Federated Dot Bomb

Shutting down Fingerhut Cos. is Federated Department Stores Inc.'s final admission that its $1.7 billion Internet gamble was a bust.

The Cincinnati department store giant announced this week it will close the low-end cataloger and sell whatever assets it can, affecting 6,000 employees, including 4,700 in Minnesota and 1,300 at a telemarketing firm in Tennessee. The development marks the end of a miserable four-year relationship that many believe was mismatched from the beginning.

“When we bought [Fingerhut, Minnetonka, MN] in 1999, we bought it for the e-commerce potential and the fulfillment capabilities,” said Carol Sanger, vice president, corporate affairs. “In this current environment, with limited e-commerce growth potential going forward, and the unlikelihood of being able to sell [Fingerhut] in a recessionary economy, that was what led to the decision [to shut it down],” Sanger said.

As a result, Federated is putting all its focus on Macys.com. “We're focusing our Internet efforts more in line with our department store business,” Sanger said.

Federated stopped selling on Bloomingdales.com in the fall.

“The primary conduit for us will be the Macy's brand online,” which Federated plans to grow, Sanger said.

Sales for Macys.com and Bloomingdales.com last year were $58 million, she added.

Despite Federated's decision, Fingerhut's e-commerce efforts had been progressing.

Audience measurement firm Nielsen//NetRatings ranked Fingerhut.com the No. 2 fastest growing e-tailer for the holiday 2001 shopping season.

Trips to Fingerhut.com rose from 3.3 million in November and December 2000 to 8 million in those two months in 2001, an increase of 144 percent.

From October 2000 to October 2001, e-commerce went from accounting for between 5 percent and 6 percent of Fingerhut's sales to between 11 percent and 12 percent, according to company spokesman Ben Saukko. “Right now it's business as usual,” he said.

At one time, Fingerhut was arguably the most aggressive Internet cataloger. Fingerhut.com debuted in the fall of 1995 with just 42 products that could be ordered only by customers who received the general merchandise catalog and supplied the product code number.

But when William Lansing became CEO of Fingerhut in May 1998, the company's Internet strategy went into overdrive. It gave Fingerhut.com a facelift and launched closeout site AndysGarage.com and Gen-X site TheHut.com.

Under Lansing, Fingerhut either acquired or invested in more than half a dozen Internet firms and began aggressively shopping its fulfillment capabilities around to Internet companies, which as a category had a terrible reputation in that area.

In June of 1999, Fingerhut announced it had signed fulfillment deals with Wal-Mart Inc., Bentonville, AR, and eToys Inc., Santa Monica, CA.

When Federated acquired Fingerhut, the cataloger had seven of its own e-commerce Web sites.

In March 2000, Lansing left Fingerhut to become CEO of doomed NBC Internet Inc., just before the dot-com economy began to implode.

After the crash, Fingerhut shut down AndysGarage.com, AndysAuction.com and AtomicLiving.com and rolled the other four into Fingerhut.com and its Spanish counterpart. It also halted Internet investing.

“I'm not sure what the state of those investments are, but most of them aren't worth anything anymore,” Saukko said.

A year ago, Fingerhut decided to let fulfillment contracts run out and abandon that business, as well.

“We found out it wasn't profitable,” Saukko said. “In 2001 … we made our business less volatile, but operating at this size was no longer a strategic fit for the Federated portfolio.”

When asked if federated plans to abandon direct marketing or the Internet altogether, Sanger said “Oh God, no.”

In addition to its Bloomingdale's and Macy's chains, Federated runs five regional chains: Lazarus, The Bon Marché, Burdines, Rich's, and Goldsmith's.

Fifty-four-year-old Fingerhut is the nation's No. 2 cataloger after J.C. Penney.

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