent the companys products.

At the same time that Grolier faced financial difficulties, its two major competitors for the encyclopedia market, Field Enterprises Educational Corporation and Encyclopedia Britannica, were experiencing substantial growth. The profitability of both companies resulted primarily from expansion into the same overseas markets that Grolier found unmanageable. While Grolier lost money in these markets, Encyclopedia Britannica alone had expanded into 150 countries, finding the foreign business enormously profitable.

1970s: Management Shifts and Impending Bankruptcy

In 1976 under duress from creditors, the companys board of directors demanded a change in management. Disagreement between members of the board and inside management (some had inherited substantial stock in the company) resulted in the selection of Robert B. Clarke to salvage the firm. Clarke was a longtime company insider who joined Grolier in 1949 as a shipping clerk. He rose through middle management before taking charge in 1967 of Grolier Enterprises, the companys profitable mail-order business. Three years after becoming division president, for tax reasons, he relocated operations to Danbury, Connecticut, from the companys New York headquarters on Lexington Avenue. Clarke had a reputation for financial discipline, and at the time of his selection, he was working on evaluating the profitability of Groliers various businesses.

Upon becoming company president on October 23, 1976, Clarke moved quickly to reorganize the company and keep creditors at bay. Grolier was already in default to several banks for more than $220 million. He relocated the corporate headquarters to Connecticut, where the local corporate court would be more sympathetic to Groliers financial plight than the courts in New York. To restore the companys finances, he pulled out of losing ventures, cut staff, and hastily implemented cost- and cash-flow controls. He hired the investment firm Goldman Sachs to evaluate the companys financial viability. He also hired Harvey Miller, a bankruptcy expert of Weil, Gotshal to examine the bankruptcy angle. Clarkes concern was how bankruptcy would affect company relations with suppliers and manufacturers, and whether it would ruin Groliers credit supply. Clarke was also worried that Groliers subsidiary businesses would have to follow the parent company into bankruptcy. He knew that if Grolier declared bankruptcy, creditors would petition the courts for the liquidation of all assets, including the subsidiary businesses. Nevertheless, if one of Groliers subsidiaries could pay creditors more than they would otherwise receive through wholesale liquidation, the courts would likely protect the business.

Company Perspectives:

Grolier is the leader in direct-to-home and e-commerce book clubs for children ages five and under, offering such well-known brands as Dr. Seuss, Barbie, and Disney. Grolier is also the leading online and print publisher of childrens reference products including Encyclopedia Americana, the New Book of Knowledge, and Nueva enciclopedia Cumbre, a Spanish-language encyclopedia sold primarily to U.S. school libraries. Grolier has established itself as the major publisher ofnonfiction childrens books in the United States under the imprints of Childrens Press and Franklin Watts, selling to both libraries and the consumer market.

As a result, Grolier crafted a strategy of avoiding bankruptcy by using its most profitable subsidiary, the mail-order division, to carry the entire company and pay off creditors. The subsidiary placed all of Groliers purchase and manufacturing orders, and paid suppliers and creditors from its own money. Nevertheless, Groliers position was precarious at best. If creditors either severed its credit line or tightened the terms, the company would be put out of business. To avoid this scenario, the company courted its creditors, assuring them of payment and managing to assuage the concerns of 23 lending institutions to which Grolier owed substantial sums.

At the same time Clarke maintained the support of Groliers board of directors and launched other strategies to return the company to profitability. In 1977 he negotiated a restructuring agreement with the banks to give Grolier time to reorganize and set out to expand the companys market for encyclopedias. Despite criticism that the market lacked growth opportunity, Grolier nevertheless increased its door-to-door encyclopedia sales. In 1978 Clarke pursued telephone sales, a strategy that proved more profitable than traditional door-to-door sales. The companys use of telephone sales to reach a vast market yielded $43 million for its encyclopedias and other book products in just three years. Grolier began its telemarketing campaign by renting space in downtown Danbury, Connecticut, and hiring six women to make telephone calls. The company also developed a computer databank including the names of millions of individuals who either owed Grolier money or were buying one of its products. By expanding its market, increasing sales, and finally earning profits, Grolier managed to offset its debt payments.

In 1978 Grolier also launched a $1.3 million direct-mail and television advertising campaign, representing another dramatic departure from its traditional door-to-door sales program. The campaign advertised the popular childrens encyclopedia the New Book of Knowledge to the consumer using three direct-mail packages targeting 1.8 million U.S. families and two weeks worth of television commercials in 28 prime mail-order television markets. At the same time Grolier tried to enhance the marketability of the 20-volume set by reducing its price by 39 percent. The Book of Knowledge was first published in 1908 and then completely revised in 1966. In an interview, Grolier president and Chief Executive Officer, Robert Clarke, stated that the advertising program amounted to the largest marketing campaign ever for a multivolume set in the mail-order publishing field. The campaign stemmed from marketing analysis showing declining encyclopedia sales due to consumer discontent over high prices, dislike of door-to-door salespeople, and parental uncertainty of whether their children would make use of the reference books.

