JC Penney Scales Back Partnership with Martha

What a difference a CEO makes!

Ron Johnson, former CEO of JC Penney who initiated the partnership with MSLO, was counting on Martha to be the centerpiece of JC Penney’s reimagined housewares department. As the retailer struggled under his leadership, he was replaced by the current CEO, Mike Ullman. Unfortunately, Ullman either doesn’t share Johnson’s faith in the Martha brand, or he thinks that the national retailer should be focused elsewhere–or both. The expensive lawsuit that JC Penney’s has been fighting with Macys in a NYC courtroom is  almost certainly influencing his decision, as well

So, he has decided to scale back significantly JC Penney’s partnership with Martha. Here’s what’s changing:

– JC Penney’s will discontinue selling products in those categories that prompted the lawsuit from Macys.

– JC Penney’s will sell back its share  ($37 million worth!) of MSLO stock purchased as part of the partnership.

– JC Penney’s will no longer have representation on the MSLO Board of Directors

Not great news for Martha and MSLO, where a great portion of revenue is generated by licensing the “Martha Stewart” name. Martha was hopeful that the products offered at JC Penney’s would reach audiences currently unserved by the products sold at Macy’s.

Still, the JC Penney’s partnership will continue, though CEO Ullman seems less devoted to Martha and her products. And the partnership with Macy’s will continue, though Macy’s CEO Terry Lundgren became furious with Martha when she told him of her new relationship with JC Penney’s. Of course, neither CEO would be interested in continuing his partnership with Martha if she and her products were not so popular with the public.

Martha vs. Macy’s: Judge Schedules Sept. 25 Hearing on Report Penney’s Will Drop Contested Items

The judge in the Martha vs. Macy’s trial has scheduled a hearing for September 25, though he did not give a reason for the hearing. According to the Dallas Business Journal, the hearing is in response to the NY Post article that claimed JC Penney was dropping its plan to carry Martha Stewart-designed items–branded “jcp everyday”–in its stores. Obviously, if JC Penney voluntarily quits carrying the contested products, the lawsuit is ended in Macy’s favor.

After the original article ran in the NY Post, a spokesperson for MSLO stated “J.C. Penney remains one of our many retail partners. Our agreement with them is in force, and we have no intention of ending it,” indicating they would not be receptive to an early termination of the agreement. Unless there is specific language in the contract that allows JC Penney to do so, it is expected that MSLO may itself sue JC Penney for breach of contract.

From the Dallas Business Journal:

Oing oversaw the lengthy non-jury trial on a claim by Macy’s that Penney’s 2011 deal with Stewart violated her 2006 agreement with the Cincinnati-based retailer. Oing’s decision in the suit is expected soon. A source told Bloomberg that Oing intends to ask Penney’s lawyers if the story is true because it could affect his ruling on the contract.

JC Penney Appears Poised to End Partnership with Martha

Things just got more complicated for Martha and Co.

To most following the Martha vs. Macy’s trial, it looks very unlikely that Martha and JC Penney will prevail. In a nutshell: Although Martha’s contract with Macy’s did, in fact, allow for Martha to open stand-alone Martha Stewart stores that offer products in categories–housewares, bedding, bath, and cookware–that would compete with those items offered at Macy’s, the idea that Martha’s “store within a store” actually qualifies as a “stand alone” seems dubious, at best. Ron Johnson, the JC Penney CEO who developed the “store within a store” idea and created the partnership with MSLO, was ousted in April 2013. His predecessor, Mike Ullman, was reappointed to take over the company and has shown little to no enthusiasm for the plan.

Yesterday, reports surfaced that Penney’s was planning to discontinue offering products designed by Martha Stewart in those categories deemed exclusive  in Martha’s contract with Macy’s, effectively throwing in the towel to end the ongoing lawsuit. More worrisome are reports that JC Penney was also ending its entire partnership with Martha, and would not be selling any Martha Stewart products, even in categories that did not impinge upon the Martha-Macy’s contract. According to one insider, CEO Ullman has said, “Her designs aren’t that great. They’re not selling, and they’re nothing that your normal Joe Schmoe can’t come up with.”

