Federated Department Stores to dump Fingerhut

Nearly three years to the day after it bought Fingerhut as a means of getting into e-commerce, Federated Department Stores announced on Jan. 16 that it will close down the low-end general merchandise catalog. The last Fingerhut catalog will mail at the end of this month, catalog operations will wind down throughout the year, and when all’s said and done, virtually all of Fingerhut’s 6,000 employees will be laid off.

Federated, which has been evaluating Fingerhut’s future for the past 18 months, still holds out a glimmer of hope that it might find a suitor for the downscale catalog business. At the same time, however, the parent company concedes it’s unlikely that any buyer will step forward given both the state of the economy and Fingerhut’s credit delinquencies’ drain on Federated’s profitability. “Should a buyer merge, we’ll be prepared. But that’s not something we think is likely,” says Federated spokesperson Carol Sanger.

Although Federated has all but given up on Fingerhut, it plans to aggressively seek buyers for several catalogs that operated as Fingerhut subsidiaries, including Arizona Mail Order, Bedford Fair, Old Pueblo Traders, Lew Magram, Brownstone Studio, Figi’s, and Popular Club Plan. Federated will continue operating the seven titles until they are sold.

The announcement comes on the heels of a disappointing holiday season in which Fingerhut’s sales plunged 20% in December to $209 million from $260 million in December 2000.

Many industry observers were surprised when Federated bought Fingerhut in February 1999, because of the odd match of Fingerhut’s lower-income target market and the upper-middle income audience of many of Federated’s retail properties, including Bloomingdale’s, Macy’s, and The Bon Marche. Still, some were just as stunned that even though Federated will generate $1.1 billion to $1.3 billion of after-tax cash proceeds (net of one-time costs) over the next four years from the disposition and monetization of Fingerhut’s assets, that it was unable to sell off any of Fingerhut’s assets–particularly its database.

“I’m surprised that Federated hasn’t tried to shop the business more—or maybe it has, and couldn’t get what it wanted,” says Jim Adams, managing director of Boston-based investment bank Ulin & Holland. “But with the names, the systems, the infrastructure, as well as Fingerhut’s legacy, I’m shocked.”

Former Fingerhut vice chairman Rakesh Kaul, who later served as president/CEO of Hanover Direct, says that poor timing led to Federated’s inability to sell Fingerhut. “Not many businesses out there have the balance sheet to go in and buy Fingerhut,” Kaul says. That’s too bad, Kaul adds, since he believes that Fingerhut is one of the catalog industry’s “leading database marketers.”

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