Martha Stewart testifies in trial over her brand

By Anne D'innocenzio

Associated Press

Published: Tuesday, March 5 2013 12:00 a.m. MST

Macy's Lundgren said his company had built the Martha Stewart brand to be the biggest in the home business. That's a big feat considering the brand was reeling over Stewart's personal legal issues and had been cheapened by its partnership with Kmart when it signed the Macy's deal in 2006. Kmart's licensing deal ended in 2009.

Sales for the Martha Stewart brand at Macy's rose 8 percent last year, double the sales increase for the entire company. Lundgren said that while home items don't sell as quickly, they bring different types of shoppers into stores.

"I need the Martha Stewart business to be exclusive," Lundgren testified last week. "I don't have a substitute."

In the last few days of the trial, it became clear how much Penney's CEO Ron Johnson was out to woo Stewart, even initially proposing a deal that would include a personal licensing fee for Stewart herself equal to 2 percent of revenue.

Penney ended up investing $38.5 million for a nearly 17 percent stake in Martha Stewart Living. The media company is expected to receive more than $200 million over the 10-year deal.

Penney, based in Plano, Texas, is in the middle of a turnaround plan that's faltering. The company has reported big losses and sales declines for four straight quarters since it started a strategy to get rid of most of its sales in favor of everyday low prices last year.

Penney, which started to roll out mini-shops tied to popular brands in its stores last fall, has been counting on a reinvented home area to attract shoppers. It had planned to use the Martha Stewart brand as the anchor.

Last July, Macy's won a preliminary injunction against Martha Stewart Living that would prevent it from selling housewares and other exclusive products at Penney. In August, the judge granted permission for Penney to open Martha Stewart shops as long as the items under the exclusive contract with Macy's are not sold in them.

Penney said it plans to sell products that are part of Macy's exclusive agreement in May. The goods will be branded "JCP Everyday," a new brand reserved for the Martha Stewart's merchandise.

Penney also plans to sell products like curtains and stationery that are not a part of the exclusive Macy's contract under the label "Martha."

As for Lundgren and Stewart, he considers their friendship over. During the testimony last week, Lundgren described how he hung up on Stewart after she informed him on Dec. 6, 2011, that she brokered a deal with Penney. She said an expanded partnership would only be good for Macy's. He hasn't spoken to her since. He even appeared choked up at times.

"I was completely shocked and blown away," he testified last week. "It was so far from anything I could imagine."

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