Fingerhut Business Services Inc., the direct-to-consumer fulfillment division of direct marketing titan Fingerhut Cos. Inc., Minnetonka, MN, last week announced two large warehousing-and-delivery agreements that promise to vastly expand the business it launched less than two years ago.
Seeking to leverage the investments it made in establishing state-of-the-art warehouses and other infrastructure, Fingerhut sealed agreements to store, package and ship orders for two fast-growing Internet retailers: Wal-Mart Inc., Bentonville, AR, and eToys Inc., Santa Monica, CA. It will begin the fulfillment operations for both companies later this year.
Fingerhut will handle most of the warehousing operations for both companies from its 1.2 million-square-foot facility in Provo, UT, and also will use its similarly sized warehouses in Piney Flats, TN, and St. Cloud, MN, to handle fulfillment for eToys.
“We're very excited. These are two big, big deals for us,” said John Buck, president of the Fingerhut unit, which became part of Federated Department Stores Inc., Cincinnati, when that company acquired Fingerhut earlier this year.
Terms of the agreements were not disclosed, and Buck declined to speculate on the volume of the business. eToys reported sales of about $30 million in the fiscal year ended in March. Wal-Mart, the world's largest offline retailer with sales of more than $136 billion last year, has not disclosed the volume of its online business, which it launched in 1996.
Wal-Mart spokeswoman Melissa Brown said the company offers a variety of merchandise online, including fresh seafood, toys, apparel and other products. It is planning to unveil some “significant changes in its approaches and programs” for its online business later this year, and it has been widely reported that the company will redesign the site this summer. Glenn Habern, a former chief information officer at Fingerhut, heads up the Wal-Mart Web site as senior vice president of new business development.
Brown noted that Wal-Mart's agreement with Fingerhut is not exclusive and that the company is looking at other companies to handle fulfillment as well.
Although Fingerhut will shoulder the bulk of eToys' fulfillment needs this year, the online toy company is planning to open a 400,000-square-foot warehouse and distribution facility of its own next year in Danville, VA.
Sukki Shattuck, director of investor relations at eToys, said Fingerhut's technological prowess would allow it to maintain a real-time inventory system that could be maintained in sync with eToys' existing warehouse in Commerce, CA, and with its future facility. Customers who visit the eToys Web site can see whether orders are in stock, and eToys sends e-mail messages to customers when out-of-stock orders become available.
“One of the things we liked about Fingerhut's facility is that it was very state-of-the-art and it is highly automated,” she said. “Automation is the key factor in getting orders out at the speed we need to serve our customers.”
Fingerhut can ship 400,000 items per day, Buck said. He said the company expected to add at least 500 permanent warehouse employees and another contingent of temporary workers during the holiday season as a result of the Wal-Mart and eToys business. The company can handle all the warehousing needs with its existing physical plants, however.
“At some point, we're going to reach our capacity,” he said. “The way things look today, we're probably going to look at some expansion in the 2001-2002 period.”
Although the contracts are Fingerhut's largest in terms of their projected volume, the company will not provide the level of services that it does for some of its smaller clients, for which it sometimes handles order-taking, processing of payments and returns, telemarketing and other functions. The company's 22 clients include Wet Seal, Levi's, Intuit and PC Flowers & Gifts, among others. It also handles all the fulfillment needs for Fingerhut's catalog and Internet businesses.
Shattuck said eToys will continue to handle its own order-taking, payment processing and all other fulfillment functions other than warehousing, inventory maintenance and shipping.
“eToys will manage the customer relationship,” she said.