**Federated to Downsize Fingerhut and Focus on Fingerhut.com

Federated Department Stores Inc.'s announcement today that it will downsize Fingerhut will have a severe impact on its Internet strategy.

The company plans to focus more attention on fingerhut.com to make it more profitable, said Fingerhut President Michael P. Sherman.

Subsidiary e-commerce sites owned by Fingerhut will be integrated into fingerhut.com, including myjewelry.com, outdoorspirit.com, atomicliving.com and andysauction.com. The company will retain andysgarage.com in the short term for liquidating closeout merchandise.

“It wasn't so much that they were not producing. We really wanted to make the focus on fingerhut.com and [place] our brain power there,” Sherman said. “Those other sites were neat and exciting, but we've got to figure out where the bang for the buck is, and for us we believe that it's in fingerhut.com.”

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 company will eliminate 550 positions — 200 are already vacant — all in an effort to increase cash flow for the struggling unit.

However, Tim Choate, CEO of online direct marketing company FreeShop.com Inc., Seattle, in which Fingerhut has a 34 percent stake, said he does not believe the shakeup will affect Fingerhut's investments.

“They've slowed way down on their Internet investments since Will Lansing [CEO since March of NBCi.com] left the company,” Choate said. “He was the main driver behind that. What they're talking about is new investments. I don't think it means anything in particular to us or anyone else who has already received investments from them.”

The decision to downsize 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 also assumed about $200 million in Fingerhut's debt, which increased the transaction to $1.7 billion.

As a result of the restructuring, Fingerhut will produce a smaller catalog and e-commerce site with significantly fewer mailings, and total inventory and SKU will be reduced. The cataloger also will concentrate on high-performance customers. The Arizona Mail Order, Figi's and Popular Club catalogs will continue with minimal impact.

Some critics have questioned Federated's decision to purchase Fingerhut, saying the discount cataloger does not have much in common with Federated's mid- to high-end units, Bloomingdale's and Macy's. The marriage has been described as a mistake that would come back to haunt the retailer.

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