*Sale of Fingerhut Catalog Business Expected in Wake of Job Reductions

A reduction in operations and the elimination of 550 positions are a small part of Fingerhut's business plan to make the catalog profitable, company officials have said.

But to critics, it's just delaying the inevitable sale of the struggling subsidiary owned by Federated Department Stores Inc., Cincinnati.

Federated announced the changes earlier this month after months of mounting losses, primarily due to credit delinquencies. While the core catalog will continue to focus on low- to moderate-income customers, tighter credit standards, a smaller catalog and fewer mailings are part of Fingerhut's future.

Company officials said there would be minimal impact on Fingerhut's other catalogs, which include Arizona Mail Order, Figi's and Popular Club.

For some industry experts who criticized Federated's 1999 purchase of Fingerhut as a bad marriage, Federated is setting the catalog up for failure, and they believe that the “For Sale” sign will soon go up.

“Federated simply doesn't know how to run that business,” said Maxwell Sroge, president of Maxwell Sroge Co., Evanston, IL, a catalog consulting firm. “I know Federated has hired investment bankers to look at alternatives. I estimate that within a year, [Federated] will find somebody who feels they can run Fingerhut and sell it at a fraction of what [it] paid. Federated will write the whole experience off as a bad dream.”

Federated purchased Fingerhut in March 1999 for $1.5 billion with the hope of enhancing its direct-to-customer sales business. Federated also assumed $200 million in the cataloger's debt, bringing the final cost to $1.7 billion.

Ben Saukko, spokesman for Fingerhut Cos. Inc., Minnetonka, MN, said the work force and operating reduction is a small part of a larger business plan. He would not elaborate on the plan or say when the company would announce any additional changes.

“Right now we're concentrating on making the business smaller and profitable,” Saukko said. “The credit problem was one issue we had to deal with, but even without the credit problem, we would have had to make some changes.”

Fingerhut's move will not affect its direct-to-consumer fulfillment agreements with other Internet retailers, such as Wal-Mart Inc., Bentonville, AR.

“We just renegotiated with Wal-Mart for another two years. We're not actively seeking any third-party clients at this time — just honoring the contracts that we already have,” he said.

Fingerhut will focus additional attention on strengthening fingerhut.com in order to make it profitable, Saukko said. Subsidiary e-commerce sites owned by the company will be either eliminated or integrated into fingerhut.com. They include myjewelry.com, outdoorspirit.com, atomicliving.com and andysauction.com.

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