Editorial: Spiegel's Penultimate Chapter

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Editor's Note: Spiegel Inc. said Monday that it filed for bankruptcy after missing performance targets tied to its beleaguered credit card business. This editorial was filed last week.

Last week's press release from Spiegel began like so many others in recent weeks: "The Spiegel Group today announced that First Consumers National Bank, its special-purpose bank subsidiary, has notified the trustees for all six of its asset backed securitization transactions that a Pay Out Event, or an early amortization event, had occurred on each series." The rest of the release continued with more gobbledygook, but it saved the best for the very last sentence: "If The Spiegel Group is unable to find alternative sources of financing, it would expect to file for protection under Chapter 11 ... in the near future."

Boy, talk about burying your bad news. Was new chief restructuring officer William Kosturos hoping everyone would fall asleep before they got to the end? Financial troubles have dogged Spiegel for several years, with slumping sales and rising credit card delinquencies. It was forced to discontinue its MasterCard and Visa program earlier this month. Has the Otto family, which owns all of Spiegel's voting shares, had enough? Though the German mail-order giant has kept mum so far, there are limits: Otto had to put in $160 million to keep Spiegel going last year.

Why are so many companies in trouble with their credit card divisions? Because that's where they get the majority of their sales. Spiegel's private-label credit cards accounted for 34 percent of its sales for the first nine months of 2002. However, going after the sub-prime market -- people who have declared bankruptcy or have poor credit -- is a risky business. Federated dumped Fingerhut partially because of credit card problems. Even Sears is having trouble with what it called "less reliable customers." Companies are relearning this lesson, but at what cost?

DM News Adds Newsmaker Column

Today, DM News introduces a new feature to our Web site: the DM News Newsmaker. Actually, it's an update of an old feature from the mid-'80s: the Man/Woman in the News, which was written by the late Joe Kaselow. The Newsmaker column will appear periodically in the e-mail newsletter and on the Web site, highlighting people in the various direct marketing categories. First up, Geralynn Madonna, who was promoted to president/CEO of Spiegel Catalog and Newport News. Madonna loves catalogs, whether it's Pottery Barn, Neiman Marcus or her own: "I'm always looking for that special item."

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