January 17, 2002, 12:00 AM

Federated falls out of love with Fingerhut`s EC expertise

Federated Department Stores has decided to shed its Fingerhut subsidiary, saying there is no longer strategic value for holding onto the major catalog and online retailer.

Three years ago, when Federated Department Stores Inc. bought Fingerhut Cos. Inc., it said it was acquiring the Minneapolis-based web retailer and cataloger to provide some e-commerce power to the operator of traditional department stores. Yesterday, Federated announced it is dumping Fingerhut. "We have determined there is no longer strategic value to Federated in retaining Fingerhut’s operations, and we have no expectation that these businesses would contribute meaningfully to the company¹s future financial performance," James M. Zimmerman, Federated chairman and CEO, said in a statement.

At the time of the purchase, many retail analysts questioned the fit between Federated’s upscale clientele and Fingerhut’s decidedly more middle-class market. But they were willing to go along with Federated’s rationale that it was buying e-commerce expertise. Today, Federated is walking away from large chunks of e-commerce, not only dumping Fungerhut but also virtually closing down Bloomingdales.com and scaling back the offerings of Macys.com.

“Federated is in a stick-to-the-knitting situation," says Duif Calvin, vice president of the Global Retail Practice of Scient Inc. "Federated understands that its priority has to be its department stores, which is 98% of its business. Although they had hoped Fingerhut would give them important distribution capabilities that they could sell in the long term, they’re just not a catalog company."

Federated paid $1.7 billion for Fingerhut. Federated says it is not hopeful that it can find a buyer for Fingerhut and that it is preparing to manage the closing of fingerhut.com as well as Fingerhut’s catalog operation. Fingerhut employs about 6,000.

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