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While many in the industry were surprised by what seemed an unlikely union between Federated Department Stores and Fingerhut Companies Inc., even more unexpected was the April 30 announcement of the formation of Federated Direct, an e-commerce umbrella composed of Fingerhut, Macy's by Mail and macys.com.
Before the merger in March, Federated announced it would run Fingerhut as an independent subsidiary, separate from macys.com, and the change in strategy seems an acknowledgement that Federated can benefit from Fingerhut's Web selling prowess.
Andrew Johnson, former senior vice president for market development and Fingerhut's newly appointed president of e-commerce, says the streamlining makes sense. "We view e-commerce as a direct marketing space," he explains. Johnson adds that database marketing requires a specific way of doing business that includes understanding customer relationships, capturing consumer information in databases and customer service-all of which Fingerhut excels at.
Even so, the site content of macys.com will not be affected by the strategy change. "We want it to stay the way it is," Johnson says, adding that macys.com will be utilizing Fingerhut's fulfillment operations. One significant change offline: macys.com CEO Kent Anderson now reports to Johnson.
Bill Dean, president of WA Dean & Associates, a San Francisco-based catalog consulting firm, says the move indicates that both companies appreciate each other's strengths. In this case, Federated can benefit from Fingerhut's large-scale fulfillment operations and database management expertise. "Fingerhut does some of the most sophisticated information database management of any company in the United States," he says. "It is a nimble, fast-moving company." And the merger with Federated gives Fingerhut a large company with popular brand names and deep pockets. Love Goel, chief operating officer of Fingerhut, calls the merger "a down payment on the future" that allows Fingerhut to expand current Web sites and target them to specific customer lifestyles.
"Internet customers are becoming more selective and discriminating," he explains, "and there is a need for specific niches to be filled." Fingerhut has grown from having two to 12 Web sites since the merger, and expects to have 20 to 25 by the year's end through a mix of acquisitions and Web site extensions.
Plans are afoot to incorporate products of both companies on the same site. "There are synergies of products and of customers," says Goel, who sees an opportunity to graduate customers organically from the more moderately priced Fingerhut products to upscale Federated ones. And Fingerhut's goal, Goel says, "to build the largest direct-to-consumer company on the Internet" is well on its way. Fingerhut now generates more than $100 million in e-commerce revenue, which accounts for about 5% of its business.
As other big retailers battle to stake out a presence on the Internet, Dean expects big things from the merger. "A year from now, we'll really be surprised," he predicts. "I think they'll be doing things that will blow us away."