MINETONKA, MN/SECAUCUS, NJ — Fingerhut and Genesis Direct have shut down their European operations, the former in order to shift its international strategy, the latter because the NBA strike hurt its new pro sports book.
Fingerhut had dropped a second test of 80,000 books in the UK last May and received a response which then COO Pete Michielutti described as “double our original projection.”
Genesis had launched a sports catalog, USA Pro Sports, in the UK, France and Germany in April and in August had bought a small German sports book, “Fan and Fun” to beef up USA Pro Sports circulation.
Michielutti left Fingerhut in the summer when Will Lansing took over as CEO and decided on changing global strategy from startup to joint ventures or acquisitions.
“Looking at the economics on our business plan of continuing our UK operations, it became clear that it would only become profitable some time from now and we didn't want to wait that long.
“We had a good response to our catalog drop and were happy with the marketing and the acceptance of our product. But the cost structure of scaling up the business was such that it would take some time to break even.
“We are a profit oriented company and didn't like the time line so we shut down in the third quarter of this year and essentially we have stopped that operation,” Lansing said.
“Whenever you get into those make or buy decisions you have to weigh the alternatives. If you make it you get to keep 100 percent of earnings but you have the startup cost and the timeline in building the business.
“If you partner you get to leverage the skills of your partner and if you acquire you accelerate the time line. There is a time and place for each strategy but we feel we are better off with partner and purchase than building from scratch. This was strictly an economic decision.”
A small test program in Argentina was also discontinued, Lansing said, but stressed that the decision had nothing to do with current economic turmoil. “We think Latin America is a wonderful market.”
In the meantime Lansing has a business development team looking at foreign markets “on a country by country basis identifying the best partners for acquisitions and we will pursue this strategy in Latin America and in Europe.
“We're not pulling back. The last thing I want is people to think that. We have very serious plans and shutting down a money-losing experiment should not be confused with a lack of global aspirations.”
Genesis put its European project on hold because the NBA “is a strong driver for our sports catalog business,” chief marketing officer David Sable said.
“When you are building a new sports franchise abroad and when one of your key drivers is on strike is not a prudent time to mail.
“We've changed the way we are working there. Because of our internet business and some other factors like Global Package Link we do not need to build an overseas infrastructure. All we had was an office and we closed it.
“We learned a lot from our first mailings in Europe in terms of where we think we need to go with that business but right now we made a prudent and wise decision about our mailing pattern.”
For now, Sable said, Genesis will stick to the Internet where it has a growing business from Europe. He declined to speculate when and if the company will go back to mailing in Europe.
Nor would he elaborate on the decision to shut down less than two months after buying Fan and Fun. “We bought a database and are still working on it,” he said.
“Look, we test brands in our books. That doesn't mean they always work. We try it, see what the response is and if better than projected we turn it into a business, if not, we shut it down.”
Sable disputed reports circulating on Wall Street
that Genesis' decision to close down in Europe was part of a broader belt-tightening in a company that went public last May at $15 a share and currently trades at $3.
“We have no financial problems. We had a successful IPO. No direct correlation exists between the price of our stock and our day to day operations from a financial point of view. Look at where DM stocks went. They all were hit hard when the market went down.”
Analysts do not view the two shutdowns as a trend among US catalogers to pull out of Europe, but rather sympotmatic for a more cautious approach of working from off-shore or with local partners.