Further complicating the matter is the fact that, as part of its partnership with MSLO, JC Penney purchased a 16.6-percent stake in MSLO, infusing the cash-strapped company with $38.5 million. Obviously, MSLO would prefer to see their partnership with JC Penney continue. A MSLO spokesperson has released as statement saying, “J.C. Penney remains one of our many retail partners. Our agreement with them is in force, and we have no intention of ending it.”

If JC Penney does end its partnership with Martha, it is expected that MSLO will sue JC Penney to enforce the contract, unless there is specific language in the contract allowing JC Penney to end it at any time. MSLO had projected its merchandising agreement with JC Penney to generate $200 million dollars in much-needed revenue for the company over the next several years. MSLO has become increasingly dependent upon revenue generated through licensing and merchandising agreements, as sales through its magazine divisions have slowed and Martha’s presence on television has diminished. MSLO stock prices sunk when the news of the end of its JC Penney partnership was leaked.

From the NY Post (as is the above photo):

Ullman, a former Penney CEO who returned to the helm in April to repair damage from a disastrously unsuccessful turnaround effort by Johnson, began to broadcast the split with the beleaguered domestic diva to workers in recent weeks, insiders said.

However, Ullman was determined to give Stewart the boot from the get-go, insiders said.

As reported by The Post, Ullman initially reached out to Macy’s CEO Terry Lundgren to settle the lawsuit, which had already gone to trial with dramatic testimony from Lundgren, Johnson and Stewart herself.

MarthaPantry is Now Online!

Be sure to visit the MarthaPantry section on the JC Penney website! Loads of super-cool pantry items–salts, oils, heirloom beans, baking mixes. The selection is much broader than I anticipated! FOMs: Let’s start tasting! If you try a MarthaPantry item, post your comments here and I’ll share with others. Yum!

JC Penney Begins Selling Disputed Goods Designed by Martha

The new house line of home goods at JC Penney, “JCP Everyday”, is now on sale in stores and online! It is well-known that these products were designed by MSLO employees, although they are not allowed to carry the “Martha Stewart” name, pending resolution of the current court case. Some things I noticed as I viewed the items online:

1. They products definitely bear some of Martha’s signature design elements, the hen-egg blue, the faux bois pattern (one of Martha’s favorites), and the overall elevate taste level are definitely Martha-inspired.

2. Most of the products look nothing like similar items for sale at Macy’s as part of the Martha Stewart Collection. True, the pasty bags at one retailer look like the pasty bags at the other–but that’s because of the design requirements inherent in those particular items. 

3. I’m intrigued by the “JCP Everyday” logo (see cookie cutters image above, bottom row at right). The two overlapping houses do, in fact, make an “M”, don’t they? Macy’s brought this up in the court case, as they sought an injunction to halt the sale of these items, even though they do not carry the “Martha Stewart” name on them. The judge denied Macy’s request, and they have appealed. Further, these items are not allowed to be sold in the Martha Stewart stores-within-stores at JC Penney, nor be placed anywhere nearby, pending the outcome of the current court case–a step taken to minimize harm to Macy’s, should they ultimately prevail in court.

FOMs: What do you think? My own message to Macy’s is this: Calm the heck down, would you? It’s clear Martha and her team have no intention of cannibalizing their own profits generated by sales at Macy’s. That wouldn’t be very smart, would it?

From the Reuters article:

“As of today, those products are on the floor and online,” Paul Rutenis, general merchandise manager of J.C. Penney’s home department, said on Monday in testimony in New York State Supreme Court.

Martha vs. Macy’s: Judge Rules JC Penney May Begin Selling Some Items

There was some good news today for Martha in the trial with Macy’s.

First, it may be useful to back up a bit: The case is actually made up of several different claims, including breach of contract, breach of confidentiality, unfair competition, and tortious interference. In some claims, Macy’s has won injunctions, which are essentially temporary smaller rulings in Macy’s favor while the larger issues are resolved permanently in the courtroom. For example, in one injunction, the judge ruled that Martha may NOT sell items in JC Penney stores until the issue of exclusivity has been resolved completely. Macy’s asked the judge to broaden that existing injunction to include items that were designed by MSLO designers but did NOT have Martha’s name on them. These items are instead branded as “jcp Everyday”. Martha insists that these items–$100 million worth of them are already at distribution centers awaiting shipment to JC Penney stores–do NOT violate the exclusivity clause of her contract with Macy’s. Good News: Today, the judge sided with Martha, so these “jcp Everyday” items will begin appearing in JC Penney stores very soon!

