Westaff Inc.

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Westaff Inc.

301 Lennon Lane
Walnut Creek, California 94598
U.S.A.
Telephone: (925) 930-5300
Fax: (925) 934-5489
Web site: http://www.westaff.com

Public Company
Incorporated: 1954 as Western Employers Service
Employees: 1,170 regular staff; 36,500 temporary employees
Sales: $650.75 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: WSTF
NAIC: 56132 Temporary Help Services

Westaff Inc., based in the San Francisco Bay Area, is the oldest temporary employment company on the West Coast. The company specializes in providing so-called Essential Support Services—mainly clerical and light industrial, including such tasks as word processing, data entry, reception, customer service and telemarketing, warehouse labor, manufacturing, assembly, and lab assistance. Westaff has a network of more than 360 offices in the United States, Australia, New Zealand, and three European countries. Westaff itself owns nearly three quarters of these offices outright. About 20 percent are operated by franchisers, and about six percent are run by licensees. Westaff concentrates its American operations in suburban and rural markets. Westaff reported sales totaling $650.75 million in 1999, up more than $50 million from 1998. In a bid to attract and keep qualified temporary help, Westaff was among the first temporary employment companies to offer its temporary workers benefits packages that included health insurance, 401(k) accounts, and stock plans.

Company Beginnings in 1948

Westaff was founded in 1948 by Robert Stover. When Stover settled in San Francisco after World War II, he knew about a temporary staffing agency that had been founded in Chicago in 1929. Investigating the industry, he discovered that no such companies existed on the West Coast. With $800 in his pocket, a rented typewriter, and a tiny office in downtown San Francisco, he set up his own staffing company, which he called Western Employers Service. The first thing he did was to have 2,000 blotters printed with the name and phone number of the new company. Then, every morning, before he went to the office, Stover called on 25 potential customers, for a minute each, no longer. This was just long enough to let them know what Western did and to give them a blotter. Temp services were virtually unknown at the time, and Stover marketed Western to San Francisco businesses as a resource to be used in times of emergency, for example, when a full-time employee became ill or quit.

In the early days, Stover solicited new employees by means of the classifieds, advertising for individuals who wanted to work two to three days a week. He found a particularly fruitful source of talent among Australian war brides who had come to the United States with their American husbands. Although they were highly skilled secretaries, trained in the British system, they often had difficulty finding work, because they were foreign and because they were young married women employers believed were liable to quit abruptly because of pregnancy. They came to be valued by Western’s clients, however, who started requesting one of the “Western girls” specifically. Although in less demand in the 1940s and 1950s, Western also provided male temps, the so-called “Minute Men,” who did inventory work, shipping and machine operations, car washing, soda fountain boy duties, poll taking, and the like.

Growth, Development, and Expansion: 1950s-80s

By 1953, Western was catching on. It had Bank of America for a customer and had cornered the temporary employment market in San Francisco. The expense of its quick expansion put the company thousands of dollars in debt. In need of additional capital to expand, Stover approached banks about loans. Examining his books, the bankers realized that Stover was tithing—donating ten percent of all income—to his church. They suggested that he postpone the donations until the business was in sounder financial condition. Stover refused and went home for the weekend, convinced the bank would turn down his loan request and he would have to close Western. The bank, however, reasoned that anyone with such unshakable religious principles had to be a good credit risk and gave Stover a $25,000 line of credit—substantially more than he had asked for.

A year later, in 1954, the company was incorporated in California with Stover as president. In 1958 it adopted a new name, Western Girl, Inc.; a new logo, a cowgirl twirling a lasso; and a new slogan, “You Can Count on a Western Girl.” Western quickly spread around the Bay Area, to Oakland and San Jose, and by the end of the 1950s across the Rockies into Denver. In the mid-1960s, Western opened its first foreign branch in Denmark. Within a few years, others followed in Norway, the United Kingdom, and Australia. In 1973 the company changed its name again, becoming Western Temporary Services.

In 1963 the company had added a new division to provide temporary labor to light industries. Such labor, along with clerical and office work, eventually would form the backbone of Western’s business. But in the 1970s and 1980s Western Temporary Services became famous for a completely different kind of temporary worker—Santa Claus. In December 1976, the New York Times reported that Western had more than 2,000 Santas in stores and was the nation’s top Santa supplier. In 1979 it formed a new division specifically for its Santa Claus business.

Two Santa innovations were introduced in the 1980s. In 1985 Western began publicizing its annual “Santa Index,” which showed how well or poorly Christmas retail business was doing. The idea behind the index was that when sales were falling, stores started ordering more Santas. The Santa Index became a regular holiday feature in the national media. In the mid-1980s, Western also began a school for its Santas—the only one of its kind, the company claimed. Important lessons for would-be Santas included: never promise children anything; make sure you know the names of all the reindeer; never refer to a child’s mother or father—if they are divorced or separated, the remark could inadvertently hurt the child; and, a Santa suit is extremely warm, so bathe daily and use a strong deodorant. But Santa Claus was just the tip of the iceberg; it only accounted for a mere one percent of Western’s business.

