Federated's Loss Leader

Federated Department Stores Inc. (Cincinnati) sustained a second quarter net income decrease of 54 percent. Blaming unpaid customer debt at its Fingerhut direct-marketing unit, the retailer reported an income of $63 million as of July 29, compared to $137 million for the same period last year.

Federated purchased Fingerhut in 1999 for $1.7 billion, hoping to fill a gap in the mail order and Internet sales portions of the company. However, the problem with those sales activities – historically the catalogs, but a growing issue with web sites – is that they often end up being used largely by consumers who cannot obtain credit elsewhere. Federated plans to crack down on Fingerhut's delinquency by increasing collection activity and establishing stricter credit standards.