Despite Clarkes aggressive capital restructuring program, by 1983 the company continued to have difficulties. Grolier still owed 23 lending institutions $96 million. In lieu of payment in full, the banks agreed to receive $36 million in cash plus a combination of common and preferred stock and warrants worth more than $16 million. Clarke raised the cash through an $82 million bond issue, spending part of it to retire $35 million in Swiss notes. Although free of the banks and the Swiss, Groliers load of public debt amounted to over half its total capital. Nevertheless, in 1982 the company formed a successful new subsidiary, Grolier Electronic Publishing, which in 1986 introduced the first encyclopedia in electronic format on compact-disc read-only memory (CD-ROM) under the name Academic American Encyclopedia. The company also introduced the product on laser videodisc. Grolier produced both products, containing the encyclopedias entire nine-million-word text on a single disc, with Activenture Corporation, an expert in optical disc storage technology in Monterey, California. The products, establishing Grolier as the preeminent leader in the field, brought the company closer to realizing its plans of a disc-based encyclopedia encompassing audio, video, and software applications. In addition, the products positioned the company well for future developments in the expanding market for electronic information.

Key Dates:

1895:
Grolier Society is founded in Boston.
1936:
Company is incorporated as The Grolier Society, Inc.
1960:
Company is renamed Grolier Incorporated.
1967:
Company acquires Western Wood Mfg.
1969:
Company acquires Scarecrow Press and Haddon Bindery.
1972:
FTC complaint is filed against company alleging deceptive practices in door-to-door sales and other areas.
1976:
Grolier is delisted on the New York Stock Exchange; Robert B. Clarke becomes company president.
1977:
FTC issues cease and desist order regarding the companys alleged deceptive sales and other practices.
1978:
In addition to door-to-door sales, Grolier begins a telemarketing campaign to sell encyclopedias and other books.
1982:
Grolier Electronic Publishing is formed.
1986:
Grolier introduces the first electronic encyclopedia, Academic American Encyclopedia.
1988:
The company is acquired by Hachette, a subsidiary of Lagardère, in hostile takeover.
1990:
Grolier is massively restructured; William C. Johnson becomes CEO.
1995:
The company consolidates Childrens Press and Franklin Watts subsidiaries.
1996:
Grolier files an $8 million lawsuit against Dorling Kindersley (DK) Publishing, citing unfair competition and interference.
1998:
The company settles lawsuit with DK Publishing.
1999:
Lagardère puts Grolier up for sale.
2000:
Grolier is acquired by Scholastic.

Grolier Regains Financial Health in the 1980s

By the late 1980s Grolier reestablished its financial footing as a leading worldwide publisher and distributor of encyclopedias, childrens books, reference sets, and educational materials. In 1987, the company also marketed health information after acquiring Krames Communications, a major direct distributor of health and medical publication materials. In addition to Groliers operations as a primary producer and distributor of electronic publishing products and services, its other businesses included photo-finishing services, educational toys, play equipment, and classroom furniture for children. The company sold these products in the U.S., Canada, and in 20 other countries through its operations in Mexico, Italy, Australia, the United Kingdom, and the Philippines.

The companys direct-marketing operations constituted its principal means of sales. Grolier began direct marketing by selling annual supplements that updated previously sold encyclopedia or reference sets. The company considerably expanded these operations both internally and through new acquisitions. Most of its direct-marketing sales in the U.S. and Canada came from direct-mail advertising using pamphlets, brochures, and specialty catalogs. The company continued its telemarketing program, selling certain products using trained telephone sales representatives. Under its direct-marketing system, Grolier also marketed childrens and other books through book clubs, including the Beginner Readers Program, Disneys Wonderful World of Reading, the Popular Science Book Club, and Outdoor Life Book Club.

Hostile Takeover and the Early 1990s

In 1988 soon after returning to profitability, Grolier became a hostile takeover target. Although profitable, the companys comparatively small size made it vulnerable in an era of massive leveraged buyouts, mergers, acquisitions, hostile takeovers, and corporate restructurings. In 1986 Lewis Rabinowitz, head of the investment firm R. Lewis Securities, Inc., anticipated the buyout by purchasing large sums of Grolier stock on behalf of his wealthy clients. Rabinowitz believed Groliers book niche would appeal to large publishers seeking to expand their markets. Groliers allure also lay in its extensive direct-marketing organization, providing access to upscale, education-oriented young families with children. Rabinowitzs prediction proved correct in 1988 when Hachette, Frances largest communications company, offered $415 million in an unsolicited bid. In a prepared statement, Clarke responded that Grolier management would recommend to the board that the company pursue a course that would maximize shareholder value.

