A Tulip Is a Tulip Is a Tulip

Seems to me that the sad saga of Fingerhut could have been avoided if someone at Federated Department Stores had read Hans Brinker, or The Silver Skates.

For those of you who spent your childhood playing outdoors rather than hiding in the library from bullies, Hans Brinker is for the most part a typically didactic 19th-century novel for youngsters. But a significant part of the book is given over to stories about Dutch history — including the tulipmania of the 17th century. For a time, Netherlanders valued tulips so highly, a single bulb was known to sell for the equivalent of several thousand dollars. Alas, the fad died, and investors who had believed tulips to be worth their weight in florins found themselves stuck with bags of dirt-encrusted onionlike lumps.

Many pundits have likened the dot-com boom and bust to tulipmania. And perhaps there’s no better example of the similarities between the two than the Federated/Fingerhut saga.

Now, several of the people interviewed in our cover story “Fingerhut’s Fate” maintain that Federated’s problems with Fingerhut stemmed from the incompatability of the two brands. Federated’s retail chains, such as Bloomingdale’s, appeal to an appreciably more upscale audience than the Fingerhut catalogs. You could also argue that Fingerhut brought its problems on itself, by offering credit too liberally.

But as we’d mentioned last year (“Fingerhut Cleans Up Credit Mess,” March 1, 2001, issue), Fingerhut seemed to be getting a grip on its credit woes. And its subsidiaries, Arizona Mail Order and Figi’s, so far as I’ve heard, are solid concerns. No, I think the real issue boils down to Federated having overpaid wildly for Fingerhut three years ago: $1.7 billion, or more than 26 times Fingerhut’s earnings.

At the time, Federated justified the expenditure by noting that it wasn’t buying a fellow marketer with an audience incompatible with its own; it was buying the infrastructure and know-how to expand its e-commerce capabilities. As a Federated spokesperson told Electronic Commerce News in February 1999, “We know electronic commerce is here to stay, and to develop this over time, infrastructure is a critical issue.”

If e-commerce is indeed here to stay, why did Federated drastically scale back the e-commerce portion of its Bloomingdale’s Website?

Perhaps Federated has come to view Fingerhut in particular and e-commerce in general the way those Dutch merchants came to see tulip bulbs: as something that could not possibly provide a return on investment, and a reminder of their overzealousness.

In Hans Brinker there’s no mention of what those Dutch investors did with their bulbs after the tulip market crashed. Did they plant them and allow them to grow into flowers, lovely in their right, or did they dump the “worthless” bulbs in the nearest river?

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