*Federated Tightens Fingerhut's Belt

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Federated Department Stores Inc. on Friday announced plans to reduce operations at its Fingerhut catalog business and eliminate 550 positions in an effort to boost cash flow.

The decision comes more than one year after the Cincinnati-based retail giant purchased Fingerhut Cos. Inc., Minnetonka, MN, for $1.5 billion. In that deal, Federated assumed about $200 million in Fingerhut's debt, which increased the transaction to $1.7 billion.

As a result of the restructuring, the Fingerhut core catalog will continue to focus on the low- to moderate-income customer but with tighter credit standards. It also will produce a smaller catalog and e-commerce site with significantly fewer mailings, and total inventory and SKU will be reduced. The cataloger will now concentrate only on high-performance customers. The Arizona Mail Order, Figi's and Popular Club catalogs will continue with minimal impact.

Subsidiary e-commerce sites owned by Fingerhut either will be integrated into fingerhut.com or discontinued. They include myjewelry.com, outdoorspirit.com, atomicliving.com and andysauction.com. The company will retain andysgarage.com for the short term to liquidate closeout Fingerhut merchandise.

Fingerhut will continue to de-emphasize nonretailing activities, such as Fingerhut Business Services Inc., a business-to-business fulfillment service; affiliated Web sites; and its e-commerce equity investment strategy.

The restructuring comes with some financial impact. In the third quarter ending Oct. 28, Federated will take a noncash write-down of goodwill and other assets totaling about $740 million on a pre-tax basis. Included in that is $60 million related to Fingerhut's Internet investments. Federated also faces one-time pre-tax costs of $75 million to $100 million, which will be incurred in the third and fourth quarters of the fiscal year ending Feb. 3, 2001.

Some critics have questioned Federated's decision to purchase Fingerhut. Some said the discount cataloger did not have much in common with Federated's mid- to high-end units, Bloomingdale's and Macy's, often describing the marriage as a mistake that would come back to haunt the retailer.

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