Despite public statements of a friendly offer, Hachette filed suit against Grolier in federal court in Manhattan. Hachette challenged Groliers poison pill approach, adopted in 1986, making its acquisition enormously expensive unless approved by the companys board of directors. Hachettes suit also challenged Delawares takeover statute, allowing corporations to impose difficult conditions on businesses pursuing acquisitions. In 1987, Hachette, owner of newspaper, film, television, radio, printing, and retailing operations, had $3 billion in sales, nearly one-third of these from its book publishing operation. That same year, Grolier had sales of $424 million.

In April 1988 Groliers poison pill approach and Delaware registration failed to ward off Hachettes $450 million hostile takeover. Shortly after in 1990, Hachette made sweeping changes in Groliers top management. Clarke was replaced by William C. Johnson as Grolier CEO, ending Clarkes 40-year career as a loyal company insider. Hachette removed other longtime executives, including Howard B. Graham, executive vice-president of Grolier Incorporated and president of Grolier International; and Jonathan N. Gillet, president of Franklin Watts, the adult and juvenile trade subsidiary.

After becoming CEO, Johnson divested several subsidiaries to focus on Groliers core publishing businesses. He sold the companys educational toy maker, Childcraft Education, to Walt Disney for $52 million, and in 1992, sold Krames Communications to K-III Holdings. He subsequently reorganized Groliers operations under four main divisions, including the direct-marketing group, the publishing group, reference group, and the international group. Under each operation, Johnson appointed a senior executive to run the divisions. As a result of the reorganization, Groliers operations Generaled returns on sales of 10 percent with revenues of $385 million in 1991. After the direct-marketing division, the publishing group represented Groliers largest operation with 440 employees and approximately 20 percent of total company sales. The publishing group targeted the school and library market as its core business. In 1992 the division had about 20 percent of the U.S. market for juvenile and young adult books and reference books for the school and library market. In a restructuring move, the division sought to eliminate competitive marketing between its various units by redirecting their sales strategies to differing segments of the library market. The publishing group consisted of Childrens Press, Grolier Educational Corporation, Franklin Watts, Orchard Books, and Scarecrow Press.

Post-Restructuring in the 1990s

Grolier quickly became a profitable U.S. affiliate of Hachette, a subsidiary of Frances third-largest business empire, Largardère. Hachettes management predicted a brighter future for Grolier after years of financial struggle. In 1994 Peter D. Nalle was named chief operating officer in charge of publishing and reference operations. Nalle was previously president of Simon & Schusters professional information group, and earlier, president and CEO of J.B. Lippincott Co. His appointment was expected to enable Grolier to move more aggressively into key markets. In 1995 Grolier further streamlined operations by consolidating its Childrens Press and Franklin Watts childrens book publishing subsidiaries into the companys Danbury, Connecticut headquarters. The consolidation resulted from management analysis of Groliers long-term competitive position. As a result of this analysis, the company also sold educational publisher Scarecrow Press to University Press, and expanded its electronic publishing division, Grolier Electronic Publishing (GEP). GEP subsequently enhanced its multimedia activity through a strategic alliance with Metro-Goldwyn-Mayer, enabling the development and distribution of interactive multimedia games worldwide. In the late 1990s Grolier continued to increase its focus on electronic publishing and multimedia. Among the titles the company introduced on CD-ROM were Prehistoria, an encyclopedia of prehistoric facts, and a 30-volume Encyclopedia Americana. In 1996, the company launched Grolier Online, a subscription-based Internet educational portal aimed at schools and public libraries.

Also in 1996 three key editors at Groliers imprint Orchard Books, Orchard president Neal Porter and senior editors Richard Jackson and Melanie Kroupa, left the company to join Dorling Kindersley (DK) Publishing to launch a new fiction imprint for that company. The defection prompted Grolier to file an $8 million unfair competition lawsuit against DK, alleging that DK had lured away the editors and was attempting to sign authors and book titles still under contract to Grolier. DK vigorously denied the charges. Finally in July of 1997, the two companies came to an agreement that settled the lawsuit. DK agreed to pay Grolier an undisclosed sum of money, and the two companies announced plans to collaborate on electronic publishing ventures.

New Owner for a New Century

In 1999 Groliers parent company Lagardère announced that it was putting Grolier up for sale. At the time of the offer, company officials said that their asking price of $400 to 500 million was not realistic, but apparently, they underestimated Groliers value. In 2000, childrens book publisher Scholastic acquired the company for $400 million. The acquisition was considered by industry experts to be a perfect match. Groliers main areas of operations complemented Scholastics existing businesses well: Groliers Kids Clubs and Interactive units targeted children up to age five; Scholastics similar programs focused on ages 612. At the time of the deal Scholastic predicted that acquiring Grolier would increase its annual operating income by $30 million. The deal resulted in the elimination of approximately 300 positions at Grolier, primarily in telemarketing and customer service. In 2001 Groliers operations were still located in Danbury, Connecticut, but some industry experts speculated that Scholastic might consolidate operations in New York.

