| BUSINESSWEEK ONLINE : JULY 26, 1999 ISSUE | ||||||||
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| THE CORPORATION
Fingerhut Finds E-Commerce Riches in the Back Office Back in the late 1980s and early 1990s, catalog giant Fingerhut Companies Inc. (FHT) made a big mistake. Executives expected explosive growth in their core business--selling everything from baking pans to computers by catalog to lower-income households. So Fingerhut plunked down more than $210 million to build three state-of-the-art warehouses. Sure enough, sales rose, but not nearly enough to fill the new warehouses. By 1997, more than half of Fingerhut's warehouse space was vacant. There's nothing like empty shelves to force a change in strategy. Fingerhut began promoting its back-office services such as processing orders, distributing products, and handling customer-service calls and returns as a way to lease the warehouse space. When the E-commerce boom kicked in, the new Fingerhut Business Services division was in prime position to capitalize. Today, it handles processing for 22 companies. That includes everything from startups such as eToys Inc. (ETYS) to giants such as Wal-Mart Stores Inc. (WMT) and Levi Strauss & Co., whose warehouses are equipped to send stock to stores but not directly to customers. The back-office business is now a small but rapidly expanding piece of Fingerhut--and one reason the company was purchased by Federated Department Stores Inc. (FD) for $1.7 billion in February. Business Services will contribute about $40 million in sales this year to Federated's $18 billion total. However, Business Services President John Buck expects sales will increase to $100 million next year. With more warehouse capacity, it could become a billion-dollar business within five years, he says. ''It's just been one of those in-the-right-place-at-the-right-time things,'' Buck says. ''But there's nothing wrong with a little luck.'' INVISIBLE ROLE. Fingerhut's role is invisible to the customer buying, say, a pair of 501 jeans on the Levi.com site. With a few clicks of the mouse, shoppers send their name, address, and credit-card information, which Levi's server then sends to Fingerhut's computers. It takes 15 minutes to make sure the credit card is valid, the product is available, and the address is correct. Then Fingerhut reserves a pair of jeans at its warehouse, produces a label, and directs an employee to the right shelf. The pants are packed, labeled, and mailed. From Web site to mail carrier takes 12 to 24 hours. But if the Web giveth, it also taketh away. Some of Fingerhut's biggest customers, like Pier 1 and Wal-Mart, have signed contracts for only a couple of years. As these customers build expertise, they're likely to being doing those tasks in-house. The trick for Fingerhut will be to replace them with more up-and-comers such as eToys, which avoided building a $60 million West Coast facility by using Business Services. But even eToys is already building its own facility to handle East Coast orders. And Buck admits that back-office competitors such as Federal Express (FDX) could emerge. ''We're not going to be in this advantageous position forever,'' he says. For now, though, it's a nice head start. By Nanette Byrnes in New York, with Larry Armstrong in Los Angeles _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS When Wal-Mart Flexes Its Cybermuscles... TABLE: A Retail Giant Plays Catch-Up Fingerhut Finds E-Commerce Riches in the Back Office INTERACT E-Mail to Business Week Online | |||
