Federated's Internet Strategy

Everyone needs an Internet strategy, and Federated Department Stores Inc., Cincinnati, Ohio, is finally rousing itself into getting one.

The key to that strategy, announced February 11, was the purchase of Fingerhut Cos., a direct mail company, for $25/share. Fingerhut's been hurt by the rise of Internet commerce, but it does have one hit in that area, called Andy's Garage Sale.

Andy's offers Fingerhut a way to get rid of inventory when quantities get too low to justify their being put into a catalog. In a folksy manner, Andy's puts these goods on sale, and keeps dropping the price until every single unit is gone. (Back-end integration with the warehouse database tells Andy when to stop selling.) I've been told Fingerhut has also been talking to Commerce Service Providers about outsourcing some of its fulfillment capabilities, an indication it has some unused capacity.

Fingerhut isn't Internet brilliant. They never figured out this idea of auctions, for instance. But they do have some ideas, they have good delivery systems, and once a buyer clicks Internet commerce basically turns into a mail order process.

The other piece of the Federated puzzle started coming together in 1996, when its Macy's store in San Francisco put up a small Web site, offering a few bargains. For a time, its personnel would actually go into the store, pull goods from shelves and ring-up the orders on cash registers. But in the last year, things have gotten much more sophisticated. Its latest online store was created by IBM (NYSE: IBM), it's collecting registration data, and it's got a "personal shopping" service that competes with that of Nordstrom's.

Fingerhut, in other words, provides the back-end processing Federated needs to grow its Macy's Internet operation. In the world of Internet commerce, it's a good fit. Expect to hear a lot more about Federated's Internet businesses in coming months.

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