Principal Divisions

Kids Clubs; Interactive; International; Publishing.

Principal Competitors

Encyclopaedia Britannica; Golden Books; PRIMEDIA.

Further Reading

Consolidation Continued in 2000 in Educational Software Industry, Electronic Education Report, January 17, 2001.

DK Rejects Groliers Claims of Interference, Publishers Weekly, November 11, 1996, p. 16.

Fears Confirmed for 50 Grolier Employees Axed by Scholastic, BP Report, July 24, 2000.

Fields, Howard, Clarke Retires among Top Shake-up at Grolier, Publishers Weekly, February 10, 1989, p. 14.

Frederick, Heather Vogel, Phil Friedman: Grolier Pioneers the E-frontier, Publishers Weekly, December 18, 2000, p. 48.

FTC Rules against Grolier on Unfair Practices, Publishers Weekly, April 17, 1978, pp. 2426.

Grolier Boosts Scholastics Q2 Revenue, Scholastic Splits Stock 2 for 1, Electronic Education Report, January 17, 2001.

Grolier Electronic Publishing Changes Its Name to Grolier Interactive Inc., Information Today, March 1996, p. 37.

Grolier Interactive Launches CD-ROM Reference Suite, Information Today, January 1999, pp. 31, 36.

Grolier: Its Encyclopedias Are Best Sellers, Financial World, August 6, 1969, p. 12.

Grolier Launches School Edition of 2000, Multimedia Encyclopedia, Information Today, January 2000, p. 42.

Grolier Publishing Embracing Technology to Spur Growth, Publishers Weekly, September 21, 1998, p. 12.

Grolier Vows to Expand Orchard, Publishers Weekly, September 9, 1996, p. 18.

Hatch, Denny, Grolier: The Early Days, Target Marketing, Philadelphia, October 1999, pp. 112, 121.

How Grolier Lost $13 a Share, Business Week, April 4, 1977, p. 31.

How Grolier Turned Around, Publishers Weekly, April 30, 1982, pp. 2627.

Lottman, Herbert R., French Plan to Sell Grolier, Publishers Weekly, November 29, 1999, p. 21.

Marcial Gene G., Why Grolier Looks Ripe for the Picking, Business Week, November 3, 1986, p. 128.

Milliot, Jim, Grolier Moving Childrens Press, Watts to Danbury, Publishers Weekly, March 20, 1995, p. 18.

, Robinson: Grolier Will Boost Scholastic Profits, Publishers Weekly, April 24, 2000, p. 12.

, Scholastic Agrees to Acquire Grolier, Publishers Weekly, April 17, 2000, p.9.

, Scholastic Has Record Year and Begins Grolier Integration, Publishers Weekly, July 24, 2000, p. 9.

, Scholastic Reports Solid Gains, Publishers Weekly, March 19, 2001, p. 10.

, Scholastic Sales Surge Continues, Publishers Weekly, January

1, 2001, p. 19.

Orr, Alicia, Direct Marketer of the Year, Target Marketing, Philadelphia, October 1999, pp. 94108.

Parr, Jann, Waiting for New Hardware, Forbes, November 17, 1986, p. 262.

Perpetual Comeback, Forbes, December 5, 1983, pp. 259, 262.

PLWeb Turbo Chosen for Encyclopedia Americana Online, Information Today, June 1997, p. 59.

Reddish, Jeannette M., People of the Financial World, Financial World, February 15, 1978, p. 4.

Reid, Calvin, Grolier, Publishers Weekly, March 25, 1996, p.18.

, Grolier, DK Settle $8 Million Tampering Lawsuit, Publishers Weekly, July 14, 1997, p. 10.

, Grolier Files $8 Million Suit Challenging DK Hiring, Publishers Weekly, November 4, 1996, p. 45.

, Grolier Looks Ahead after Divestitures, Reorganization, Publishers Weekly, March 16, 1992, pp. 910.

, Wilson Named to Head Orchard, Ruling on Preliminary Injunction, Publishers Weekly, November 25, 1996, p. 48.

Reuter, Madalynne, ed., News of the Week: Hachette Launches Bid of $415 Million for Grolier, Publishers Weekly, March 25, 1988, p. 10.

, The Week: Grolier Unveils Unusual Selling Tactics for the New Book of Knowledge, Publishers Weekly, January 23, 1978, p. 287.

Rogers, Michael, Scholastic to Acquire Grolier Inc., Library Journal, June 1, 2000, p. 28.

Rose, Mattyew, and Nikhil Deogun, Scholastic Corp. is Nearing Agreement to Buy Grolier for About $400 Million, The Wall Street Journal, April 13, 2000, p. B4.