By 1988, Western was the largest privately owned temporary staffing company in the United States and one of the five largest overall in the United States. It had 285 offices across the nation, 40 offices overseas, and annual revenues of more than $200 million. The company formed a Legal Services division that provided companies with temporary lawyers and paralegal help. It also had a Perfume and Cosmetics Division the primary purpose of which was to provide trained sales help to department stores in high-volume seasons.

Further Growth in the 1990s

In 1991 Western experienced a growth spurt. It was the 34th largest privately held company in the San Francisco area. It expanded into Switzerland and Sweden; it reached 350 offices in the United States. It also had expanded out of the temporary help field, forming two film and TV production subsidiaries, Western Images and Western Videotape. In the wake of the sudden expansion, founder Robert Stover gave thought to taking the company public, to raise capital to continue its aggressive program of acquisition.

By 1993, Western was becoming well focused on a core market of the clerical and light industrial workers it later termed “Essential Support.” Its international network was a hybrid of company-owned offices and franchises. In 1991 it introduced a computerized system to evaluate the skills of new workers and to train them in what was then cutting-edge office technologies such as WordStar, Lotus, and the up-and-coming Windows. In spring 1993 the company launched its newest division for outsourcing, which would specialize in site-managing special projects for clients.

Western also was pursuing temporary medical services more aggressively. In 1967 it established a medical division, Western Medical Services, which provided home care assistance. In 1993 Western Medical had more than 60 offices across the nation and received Medicare certification for more than 12 of them, that year, which qualified them for Medicare, Medicaid, and Medicaid waiver programs. The company hoped to have certification for all of its offices by 1994.

By 1994 Western Temporary Services had eight divisions—Office, Light Industrial, Technical, Medical, Santa/Photo, Accounting, Marketing, and Outsourcing—and 350 offices worldwide. It had moved its headquarters out of San Francisco to the suburban community of Walnut Creek, California. Stover had abandoned his plan to go public in 1991. In October 1993, however, the company filed with the Securities and Exchange Commission its intent to sell 1.7 million shares in a public offering. But only a month and a half later it reversed course again and called off the IPO, citing adverse market conditions.

Company Perspectives:

We are extremely focused on the largest niche of the U.S. temporary staffing market—the essential Support Services sector. Westaff has 50 years of experience in servicing this business area: expertise in recruiting and training Essential Support personnel and specialized knowledge of our customers’ unique needs. We believe this ‘specialization’ has enabled Westaff to establish itself as a market force in the industry.

We offer our field staff a team-oriented bonus and commission package that supports and rewards collective performance. We have also implemented a staff recruitment program focused on community-based industry professionals who utilize their knowledge and experience to hire the best sales and service teams.

With the continuing enhancement of our ’technological weapons,’ our company-wide information system, we believe the entire network of Westaff offices will have the necessary tools to outperform local, regional and national competitors with innovative, quality service.

In 1994 Western Temporary Services changed its name to Western Staff Services. The new name was intended to reflect the company’s new strategy being developed by a special company task force headed by company CEO Robert Stover that called for rapid expansion into high-tech staffing, in particular in the field of information technology. As part of the task force’s plan for growth in the high-tech temp sector, Western acquired Technical Executive Career Services Inc. of Norcross, Georgia in August 1995.

The year 1995 was the start of a period of explosive growth at Western Staff. Between January and July, it opened 23 new offices in New York, Maryland, Michigan, Minnesota, Ohio, Iowa, Illinois, Indiana, Louisiana, Texas, Montana, and California. It opened a new U.K. office in Taunton and acquired two foreign temp firms, Ausbiz Pty. Ltd of Darwin, Australia and ABC Vikar A/S of Drammen, Norway. In October 1995, Western acquired its franchise MERBCO, Inc. Mike Phippen, MERBCO’s owner, had started with a single Western office eight years earlier and built it into a chain spread across the Minneapolis-St. Paul area and parts of Wisconsin. After MERBCO was purchased, Phippen moved into Western’s corporate headquarters in Walnut Creek as executive vice-president. He was given responsibility for Western’s bread-and-butter clerical and light industrial Temporary Services division. Less than three months later, Phippen was made president. By the end of the decade, he was Stover’s heir apparent. When, in late 1998, Stover announced that he was stepping down as CEO, Phippen was the natural choice to take over the position. Its handling of Phippen is a graphic illustration of Western Staff’s commitment to retaining and exploiting the expertise of staff in the companies it acquired. It rarely let managers of acquired businesses go; instead it promoted them into area manager or vice-president positions.