However, the judge ruled that the trial would continue on to the next phase. You see, up to this point, Macy’s has been doing all the talking, as they present their case that MSLO violated the exclusivity clause of their contract. Today, the judge took into account all that Macy’s has presented thus far and agreed that may in fact be true. That’s the bad news. The good news is that the trial now shifts to a new phase; one in which MSLO gets to present THEIR side of the story to counter Macy’s claim. Go get ’em, Team Martha!

It is important to note that the judge in this case is still imploring the three parties involved to reach a settlement among themselves, without a judge’s ruling. Contract disputes such as this one are not entirely uncommon, and are often resolved with a financial settlement. In this case, JC Penney and MSLO could buy-out Macy’s contract (or just the exclusivity clause of the contract) although that seems unlikely, given the degree to which Macy’s seems to rely on the Martha Stewart Collection to generate traffic in its stores. By allowing the trial to go forward, and relying on the judge’s ruling, either party risks losing entirely.

MARTHA IS NOW AT JCPENNEY.COM!

Just launched! Check it out here: Martha at JC Penney

Categories include: Martha Celebrations, Martha Decor, Martha Stewart Crafts, and Martha Stewart Books. Other product offerings are pending outcome of the Martha vs. Macy’s lawsuit. Some resolution on the trial is expected later this month. In the meantime, here is a video of what the MarthaCelebrations store display area will look like: MarthaCelebrations at JC Penney  FOMs: Let’s go shopping!

Martha vs. Macy’s: Judge Orders Mediation, NY Times Article on Why the Case Matters

Yesterday, the New York Times had an article on the subject underlying the current court case between Macy’s and MSLO: that it is essentially “a schoolyard fight between two boys — the chief executives of Macy’s and J. C. Penney — over the most popular girl on the playground.”

If you have been following MSLO lately, you would not be blamed for worrying about the current state of the company–the stock price has plummeted and stabilized at the low end, the company is heavily vested in traditional media (which is undergoing much tumult industry-wide) and has suffered layoffs, it has all but lost its television presence, and there is unsettled leadership (former CEO Lisa Gersh stepped down after only five months at the helm). The one fiscal bright spot at the company of late has been its merchandising. Simply, Martha is still seen in the eyes of the public as an arbiter of good taste and high quality, and most importantly, consumers trust her. If Martha says it’s a good thing–you can be sure it’s a good thing.

It is Martha’s reputation for producing good products that the two retail giants–Macy’s and JC Penney’s–are hoping to leverage in their stores. Indeed, embattled JC Penney’s CEO Ron Johnson’s job may depend on his Martha Stewart-anchored plan to resuscitate that company’s housewares department. And, as the Associated Press reported:

“[Macy’s CEO Terry] Lundgren said Macy’s has spent 40 percent of its overall marketing on the Martha Stewart brand and other labels in the home area, even though the home category represents 17 percent of total sales. That’s because even though the home area is typically slow turning, it drives shoppers to the store. “I need the Martha Stewart business to be exclusive,” Lundgren said. “I don’t have a substitute.”

The judge ordered the three companies into mediation on Friday, in an attempt to have them resolve the issues themselves without a court-ordered judgement. So, even as the courtroom drama continues, one thing is for certain: the Martha Stewart brand is still as strong as ever in the eyes of consumers. And that is most definitely a good thing for MSLO.

Check out this very flattering quote from the New York Times article :

It is easy to forget that Ms. Stewart altered the way that people live by decoupling class and taste. Part of the reason that she seems embattled — her media empire is shrinking fast — is that she won her corner of the culture war. When you go into Target or Walmart and see a sage green towel that is soft to the touch, it may not carry her brand, but it reflects her hand. Her tasteful touch — in colors, in cooking, in bedding — is now ubiquitous; she just doesn’t get to cash all the checks anymore.

Martha on The Today Show: Makes Meatloaf and Discusses Trial

On Wednesday, Martha stopped by The Today Show and, as she regularly does, taped a cooking segment–for Big Martha’s Meatloaf. During her visit, she also spent a moment to sit with Matt Lauer for an very difficult interview. Lauer was pretty tough on Martha–but Martha was unfazed. She answered with typical aplomb, defending her company’s mission to offer products wherever customers want them. She was also characteristically diplomatic, choosing her words carefully to describe her thoughts about Macy’s CEO, Terry Lundgren. Lundgren famously hung up on Martha when she phoned to let him know about the new partnership with JC Penney.