Scholastic Adds E- Encyclopedias, Door to New Market with Grolier, Educational Marketer, May 1, 2000.

Scholastic-Grolier Combo Will Take Children from Cradle to Middle School, BP Report, April 24, 2000.

Scholastic Is Planning to Buy Grolier, The New York Times, April 15, 2000, p. B3.

Sorkin, Andrew Ross, Dorling Kindersly and Orchard Books Settle Battle over Editors, The New York Times, July 21, 1997, p. C9.

Spain, Tom, Grolier Encyclopedia to Bow in New Formats, Publishers Weekly, August 16, 1985, p. 18.

Wagner, Susan, Judge Upholds FTC Complaint against Grolier, Publishers Weekly, November 22, 1976, pp. 1920.

Bruce P. Montgomery

update: Lisa Whipple

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Grolier Inc.

Grolier Inc.

Sherman Turnpike
Danbury, Connecticut
U.S.A.
(203) 797-3500
Fax: (203) 797-3197

Wholly Owned Subsidiary of Largardere Groupe
Incorporated:
1936 as The Grolier Society, Inc.
Employees: 3,600
Sales: $700 million (1994)
SICs: 2731 Book Publishing and Printing

Grolier Inc. is a leading publisher of reference books and multimedia reference products in the United States. A wholly owned subsidiary of French media conglomerate Largardére, Grolier publishes encyclopedias, childrens books, reference sets, educational materials, and electronic products. The companys best-known titles include Encyclopedia Americana and the New Book of Knowledge, a childrens encyclopedia. Groliers electronic products consist of the Guiness Multimedia Disc of Records and the Grolier Multimedia Encyclopedia. The company also manages childrens book clubs.

Early History

The company originated with the Grolier Society founded in 1895 by a group of Boston scholars. Named after Jean Grolier, a designer and collector of French Renaissance books, the Society produced deluxe editions and memoirs in elegant bindings and sold them on a subscription basis. The Society was incorporated as a business under the name The Grolier Society, Inc. on May 22, 1936, under the laws of Delaware after being purchased by one of the Societys top salesmen, Fred Murphy. In 1960, the company changed its name to Grolier Incorporated. Soon after purchasing the Society, Murphy acquired Encyclopedia Americana, which became one of Groliers major products. Under Murphy, Grolier became a sales-oriented company. He divided it into discrete businesses, giving managers wide leeway to run their divisions and instituting an incentive plan providing division managers a percentage of sales and profits generated by their respective operations. The incentive plan helped to boost company morale and productivity as individuals could earn substantial money, while being given the freedom to run their areas with minimum interference.

In the beginning, Grolier worked much like a finance company, operating largely on installment sales. The company might borrow money, for example, at 4.5 percent and receive 12 or 15 percent in return on its installment accounts. Due to rapid expansion, by the late 1960s and early 1970s Grolier became the largest hardcover publisher of encyclopedias and reference books in the United States, earning about $317 million in sales. In 1969, the 74-year old publicly owned company recorded higher sales for the 30th consecutive year and held about 30 percent of the total encyclopedia market.

In the same year, the company purchased Scarecrow Press in Metuchen, New Jersey, a supplier of catalogues, anthologies, and other specialized publications to libraries and schools, and Haddon Bindery, Inc. of Camden, New Jersey, a provider of binder facilities for Groliers single-volume publications. Western Wood Mfg., acquired in 1967, produced bookcases for Groliers major multivolume sets. Groliers juvenile book division also included the subsidiary Franklin Watts, Inc., a publisher of childrens books. The company further pursued the educational market through another subsidiary, Grolier Educational Corporation.

While Grolier published the popular 30-volume Encyclopedia Americana, its best seller was the 20-volume Book of Knowledge, which gained wide acceptance as a basic reference work for children in middle elementary grades. Other Grolier products included the 50-volume set of the Worlds Greatest Classics, the 20-volume Encyclopedia International, the 20-volume American Peoples Encyclopedia, the 10-volume Grolier Universal Encyclopedia, the 10-volume Book of Art, the Book of Popular Science, the Encyclopedia Canadiana, and several other encyclopedias, yearbooks, and references in French, Spanish, and Japanese. In 1969, the companys subsidiary Grolier International sold these products in 40 foreign countries. Most of its revenues came from door-to-door sales by 7,000 salesmen on commission. Grolier also operated a mailorder business, accounting in 1968 for about 26 percent of the companys net income.

