Marking the beginning of a buy-it, grow-it and take-it-public Internet strategy, direct mail giant Fingerhut Companies Inc., announced this week that it has bought a minority stake in Web merchant PC Flowers & Gifts.
Within a year, Fingerhut plans to exercise an option to buy a majority stake in PC Flowers & Gifts and then take the company public, said William J. Lansing, president of Fingerhut, Minnetonka, MN.
“You can expect that we will do more in this space,” Lansing said. “There are lots of opportunities to bring in great companies and make them bigger and better by association with Fingerhut.”
PC Flowers & Gifts is Fingerhut's first investment in a privately held Internet company. Financial terms of the deal were not disclosed. Fingerhut will provide all back-end operations for PC Flowers & Gifts, including order processing, customer service and telemarketing. Fingerhut also will give PC Flowers & Gifts promotional support.
“With half a billion in annual direct advertising pieces, Fingerhut is uniquely positioned to drive traffic to its Internet sites and to those of its marketing partners,” Lansing said. Fingerhut will promote PC Flowers & Gifts on its print pieces “when it is appropriate.”
Lansing also said Fingerhut is shopping its back-end capabilities around to other Web merchants. When asked if Fingerhut was eyeing some of the Internet's other top-selling categories — like CDs and books — Lansing said, “we are looking at anything our customers are interested in buying.”
Ken Cassar, an analyst in the digital commerce group of research firm Jupiter Communications, New York, said Fingerhut's 50-year direct marketing and database-segmentation history “will position them rather well to take advantage of the medium.”
Launched in 1989, PC Flowers & Gifts sells direct on Prodigy Classic and on its site at www.pcflowers.com and through 350 other sites in a co-branding/private-label program begun in 1996. Bill Tobin, president of PC Flowers & Gifts, said he plans to add more than 1,000 co-branded sites by the end the year.
“Our plans our going to require a tremendous amount of infrastructure,” Tobin said. “I also required dollars to go to the next level. The question was 'Do I go public?' or 'Do I find a strategic investor?' “
Tobin said he wanted to avoid “vulture capitalists, or people who only bring money to the table. I wanted a partner who brought money, but for every dollar, brought $10 in resources. I will have huge revenues from the direct marketing horsepower that Fingerhut will bring to the table.”
In August, products from Fingerhut's food and gift catalog, Figi's, will replace offerings from Hickory Farms on PC Flowers & Gifts' Web sites. Consequently, Figi's products will appear on such as sites those owned by NBC, CBS, The Tribune Co., Cendant, MSNBC, Travelocity and TV Guide. In turn, PC Flowers & Gifts is adding an eight-page insert to the Figi's catalog in a September drop of undetermined size.
Tobin said PC Flowers & Gifts' split with Hickory Farms was amicable.
According to Lansing, PC Flowers & Gifts is generating “under $2 million” a year in revenue, “but we intend to make it much bigger.” He also said Fingerhut is building an e-mail database but would not say how large it is.
“We have 31 million customers in our [postal] database, but, obviously, we don't have e-mail addresses for all of them,” he said, indicating that projects like an e-mail reminder service may be in the works.
Fingerhut currently has a flagship site at www.fingerhut.com and a close-out site at www.andysgarage.com.
Tobin will continue as CEO of PC Flowers & Gifts, which will continue to operate as an independent company in Stamford, CT. No layoffs are planned.