OPINION
Online Catalog Debacle: A Case for Caution

Fingerhut's online operations are silent. The catalog company's site, which withered away slowly and painfully before finally dying, now features a farewell and good luck message instead of selling products.

Unlike other dot-com crashes, the Fingerhut failure is more than a blip on the radar screen. It represents a warning to those who would dive recklessly into online retail . Catalog retailers, after all, are supposed to understand online retail better than others.

Sears just spent nearly US$2 billion to do with Lands' End (NYSE: LE) what Federated Department Stores (NYSE: FD) tried to do with Fingerhut two years ago for almost the same amount of money. Is Sears risking the same fate?

Fingerhut's failure points to many issues; most importantly, though, it draws attention to the danger of generalizations.

Breaking It Down

Federated picked up Fingerhut in 1999 for $1.7 billion, hoping the catalog and online specialty retailer could help give its own weak Internet efforts some muscle.

The move seemed to make sense. Fingerhut had the infrastructure in place to collect orders and ship goods. It had been doing so for almost 100 years, after all.

And the purchase came on the heels of a Fortune magazine article that quoted Fingerhut's CEO making this bold prediction: "Our business is now the Internet. Fast-forward two years, and we'll be one of the big five players doing retailing there."

No wonder Federated, the parent of Macy's and other department stores, was willing to shell out so much money for a small company from Minnesota.

Upon Further Review

Apparently, Federated didn't look closely enough. Sure, Fingerhut had warehouses, but they were full of appliances and furnishings -- not the types of items that people had been flocking to the Web to buy. And Fingerhut's approach to catalog sales, which relied on extending credit to buyers who otherwise would be unable to buy big-ticket items, also should have raised red flags.

The union between Federated and Fingerhut was a marriage of inconvenience. Sears can take some comfort in knowing that its move is vastly different. Lands' End has a brand that carries a great deal of cachet and a loyal customer base that is likely to follow it into Sears stores.

More importantly, Lands' End has demonstrated that it understands the Web. The company doesn't just have a Web site. And it doesn't just have warehouses that help it move product. It has an actual track record of Web success .

Garbled Translation

But back to Fingerhut -- what happened there? It turned out that translating the Fingerhut catalog model to the Web was a bit trickier than originally suspected. But it also seems clear that Federated was quite simply the wrong company to be doing the translating.

After all, the company sought out Fingerhut because it wanted a quick fix. Federated deserves credit for being slightly ahead of the curve. The real talk about catalog retailers getting the Web didn't start until well after the department store giant had bought Fingerhut and had begun to realize the venture was a money loser.

Preaching Patience

Now, Fingerhut is back on the block. Its catalog operations may be salvageable, and the Web site someday may reopen for business. But even if it is gone forever, important lessons have been learned.

In retrospect, it seems a bit foolish that a small catalog retailer could provide an instant fix for the Web operations of a massive department store chain.

Sears can steer clear of the same pitfalls by not rushing things with Lands' End. And it can preach patience, recognizing that there are no quick fixes online. But that's another generalization just waiting to be shattered.

What do you think? Let's talk about it.