Hard Times in the 1960s and 1970s

Despite these early successes and sound products, in the 1960s and early 1970s Grolier embarked on misguided diversification and expansion programs. The company borrowed heavily, becoming over-leveraged while diversifying into mostly unrelated areas, including trailer parks, water-ski manufacturing, trailer manufacturing, woodworking products, vending machines, and South American publishing. In 1973, Grolier wrote off three of its domestic subsidiarieswater ski manufacturing, vending machine financing, and book bindingfor $5 million. Two years later, Grolier ended its mobile home operations, writing off another $11.9 million. In the 1960s, Grolier also expanded into the fast-growing foreign encyclopedia market, an expansion that proved ill-advised. By 1976, company losses included special charges of $25.4 million for divesting 23 foreign operations in 15 countries. In the same year, steep foreign exchange losses hit the company, amounting to $23.2 million. As a result of these missteps, between 1973 and 1976 Grolier lost nearly $160 million, about $77.8 million in 1976 alone. These losses, which showed a consolidated negative net loss of $45.5 million, prompted the New York Stock Exchange to delist the company.

During this period Grolier also saw its share of the U.S. encyclopedia market slip by 15 percent, stemming largely from the industrys image of slick, fast-talking door-to door salesman and high prices of encyclopedias at $300 to $500 a set. The industrys tarnished image was to some extent justified. In 1972, a complaint filed with the U.S. Federal Trade Commission (FTC) accused Grolier of fraudulent and deceptive practices in door-to-door and other sales techniques, recruitment of personnel, and debt collection. Encyclopedia Britannica and about 30 other companies were found to have engaged in similar practices. In 1976, an administrative law judge upheld the major provisions of the Grolier FTC complaint. Grolier appealed the decision to the FTCs five-member commission, which one year later unanimously sustained the 1976 decision. Grolier was ordered, therefore, to cease and desist all deceptive practices, and to ensure that the companys sales force properly represent the companys products.

At the same time that Grolier faced financial difficulties, its two major competitors for the encyclopedia market, Field Enterprises Educational Corporation and Encyclopedia Britannica, were experiencing substantial growth. The profitability of both companies resulted primarily from expansion into the same overseas markets that Grolier found unmanageable. While Grolier lost money in these markets, Encyclopedia Britannica alone had expanded into 150 countries, finding the foreign business enormously profitable.

1970s: Management Shifts and Facing Bankruptcy

In 1976, under duress from creditors, the companys board of directors demanded a change in management. Disagreement between members of the board and inside management, some of whom inherited substantial stock in the company, resulted in the selection of Robert B. Clarke to salvage the firm. Clarke was a longtime company insider who joined Grolier in 1949 as a shipping clerk. He rose through middle management before becoming head in 1967 of Grolier Enterprises, the companys profitable mail-order business. Three years after becoming division president, he relocated its operations to Danbury, Connecticut, for tax reasons from the companys New York headquarters on Lexington Avenue. Clarke had a reputation for financial discipline, and at the time of his selection, was working on evaluating the profitability of Groliers various businesses.

Upon becoming company president on October 23, 1976, Clarke moved quickly to reorganize the company and keep creditors at bay. Grolier was already in default to several banks on more than $220 million. He relocated the corporate headquarters to Connecticut, where the local corporate court would be more sympathetic to Groliers financial plight than the courts in New York. To restore the companys finances, he pulled out of losing ventures, cut staff, and hastily implemented cost- and cash-flow controls. He hired the investment firm Goldman Sachs to evaluate the companys financial viability. He also hired Harvey Miller, a bankruptcy expert of Weil, Gotshal to examine the bankruptcy angle. Clarkes concern was how bankruptcy would affect company relations with suppliers and manufacturers, and whether it would ruin Groliers credit supply. Clarke was also worried that Groliers subsidiary businesses would have to follow the parent company into bankruptcy. He knew that if Grolier declared bankruptcy, creditors would petition the courts for the liquidation of all assets, including the subsidiary businesses. Nevertheless, if one of Groliers subsidiaries could pay creditors more than they would otherwise receive through wholesale liquidation, the courts would likely protect the business.

As a result, Grolier crafted a strategy of avoiding bankruptcy by using its most profitable subsidiary, the mail-order division, to carry the entire company and pay off creditors. The subsidiary placed all of Groliers purchase and manufacturing orders, and paid suppliers and creditors from its own money. Nevertheless, Groliers position was precarious at best. If creditors either severed its credit line or tightened the terms, the company would be put out of business. To avoid this scenario, the company courted its creditors, assuring them of payment and managing to assuage the concerns of 23 lending institutions to which Grolier owed substantial sums.

At the same time, Clarke maintained the support of Groliers board of directors and launched other strategies to return the company to profitability. In 1977, he negotiated a restructuring agreement with the banks to give Grolier time to reorganize and set out to expand the companys market for encyclopedias. Despite criticism that the market lacked growth opportunity, Grolier nevertheless increased its door-to-door encyclopedia sales. In 1978, Clarke pursued telephone sales, a strategy that proved more profitable than traditional door-to-door sales. The companys use of telephone sales to reach a vast market yielded $43 million for its encyclopedias and other book products in just three years. Grolier began its telemarketing campaign by renting space in downtown Danbury, Connecticut, and hiring six women to make telephone calls. The company also developed a computer databank including the names of millions of individuals who either owed Grolier money or were buying one of its products. By expanding its market, increasing sales, and finally earning profits, Grolier managed to offset its debt payments.

