Can Martha Stewart Refurbish Her Brand…and Business?

Can Martha Stewart Refurbish Her Brand…and Business?


It’s getting hard to remember the time when Martha Stewart ruled the media universe and her verdict was all that mattered when it came to entertaining or homemaking.

Stewart’s glory days were back in the 1990s, culminating in the IPO of Martha Stewart Living Omnimedia (NYSE: MSO) back in 1999. By 2002, however, when Stewart first attracted adverse attention for what appeared to be some uncannily prescient stock sales of ImClone Systems, shares of her company were trading for only $16. And since she finished her five-month federal prison term on related charges in early 2005, Stewart has worked to rebuild her tarnished personal brand, without which her company’s stock (down 61 percent in the last five years, while the S&P has climbed nearly 11 percent) doesn’t have a prayer of recovering.

She’s got a long way to go, though, and her latest turn in the headlines isn’t going to help.

Stewart and her company are at the center of a lawsuit being fought out in New York Supreme Court. Macy’s (NYSE: M) CEO Terry Lundgren testified this week that he hung up on Stewart, whom he considered a friend, after she telephoned him to tell him that she had signed a deal to open boutiques within J.C. Penney (NYSE: JCP) stores. Lundgren was “sick,” he has said, and Macy’s went on to sue Stewart and her company: They had, he told the court established what he understood to be an exclusive relationship under which Stewart-branded linen and cookware items would be available only at Macy’s. "[The Martha Stewart Collection] is a reason that consumers come to our store," Lundgren reportedly explained. "It's exclusively ours."

Stewart and J.C. Penney have argued that the latter’s vision of miniature boutiques within J.C. Penney stores don’t violate that pact, since there is a provision enabling them to be sold in Martha Stewart Living’s own stores. Moreover, huffs Martha Stewart Living Omnimedia, Macy’s failed to “use commercially reasonable efforts to maximize net sales” of the designer’s products in its outlets.

It’s a nasty spat, but it’s one that Macy’s can afford to lose. (It’s doing nicely, thank you, with sales up 11.2 percent in the last five years and annual income up more than 300 percent in the same time period.) J.C. Penney, on the other hand, needs Martha and whatever other help it can get. Its status as a train-wreck-in-the-making was confirmed by its report Wednesday that sales declined at an increasingly steep rate throughout the year, while its losses soared to nearly $1 billion from about $152 billion in the prior fiscal year.

The lawsuit demonstrates that the Martha Stewart brand remains strong, particularly in categories like bedding and cookware, but Stewart’s company needs all the help it can get as it seeks to build a merchandising business that can make up for problems on the media side. If Martha Stewart needs to ink as many merchandising deals as possible to keep Martha Stewart Living Omnimedia ticking along, she needs the Penney deal to remain intact. Over the last five years, Martha Stewart Living Omnimedia revenues have fallen 22 percent; it hasn’t turned a profit in that period of time. That’s partly because of the ongoing transformation in the publishing and broadcasting industries, and Stewart’s struggles to capture advertising revenue in the face of her diminishing personal brand.

Stewart’s attempts to reestablish a profitable media presence have largely failed, as the recession and its aftermath undercut the aspirations of so many average suburbanites. Her Martha Stewart Show was cancelled last year due to low ratings, while her effort to head an Apprentice-style spinoff of Donald Trump’s show floundered. Stewart has been seen in small roles on "Ugly Betty" and "Law & Order: SVU," but those appearances aren’t exactly platforms that can be used to win back dominant market presence.

Licensing and merchandising has been a different story. In fact, there aren’t many places where the Martha Stewart name hasn’t been branded, from floor tiles to knitting yarn to Martha Stewart wine (Stewart inked a deal with E&J Gallo Winery). Stewart’s company reported earlier this week that this part of the business saw revenues rise 26 percent while operating profit jumped 29 percent.

The current court case serves as a reminder that there is no fast, easy or simple way to rebuild either a personal or corporate reputation. This is not the kind of publicity that Stewart’s company needs at this point in their fortunes. Even if Stewart triumphs, the spectacle has been an unedifying one for such a noted tastemaker, and her company has joined Penney’s on the list of those whose stocks appear unlikely to offer much upside potential in the foreseeable future.