CINCINNATI -- The $1.7 billion purchase of direct marketer Fingerhut hasn't turned out exactly as Federated Department Stores Inc. had planned.
It wasn't long after the deal was completed in March 1999, that reality seemed to set in -- Fingerhut's distribution system and established presence in the e-commerce world didn't transfer to Federated's upscale market.
Federated has warned shareholders that losses at Minneapolis-based Fingerhut will cause it to take pretax charges of up to $100 million by the end of its fiscal year in February.
"They've admitted Fingerhut hasn't worked out as they'd hoped. But they certainly don't regret getting more deeply into the dot-com business," said George Strachan, an analyst with Goldman, Sachs & Co. in New York. "Maybe they jumped in feet first here, but I think ultimately customers are going to expect a dot-com alternative from the clicks and bricks guys."
Federated bought Fingerhut to help expand Federated's non-store retail operations, including online sales. It seemed like an attractive buy because Fingerhut had a well-established catalog and electronic customer base, and Federated already had Bloomingdale's By Mail and Macy's By Mail direct mail catalogs and the Macys.com Internet site.
Instead, it was an almost immediate drag on profits, partly because Federated made it easier for potential Fingerhut customers to buy on credit, and many ordered goods for which they never paid.
"It certainly hasn't been their brightest moment," said Bob Buchanan, an analyst with A.G. Edwards & Sons in St. Louis.
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