In 1978, Grolier also launched a $1.3 million direct mail and television advertising campaign, representing another dramatic departure from its traditional door-to-door sales program. The campaign advertised the popular childrens encyclopedia the New Book of Knowledge to the consumer using three directmail packages targeting 1.8 million U.S. families and two weeks worth of television commercials in 28 prime mail-order television markets. At the same time, Grolier tried to enhance the marketability of the 20-volume set by reducing its price by 39 percent. The Book of Knowledge was first published in 1908 and then completely revised in 1966. In an interview, Grolier president and Chief Executive Officer, Robert Clarke, stated that the advertising program amounted to the largest new marketing campaign ever for a multivolume set in the mail-order publishing field. The campaign stemmed from marketing analysis showing declining encyclopedia sales due to consumer discontent over high prices, dislike of door-to-door salesman, and parental uncertainty of whether their children would make use of the reference books.

Despite Clarkes aggressive capital restructuring program, by 1983 the company continued to have difficulties. Grolier still owed 23 lending institutions $96 million. In lieu of payment in full, the banks agreed to receive $36 million in cash plus a combination of common and preferred stock and warrants worth more than $16 million. Clarke raised the cash through an $82 million bond issue, spending part of it to retire $35 million in Swiss notes. Although free of the banks and the Swiss, Groliers load of public debt amounted to over half its total capital. Nevertheless, in 1982 the company formed a successful new subsidiary, Grolier Electronic Publishing, which in 1986 introduced the first encyclopedia in electronic format on compact-disk read-only memory (CD-ROM) under the name Academic American Encyclopedia. The company also introduced the product on laser videodisc. Grolier produced both products, containing the encyclopedias entire nine-million-word text on a single disk, with Activenture Corporation, an expert in optical disk storage technology in Monterey, California. The products, establishing Grolier as the preeminent leader in the field, brought the company closer to realizing its plans of a disk-based encyclopedia encompassing audio, video, and software applications. In addition, the products positioned the company well for future developments in the expanding market for electronic information.

Grolier Regains Financial Health in the 1980s

By the late 1980s Grolier reestablished its financial footing as a leading worldwide publisher and distributer of encyclopedias, childrens books, reference sets, and educational materials. In 1987, the company also marketed health information after acquiring Krames Communications, a major direct distributer of health and medical publication materials. In addition to Groliers operations as a primary producer and distributer of electronic publishing products and services, its other businesses included photofinishing services, educational toys, play equipment, and classroom furniture for children. The company sold these products in the U.S., Canada, and in 20 other countries through its operations in Mexico, Italy, Australia, the United Kingdom, and the Philippines.

The companys direct marketing operations constituted its principal means of sales. Grolier began direct marketing by selling annual supplements that updated previously sold encyclopedia or reference sets. The company considerably expanded these operations both internally and through new acquisitions. Most of its direct marketing sales in the U.S. and Canada came from direct-mail advertising using pamphlets, brochures, and specialty catalogs. The company continued its telemarketing program, selling certain products using trained telephone sales representatives. Under its direct-marketing system, Grolier also marketed childrens and other books through book clubs, including the Beginner Readers Program, Disneys Wonderful World of Reading, the Popular Science Book Club, and Outdoor Life Book Club.

Hostile Takeover

In 1988, soon after returning to profitability, Grolier became a hostile takeover target. Although profitable, the companys comparatively small size made it vulnerable in an era of massive leveraged buyouts, mergers, acquisitions, hostile takeovers, and corporate restructurings. In 1986, Lewis Rabinowitz, head of the investment firm R. Lewis Securities Inc., anticipated the buyout by purchasing large sums of Grolier stock on behalf of his wealthy clients. Rabinowitz believed Groliers book niche would appeal to large publishers seeking to expand their markets. Groliers allure also lay in its extensive direct-marketing organization, providing access to upscale, education-oriented young families with children. Rabinowitzs prediction proved correct in 1988 when Hachette, Frances largest communications company, offered $415 million in an unsolicited bid. In a prepared statement, Clarke responded that Grolier management would recommend to the board that the company pursue a course that would maximize shareholder value.

Despite public statements of a friendly offer, Hachette filed suit against Grolier in federal court in Manhattan. Hachette challenged Groliers poison pill approach, adopted in 1986, making its acquisition enormously expensive unless approved by the companys board of directors. Hachettes suit also challenged Delawares takeover statute, allowing corporations to impose difficult conditions on businesses pursuing acquisitions. In 1987, Hachette, owner of newspaper, film, television, radio, printing, and retailing operations, had $3 billion in sales, nearly one-third of these from its book publishing operation. That same year, Grolier had sales of $424 million.

