Direct-mail behemoth Fingerhut takes to the Web with an aggressive e-commerce
strategy.
You may have seen the catalogs. You may have initially
purchased a few items from them. If so, you've probably received catalogs again
and again, and you've probably bought anything from clothing to shoes to
electronics again and again. After all, that's exactly what Fingerhut president Will Lansing wants you
to do. It's the reason that the Minnetonka, Minn.-based direct-mail company has
become the second-largest catalog retailer in country, behind only J.C. Penny.
In fact, Fingerhut mails more than 500 million pieces of direct mail per year,
resulting in more than 22 million sales packages being mailed each year. In its
50-year existence, Fingerhut Companies, Inc., which was founded in 1948 by
Manny Fingerhut as a pipe dream and a venue for selling car seat covers, has
mastered the art of direct mail, and then re-mastered it.
You won't, however, find a Fingerhut store in your local
mall because the company has no physical shops at all. Yet the direct-marketing
firm has still sold enough of its own and other brand-name merchandise to
become a Fortune 1000 giant with annual sales of approximately $1.5 billion.
And it's all because the company has placed its finger on the pulse of the
buying habits of Americans.
Now that it is a successful catalog marketer, the company
has put forth a growth strategy that has pointed it toward the future, as well
as a new avenue in which to reach customers: the Internet. Recently, Lansing
has overseen a number of acquisitions and Web-development programs, which has
Fingerhut poised for even more success and profits in the next century.
Will Lansing knows what you want to buy. In fact, he has
this information at his fingertips. His company, Fingerhut, has made a name for
itself through database marketing, the process of using an extensive database
of customers' buying habits and demographics to pinpoint what products might
interest them. And this strategy has been the backbone of the Fingerhut success
story.
"[Database marketing] basically brings the relevant
product offer to the customer who's going to be interested in it," Lansing
says. "That's what it's all about." And the approach works for
Fingerhut: Lansing says that 80 percent of the company's sales come from repeat
buyers from the database. The reason, he says, is that database marketing
enables Fingerhut to provide specific products that customers want, rather than
sending out thick, mass-appeal catalogs and hoping for the best.
"We have 25 different catalogs, including a general
merchandise catalog," he says. "We ship the general merchandise
catalog once a month to our customers and watch their purchase behavior. Say
they buy cookware; then we send them our specialized cooks' book catalog. If
they buy tools, we send them our home-improvement catalog. Once we understand
their purchase profile, we send them more specialized books with a broader
assortment of products."
And the direct approach doesn't stop there. Fingerhut
supplements its catalogs with telemarketing and outbound e-mail. "Once we
know what they bought," Lansing says. "We call them up and say,
'Would you like this to go with that?'"
While the approach may sound simple, Fingerhut's
telemarketers maintain a "very high take rate," according to Lansing.
"We know we don't want to annoy our customers or interrupt them without
giving them a very relevant, compelling offer."
The company's prized computerized database now contains 31
million names, and the customer profiles for each of these names store
information on up to 3,500 different attribute fields per customer. "We
keep more information then anyone on the planet," Lansing boasts.
Using an advanced computer system, Fingerhut's database is
cutting edge to its core, and it drives all aspects of the business, according
to Lansing. "The way we do our segmentation models and which catalogs we
send to which people, which telephone calls we make to which people, which
e-mail we send to which people, is all database-driven," Lansing reveals.
"It's all very scientifically done." One of the more advanced aspects
of the database is Fingerhut's mail-string optimization, which manages mailings
to individual customers. "If a customer is going to receive 120
communications from us over the next year, [the system] decides which ones
should be eliminated, because they might be duplicative or that kind of
thing," Lansing says. "Then, we end up reducing the communications to
save costs and the customer's time."
Even with its impressive financials, Fingerhut remains in an
active growth-seeking mode. And why should that surprise anyone? This is, after
all, a company that hasn't stopped growing since it was born. Through the
years, the company has gone from a cash-on-delivery service for car seat covers
to a broad-range product-marketing giant.
"The product line got broadened as seats got better,
and there was less and less of a need for covers," Lansing continues.
"So the product line was expanded to other things automobile enthusiasts
like." More growth and products came in the 1950s, when the company
introduced credit and gained more mainstream customers who wanted to buy other
types of products. Product expansion continued through the 1960s. In the 1970s,
the company went public, only to be acquired by The Primerica Corp., which
operated the company through the 1980s as a private business. Finally, in 1990,
the corporate owners re-spun Fingerhut off as its own entity again. The company
has been listed on the New York Stock Exchange since that year.
