Federated to Fingerhut: Good Riddance!

On June 11, Cincinnati-based Federated Department Stores signed a definitive agreement to sell low-end general merchandise catalog Fingerhut to FAC Acquisitions, a firm led by Ted Deikel and Thomas Petters.

Deikel is no stranger to Fingerhut. He was its chairman from 1990 to 1999. Petters heads up Eden Prairie, MN-based wholesaler RedtagBiz and operates discount online shopping club BoomBuy.

FAC is acquiring Fingerhut’s name; mailing list; Website; existing inventory; Minnetonka, MN, headquarters; distribution centers in St. Cloud, MN, and Piney Flats, TN; and data center in Plymouth, MN.

Although terms of the deal weren’t disclosed, the St. Paul Pioneer Press estimated the transaction price to be less than $500 million. That’s because the sale excludes Fingerhut’s accounts receivables, which are worth about $1 billion. The sale also doesn’t include Fingerhut’s subsidiary catalogs, such as food title Figi’s and apparel books Arizona Mail Order, Lew Magram, Bedford Fair, and Brownstone Studio. Federated also has those titles on the selling block, but it plans to continue operating them until it finds a buyer or buyers.

Deikel and Petters plan to integrate RedtagBiz and BoomBuy with Fingerhut “to make use of some of the Fingerhut assets,” says RedtagBiz spokesperson Mary Pernula — in particular, Fingerhut’s warehouses.

As for the catalog…

The new owners are evaluating the viability of the Fingerhut catalog itself. “We can’t just reopen the doors and expect the business to be at the level it once was,” Pernula says.

Federated put the Fingerhut book in a wind-down phase in January, when it announced its intention to unload the company. As a result, the names on its house file has not been contacted in at least five months. “We have to do our homework here, but at the same time we have to move very quickly” in deciding the Fingerhut catalog’s fate, Pernula says.

If in fact Deikel and Petters plan to resuscitate the catalog, “they have to get the Fingerhut catalog back in the mail as soon as they can with a credible offer,” declares Jim Adams, managing director of Wellesley, MA-based investment bank Tulley & Holland. “There’s been a gap between the time the last book mailed, so it may have lost some credibility. I would also imagine that a file as large as Fingerhut could bring in some income for these guys. But a lot depends on how quickly they could get back in the mail.”

Several sources point out that in the past when catalogs have been killed by one owner only to be brought to life by another, the initial response to the new mailings was much lower than expected.

In almost every case, says a source who insisted on anonymity, as those companies went out of the mail and shut down, they disappointed some customers “who would get angry with them and not want to buy again — even if the new owners offered coupons or discounts off first purchases. That’s why it’s often tough to get things going again with a relaunch.”

New York-based catalog industry mergers and acquistions consultant Larry West believes that FAC should “shrink Fingerhut way down to a very small company.” That way, the new company could mail the best selects of Fingerhut’s house file above breakeven. “And I have to believe that even though the Fingerhut book has been out of the mail for a while, the very best repeat buyers will be mailable above breakeven again.”

A smaller catalog, West continues, “could be launched like a spin-off catalog. With such a massive database, one could argue that any mailing will be a lot like prospecting.” West also believes that FAC should consider specialty mailings, solo mailers, or Website offers touting the best-selling products from when Fingerhut was still active.

An earlier bid led by Peter Lytle to buy all of Fingerhut, including the subsidiary catalogs, fell through in May. More than half of Fingerhut’s 6,000 employees have been laid off since January. FAC’s goal is to rehire as many former Fingerhut staffers as possible, though Pernula won’t say how many.

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