Editorial: Federated's Expensive Lesson

Share this article:
Federated Department Stores buying Fingerhut "is like breeding a gazelle to a platypus." That's what catalog watcher Max Sroge wrote in his NSM Report on March 1, 1999, only days after Federated announced the $1.7 billion acquisition.


Turns out Sroge was right. Federated said Wednesday that it will shut down the 54-year-old catalog unless a buyer is found.


Theirs was a marriage destined for divorce. The only synergy was Federated using Fingerhut's vast fulfillment infrastructure to help it expand its own catalog and e-commerce lineup. Too bad Federated had no idea what to do with 40-year-old women with incomes of $15,000-$35,000, Fingerhut's target audience.


Problems started cropping up from the get-go. Fingerhut attempted to upscale the look of its catalog and what was inside. That didn't work. Then, the Internet bubble popped, nixing Fingerhut's idea of buying and selling dot-coms and being a service provider for other companies. However, Fingerhut's biggest problem arose in 1999, when it switched from using an installment credit plan to revolving credit. It also began offering credit to higher-risk prospects. Barely a year later, Fingerhut was drowning with delinquent credit card payments.


It seems that Federated only needs a nudge to make drastic decisions. Just after the merger went through, the company restructured its pecking order, having low-end Fingerhut make decisions for Macy's fledgling catalog and Web site. However, someone high up knew better than to mix Fingerhut and Bloomingdale's. (Imagine what that meeting would have been like.) In 2000, while Fingerhut hemorrhaged from people defaulting on their credit cards, the company laid off 25 percent of its staff, cut mailings and drastically lowered consumers' credit limits. Now, it looks like Federated is trying to get out of the direct marketing business all together. Last fall, it pulled the plug on the macys.com catalog and most of the e-commerce activity at bloomingdales.com.


Two years ago, analysts kept saying they needed another year or two to determine whether the acquisition was a good one. Guess they know now. What's sad is that Fingerhut had a profitable business and Federated is treating this like just another dot-com write-off.


Share this article:
You must be a registered member of Direct Marketing News to post a comment.

Sign up to our newsletters

Follow us on Twitter @dmnews

Latest Jobs:

More in Opinions

App of the Week: RescueTime

App of the Week: RescueTime

RescueTime aims to help users become more focused and productive.

Defending Direct: Answers

Defending Direct: Answers

Miranda Bell knows her program will pay off but CEO Dasha Atwala says to nix it. What should she do?

The New Formula for CLTV

The New Formula for CLTV

Editor-in-Chief Ginger Conlon delves into the new formula for CLTV.