In all that time, company officials never stopped actively
seeking to grow the company. The interesting twist is that it was not en masse
recruitment of new customers that contributed to Fingerhut's financial gains,
but rather nurturing its existing clientele.
"Basically, acquiring new customers is costly,"
admits Lansing. "So when we acquire a customer, we work very hard to keep
them satisfied over a number of years. Our average customer stays with us [for]
seven years." That's why the company puts most of its emphasis on turning
its database into repeat customers.
Fingerhut has grown in other ways recently, as well, by
acquiring other companies. In fact during the last year (since Lansing came on
board), the company has absorbed four other established direct-mail catalog
companies: Bedford Fair, a women's apparel cataloger, Arizona Mail Order,
another apparel cataloger, Figi's, a food and gift catalog company, and Popular
Club, a membership-based general-merchandise catalog. The new additions have
added approximately $400 million to Fingerhut's earnings and 2 million to its
customer database.
According to Lansing, the deals have been an effort to
maintain Fingerhut's growth initiatives, which are to focus on the core
business while moving into expanding markets that will accelerate revenue
growth and enhance profitability. The company has also moved forward with
affinity marketing programs, which leverage its database, fulfillment services
and merchandising expertise for other retailers to create catalogs. "We
are looking for [products] that are related to our moderate-income customer
base," Lansing says. "We also want [deals] that will broaden our
customer base and broaden our list."
Fingerhut's growth hasn't come entirely from the acquisition
of catalog companies, however. Recently, the company set up a cyber-shop on the
Web ("It makes sense for a direct marketing company," Lansing
explains), and the site has quickly begun to make noise in both cyberspace and
Wall Street.
The Internet may be the place of the future for Fingerhut.
As e-commerce companies, such as Amazon.com,
eBay, and Yahoo!
have seen their stock soar through the holiday shopping season, Fingerhut is
seriously looking for a piece of the electronic action. Lansing believes that
no company can market merchandise on the Web better than Fingerhut, which has
five decades of direct marketing and cataloging experience behind it.
"I think there are virtues to shopping online," he
says. "We can provide a broader product set, it's more timely, it can be
tailored. I think what's happening is that the market is starting to recognize
that this is truly an Internet company and certainly better positioned to be a
big player."
Boosting Fingerhut's online growth strategy is the recent
addition of three e-commerce companies to its growing list of acquisitions. The
company purchased popular online retailers MountainZone.com and skiresorts.com, and it cut a deal to
purchase a 20 percent stake in PCFlowers,
a popular online flower store. Furthermore, Fingerhut holds the option of
increase its ownership stake in the flower cyber-retailer to 60 percent.
With all of the well-publicized action on the Internet,
Fingerhut certainly seems poised to become an even bigger player in electronic
commerce. And Lansing says that eventually Fingerhut will redirect some of its
customer activity to the Internet, saying that the company has a backbone
(read: database) to support e-commerce that no other online retailer can match.
He also adds that the company has a number of other Internet-related
acquisitions in the works and will use its catalog reach to direct people to
its Web sites.
As for the fear of losing customers to the notion that the
Internet lacks security for creditors, Lansing says he isn't worried. "We
have our own proprietary revolving charge, so our customers set up accounts
with us, and then they don't have any issues at all," he says.
That's not to say that Fingerhut will abandon its core
business of print catalogs. The Internet, Lansing says, will supplement that
core business, which keeps in step with the company's growth strategies.
"Catalogs will still be around for a long time to
come," Lansing predicts. "The quality of the image is going to be
better on paper for a long time to come, and you can travel with [a catalog]
easier then a PC. So, I think they're complementary, and you'll see both for a
long time."
In the future, however, customers will find themselves with
many more issues – catalog issues, that is – to choose from when shopping from
their homes. Meanwhile, Lansing and Fingerhut will continue pointing toward a
new direction in direct-mail marketing.
Company
Snapshot:
Company: Fingerhut
URL: www.fingerhut.com
CEO: Will Lansing
Industry: Direct-mail and online merchandiser
Location: Minnetonka, Minn.
Employees: 9,500 (approx.)
Founded: 1948
Revenue: $1.5 billion (approx.)
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