Lessons Learned from the Failure of a Major Catalog Retailer

1
Lessons Learned from the Failure of a Major
Catalog Retailer

• Dien Phan, Jim Chen Sohel Ahmad

2
E-Commerce today Web 2.0

• Over-reliance on Venture Capital led to
  unsuccessful business models
• Perfect market did not materialize
• Intermediaries still exist
• Physical companies continue to dominate the
  market
• More governance needed

3
Strategies

• E-Business Strategies
• Supply chain (Porter, 1985)
• Internet strategies (Porter, 2001)
• Operational effectiveness and strategic
  positioning.
• Complementing rather than cannibalizing
  traditional ways of competing

4
Strategic Value Positions for Retailers

1. Search and transaction cost efficiency.
2. Complementarities bundles goods and services to
   provide more value than offering them separately.
   
3. Lock-in makes switching more costly to customers
   and partners.
4. Novelty creates new value through innovative
   ways for structuring transactions, customer
   relationships, breakthrough technology,
   distinctive value chains, and fostering of new
   markets.

5
Fingerhut E-business Environment
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1999 Fingerhut at a Glance
Type of Company Catalog retail Headquarters
Minnetonka, Minn. Employees 9,500 in five
states Revenues 2 billion (1996) Revenue
Growth Steady since 1982, with a peak in 1995
at 23 percent Customer Base 71 million people
have made at least one purchase Products
15,000 items in categories such as housewares,
electronics, exercise equipment and outerwear
Catalogs Mailed Mailings for 1997 were 467
million Data Warehouse Power The 7-terabyte
database can crunch up to 2,000 variables about
a single customer
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Fingerhut Data Base Marketing Workforce

• Market Development Group
• 200 Market Analysts
• 300 Creative Catalogue Designers
• 40 Statistical Analysts
• IT Group
• 550 IT workers
• 16 specialized in Datawarehousing

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Fingerhut Value Positions

• Lock in Close end credit to sub-prime customers
• Novelty Data mining to predict buyer patterns
  and behaviors

9
Data Mining Results

• Customers who changed residence
• Triple purchasing in the 12 weeks after move
• Peak in first four weeks
• Sequence pattern Furniture, Telecommunications
  equipment, and decorations
• No jewelry nor home electronics

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Fingerhuts Information Systems (1999)

• Two IBM Mainframes
• A Hitachi super-computer
• 274 Sun Unix workstations
• 500 PC servers

11
Fingerhuts e-commerce

• Hired William Lansing in 1998
• Launched TheHut.com
• Acquired PC Flowers and Gifts, Moutainzone.com
  and Freeshop.com, Arizona mail order and Popular
  Club
• Acquired by Federated Department Stores in 1999

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Fingerhut Failure

• Lansing launched additional retailer Websites
• Issued credit cards and extend credits to 4
  million customers
• Received order-fulfillment contracts from 22
  companies
• Fingerhut Logistics Software failed
• Problems during the Christmas 1999 sales late
  deliveries, customer order items not available,
  duplicated shipping,
• eToys and other companies cancel order
  fulfillment contracts
• 795 mil. Losses in sales and 400 mil. Lost on
  unpaid credit
• Federated closed Fingerhut in 2002