In April 1988, Groliers poison pill approach and Delaware registration failed to ward off Hachettes $450 million hostile takeover. Shortly after in 1990, Hachette made sweeping changes in Groliers top management. Clarke was replaced by William C. Johnson as Grolier CEO, ending Clarkes 40-year career as a loyal company insider. Hachette removed other longtime executives, including Howard B. Graham, executive vice president of Grolier Incorporated and president of Grolier International, Jonathan N. Gillet, president of Franklin Watts, the adult and juvenile trade subsidiary.

After becoming CEO, Johnson divested several subsidiaries to focus on Groliers core publishing businesses. He sold the companys educational toy maker, Childcraft Education, to Walt Disney for $52 million, and in 1992, sold Krames Communications to K-III Holdings. He subsequently reorganized Groliers operations under four main divisions, including the direct marketing group, the publishing group, reference group, and the international group. Under each operation, Johnson appointed a senior executive to run the divisions. As a result of the reorganization, Groliers operations generated returns on sales of 10 percent with revenues of $385 million in 1991. After the direct marketing division, the publishing group represented Groliers largest operation with 440 employees and approximately 20 percent of total company sales. The publishing group targeted the school and library market as its core business. In 1992, the division had about 20 percent of the U.S. market for juvenile and young adult books and reference books for the school and library market. In a restructuring move, the division sought to eliminate competitive marketing between its various units by redirecting their sales strategies to differing segments of the library market. The publishing group consisted of Childrens Press, Grolier Educational Corporation, Franklin Watts, Orchard Books, and Scarecrow Press.

Post-Restructuring

Grolier quickly became a profitable U.S. affiliate of Hachette, a subsidiary of Frances third-largest business empire, Lagardere. Hachettes management predicted a brighter future for Grolier after years of financial struggle. In 1994, Peter D. Nalle was named chief operating officer in charge of publishing and reference operations. Nalle was previously president of Simon & Shusters professional information group, and earlier, president and CEO of J.B. Lippincott Co. His appointment was expected to enable Grolier to move more aggressively into key markets. In 1995, Grolier further streamlined operations by consolidating its Childrens Press and Franklin Watts childrens book publishing subsidiaries into the companys Danbury, Connecticut, headquarters. The consolidation resulted from management analysis of Groliers long-term competitive position. As a result of this analysis, the company also sold educational publisher Scarecrow Press to University Press, and expanded its electronic publishing division, Grolier Electronic Publishing (GEP). GEP subsequently enhanced its multimedia activity through a strategic alliance with Metro-Goldwyn-Mayer, enabling the development and distribution of interactive multimedia games worldwide. In the late 1990s, Grolier continued to increase its focus on electronic publishing and multimedia. Among the titles the company introduced on CD-ROM were Prehistoria, an encyclopedia of prehistoric facts, and a 30-volume Encyclopedia Americana. Through these and other strategic initiatives, Grolier appeared well-positioned to remain profitable throughout the remainder of the decade.

Further Reading

Fields, Howard, Clarke Retires Among Top Shake-up at Grolier, Publishers Weekly, February 10, 1989, p. 14.

FTC Rules Against Grolier on Unfair Practices, Publishers Weekly, April 17, 1978, pp. 2426.

Grolier: Its Encyclopedias Are Best Sellers, Financial World, August 6, 1969, p. 12.

How Grolier Lost $13 a Share, Business Week, April 4, 1977, p. 31.

How Grolier Turned Around, Publishers Weekly, April 30,1982, pp. 26-27.

Marcial Gene G., Why Grolier Looks Ripe for the Picking, Business Week, November 3, 1986, p. 128.

Milliot, Jim, Grolier Moving Childrens Press, Watts to Danbury, Publishers Weekly, March 20, 1995, p. 18.

Parr, Jann, Waiting for New Hardware, Forbes, November 17,1986, p. 262.

Perpetual Comeback, Forbes, December 5, 1983, pp. 259, 262.

Reddish, Jeannette M., People of the Financial World, Financial World, February 15, 1978, p. 4.

Reid, Calvin, Grolier Looks Ahead After Divestitures, Reorganization, Publishers Weekly, March 16, 1992, pp. 910.

Reuter, Madalynne, ed., The Week: Grolier Unveils Unusual Selling Tactics for The New Book of Knowledge, Publishers Weekly, January 23, 1978, p. 287.

Reuter, Madalynne, ed., News of the Week: Hachette Launches Bid of $415 Million for Grolier, Publishers Weekly, March 25, 1988, p. 10.

Spain, Tom, Grolier Encyclopedia to Bow in New Formats, Publishers Weekly, August 16, 1985, p. 18.

Wagner, Susan, Judge Upholds FTC Complaint Against Grolier, Publishers Weekly, November 22, 1976, pp. 1920.

Bruce P. Montgomery

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