Federated to Close Fingerhut; Buyer Unlikely

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Federated Department Stores Inc. will close its Fingerhut subsidiary unless a buyer is found soon, the company said yesterday.

A buyer, however, is not expected to step forward, said Carol Sanger, vice president of corporate affairs at Federated, Cincinnati.

"We have engaged Credit Suisse First Boston to initiate contact with potential buyers," Sanger said. "But we don't think that is very likely. It's not like we haven't been trying to do it all along."

Fingerhut, which mailed 235 million catalogs in its last fiscal year, was founded in 1948 by William and Manny Fingerhut. Sanger said the last catalogs will be mailed within the next week, and sales orders will be taken for six to eight weeks after that. Fingerhut's e-commerce site, Fingerhut.com, will be used for clearance and inventory liquidation.

Sanger admitted that Federated was never able to integrate Fingerhut into its operations.

"In January 2002, it leaves us with an operation that is not a good strategic fit with our business," Sanger said. "Fingerhut is not an operation that makes money. At worst, it would be a $30 million loss for fiscal year 2001. At best, it would break even."

Bill Dean, founding partner of catalog consultancy W.A. Dean & Associates, San Francisco, and DM News columnist, said he doesn't think Federated will look for a buyer very hard.

"It's so stupid not to," Dean said. "But then I've never understood Federated. This is a Federated problem not a Fingerhut problem. I can't believe they're going to close a billion-dollar-plus business. Just like they closed down the Macy's catalog, Federated does not understand the direct marketing business."

Fingerhut currently has 6,000 employees: 4,700 in Minnesota and 1,300 in telemarketing and distribution centers in eastern Tennessee. The Tennessee operations are closing immediately, and employees have been given their notices.

"That is a decision that would have been made regardless," Sanger said. "That would have been moved to St. Cloud and Minnetonka."

Federated, however, does expect to sell as ongoing businesses Arizona Mail Order, which issues catalogs under the names of Old Pueblo Traders, Lew Magram, Brownstone Studio and Bedford Fair; Figi's and Popular Club Plan.

"We would anticipate them to be sold by midyear," Sanger said.

Fingerhut's assets are expected to bring in more than $1 billion. Federated will begin reporting Fingerhut financials under the heading of discontinued operations in its 2001 fourth quarter.

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