Fingerhut, a direct marketing subsidiary of Cincinnati-based Federated Department Stores, will take a second-quarter charge of $150 million as it takes steps against a growing bad-debt problem.
The company attributed four factors for its recent rise in credit delinquencies:
* Conversion from closed-end installment to revolving credit, which it started in fall 1998;
* Implementation of late fees, which did not make up for write offs;
* Aggressive solicitation of new customers with deferred-credit offers, which it began late in 1999; and
* Economic conditions among lower-income customers that make it harder for these clients to meet credit obligations.
To remedy this, the company has begun to increase its collections activities; lower credit lines and tighten its guidelines for initial offers of credit; introduce credit-scoring criteria when raising or lowering credit levels; aggressively verify addresses when granting new credit accounts; reduce deferred-credit offerings and implement a minimum-purchase requirement for them; and revise its billing statements to highlight the Fingerhut name.
The company anticipates that its moves will initially have a short-term negative impact on its mail-order catalog sales, with Federated Direct chairman Jeffrey Sherman anticipating “a potentially lower Fingerhut sales base,” in a statement that accompanied the company’s plans.
In its statement, the company said that correcting the problem might incur additional costs of between $200 million and $250 million.
Federated’s stock, which traded as high as 50 this year, closed at 23 1/2, a 52-week low. In yesterday’s trading it lost 3 3/8 off Wednesday’s closing price. Federated has attributed the decline in its stock price to the woes of its Fingerhut subsidiary.
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