The interview was preceded by this video, a short piece covering Martha’s appearance in court the day before. According to this report, the trial could finish by Friday of this week. If it does not, it may be as late as sometime in April before the judge rules on the lawsuit.

From the transcript of the interview:

Lauer: Do you believe your products in [JC Penney] stores could help turn around that company?

Martha: Well, as I said yesterday, [JC Penney CEO] Ron Johnson is a visionary. Ron Johnson worked very hard on all those fantastic Apple stores. He also had a lot to do with the great success of Target before that. Ron is a visionary. He is trying to reimagine the retail landscape, and that’s a big job. And he has not been given any time at all to do so. It takes a little while to rebuild something like a JC Penney; a monolith like that.

Lauer: We are going to follow this story, Martha. Thank you for coming in this morning. I know it wasn’t easy for you to sit down and do this.

Martha: Well, thank you very much. And I’m going to go home and make meatloaf! (laughs)

Martha vs. Macy’s: Martha Testified Today

As you probably know, the Martha vs. Macy’s trial has begun. Let’s recap the relevant developments:

– In 2005, MSLO and Macy’s enter into an agreement to sell Martha Stewart branded items in Macy’s stores. The agreement gives Macy’s exclusive rights to sell Martha Stewart branded items in specific categories: bedding, bath, cookware, and dinnerware. Importantly, the agreement also contains language that allows MSLO to sell Martha Stewart branded items outside Macy’s stores, as long as they are sold in stand-alone Martha Stewart stores. (For at the time, there was a single Martha Stewart store in Japan.)

– In 2011, MSLO entered into a partnership with JC Penney to sell Martha-branded items in dedicated spaces inside JC Penney stores, essentially creating a Martha Stewart “store within a store” in JC Penney stores nationwide.

– In 2012, Macy’s sued both MSLO and JC Penney, claiming that the partnership was a breach of Macy’s exclusive right to sell Martha Stewart branded items in the specific product categories. Initially, Macy’s asked the judge to order MSLO to cease any collaborative efforts with JC Penney until after the issue was resolved at trial. However, the judge did not allow Macy’s request.

– Since then, MSLO and JC Penney have forged ahead to create MarthaHome, a “store within a store” offering three collections of products: MarthaPantry (food items), MarthaCelebrations (paper party products), and MarthaWindow (window treatments). It is also known that MSLO designers are working with JC Penney to create the “JC Penney Everyday” collection, which will offer products in those categories to which Macy’s claims to hold exclusive rights. In order to adhere to the MSLO-Macy’s exclusivity agreement, the JC Penney Everyday products will NOT have any Martha Stewart branding on them. (Although there is a connection: “Martha Stewart Everyday” was the name of Martha’s collection sold at Kmart stores from 1997 – 2009. Also, MSLO has for many years had a publication called “Everyday Food”, which also inspired a popular TV cooking show, also called “Everyday Food”.)

Today, Martha appeared in court and testified for four hours. She said that she believed her agreement with JC Penney was structured to be in compliance with the MSLO-Macy’s agreement. She also claimed that Macy’s had breached the contract by not maximizing sales of the Martha Stewart Collection at its stores. Martha claimed that she wanted to open Martha “store within a store” concept in Macy’s, but they were cool to the idea.

The trial is expected to last several weeks.

From The Huffington Post:

The biggest opportunities for Martha Stewart Living are in selling products for the home, including bedding, bath and kitchen merchandise. That’s because as the housing recovery gains momentum in the economic recovery, people likely will put more money into their homes.

During her testimony on Tuesday, Stewart said she always wanted to open big shops within Macy’s stores, but the retailer never embraced that concept. Instead, she said the merchandise in Macy’s stores is just “here and there.”

That’s why she said that a proposal from Penney’s Johnson to create shops filled with home merchandise was appealing to her. She called Johnson a “visionary.”

“We hoped this business would be growing,” Stewart said. “It just boggles my mind that we’re here sitting in front of you, judge.”