Western resurrected its IPO plans in March 1996, announcing that it would offer 1.5 million shares of common stock for $12 a share. Analysts observed that the boom times being enjoyed by staffing companies boded well for the offering. The previous fiscal year, Western had posted a profit of $7.5 million—84 cents a share. In addition, in the quarter that ended just before the announcement, Western’s profits climbed 21 percent to $2.5 million, 18 cents per share. At the same time, analysts warned that the temporary staffing industry was one of the first to suffer in times of recession. It had been the recession in the early 1990s that was responsible for sinking Western’s earlier IPO plan. The offering finally was made in May 1996 and was well received by investors. The stock closed its first day at $15.88 a share, well above the $12 for which Western originally had hoped.

Western’s expansion continued in 1997 with acquisitions in Topeka, Kansas; San Antonio, Texas; Hartford, Connecticut; Washington, D.C.; and elsewhere. Two acquisitions in Australia and New Zealand increased its presence there to 20 offices. That same year, Western initiated a program to attract more student workers that included regular pay increases, tuition assistance awards, seasonal paid vacations, and a “Benefit Card” that provided discounts on dental care, eye care, and prescriptions.

Western Staff Services spun off its Western Medical Services division into a wholly owned subsidiary. At the time, the division had 56 offices in 20 states, with total revenues of $43 million in fiscal year 1996. In October 1997 Western sold off its Photo/Santa division to New Jersey-based Cherry Hill Photo Enterprises. Western had decided Santa did not fit with the company’s core business. In January 1998 Western initiated its “Future Funds” program, which offered its qualifying temps some of the benefits normally associated with full-time employment, such as an employer matching 401(k) plan and a discounted employee stock purchase plan.

Western Staff continued to acquire other companies throughout 1998. In all, it made 15 acquisitions during the year, including the purchase of the Texas-based Personnel Connection in July 1998. With 14 offices in Texas, California, Florida, and Arizona, as well as more than $36 million in annual sales, the agency was Western’s largest acquisition ever. Western’s subsidiary, Western Medical Services, went on a buying spree itself, acquiring 15 home health agencies between October 1997 and July 1998. But Western Staff Services’ desire to focus even more closely on its core business—office, light industrial, and technical services—led it to look for a buyer for Western Medical. Stricter Medicare rules, which caused a minor crisis in home medical services, also contributed to the decision to sell the company. One proposed sale fell through in fall 1998. Finally, in early 1999, Sparta Surgical Corporation agreed to purchase Western Medical for an undisclosed price.

Key Dates:

1948:: Western Employers Service, the first temporary staffing service on the West Coast, is founded by W. Robert Stover.
1958:: Western Employers Service becomes Western Girl, Inc.
1963:: Light Industrial Division begins operation. 1964-66: First international office opens in Mexico City, followed by offices in Denmark, Norway, Australia, and the United Kingdom.
1967:: Western Medical Services is established.
1973:: Western Girl is renamed Western Temporary Services.
1980:: First office in Switzerland opens. 1984: Franchise Sales Program is launched.
1985:: First office in New Zealand opens. 1987: Western Temporary opens its 300th office.
1990:: Western Medical Services begins licensing offices as home health agencies.
1994:: Western Temporary Services becomes Western Staff Services.
1996:: Western Staff’s initial public offering is effective April 30.
1997:: Western Staff makes 16 acquisitions in the United States, Australia, and New Zealand. 1998: Western Staff Services becomes Westaff.
1999:: Western Staff sells its subsidiary Western Medical Services.

Management Changes and Innovative Ideas: 1998 and Beyond

Western underwent two major changes in 1998. In July, its founder, Robert Stover, announced he would retire as CEO at the end of the year. Stover remained with Western as chairman of the board. In September, at the same time that it announced that President and COO Mike Phippen would be named the new CEO, the company also announced that it was changing its name once again, to Westaff.

Westaff’s problems finding a buyer for Western Medical, together with a series of thorough-going management changes on the regional level, resulted in a substantial dip in Western’s stock prices. They fell from a high of $21.67 a share in May 1998 to only $4.68 in April 1999. Paradoxically, this occurred at a time when Westaff’s revenues were doubling and its earnings returns on sales were tripling. Over the next ten months, the stock never rose above $9 a share.

Western continued to approach temporary staffing with innovative ideas in 1999. In spring of that year, it inaugurated a mobile unit, a van called the Job Squad that recruited applicants in the streets of San Francisco and other Bay Area communities. Would-be temps could fill in applications and see the Westaff welcome video right on the sidewalk. The company planned to use the Job Squad in other American markets, including Washington, D.C.; Dallas, Texas; Denver, Colorado; and Pittsburgh, Pennsylvania.