Martha Stewart is testifying in court today to explain why her contract to sell stuff at JCPenney doesn’t violate her existing contract with Macy’s.
Stewart’s motive for alienating Macy’s is simple: Ron Johnson said in an email that she could earn $500 million if the deal went well.
Johnson made it clear that he needed JCPenney to execute a turnaround of his brand. Losing the line would be a devastating blow to an already-struggling retailer.
Macy’s, which has had a deal with Stewart for several years, sued her company for breach of contract shortly after she announced the JCPenney line. The department store also sued competitor JCPenney.
Here’s what’s at stake for the three biggest players in the trial:
Photo: Wikimedia Commons
Stewart is insisting on selling the JCPenney line because she “needs the money,” Bloomberg reported last year.
Revenues at Martha Stewart Living have been falling for three years. In exchange for the Stewart line, JCPenney made a hefty stock investment in Martha Stewart Omnimedia and revitalized the company’s finances.
Stewart is expected to argue that JCPenney’s shop-in-shops mean that the brand is more of a boutique than her collaboration with Macy’s. She’s also argued that the more widespread her name is, the better the value of her brand.
Therefore, Stewart argues that JCPenney collaboration could benefit Macy’s.
Photo: Astrid Stawiarz/Getty Images
The Martha Stewart line was the first high-profile announcement that Johnson made as CEO and is tied to his success as a leader.
He made it clear in testimony last week that his company needed Martha Stewart.
“Martha could be the foundation of a reinvented home,” Johnson wrote in the email. “Macy’s deal is key. We need to find a way to break the renewal right.
Martha Stewart’s appeal would revamp JCPenney’s stale home goods section. Her popularity with millennials could bring a younger audience to JCPenney. Stewart’s line could provide JCPenney with a much-needed boost after it announced that sales were down 32 per cent.
It’s likely that Johnson and JCPenney calculated the risks and costs of a Macy’s lawsuit, but took the risk in favour of a line that could potentially be worth billions, Bloomberg reported.
Photo: GD Noticias
The Macy’s CEO said that his company took a risk on Stewart, who approached the department store about a line shortly after she was released from prison.
Macy’s claims exclusivity in certain product categories, including cookware and bedding.
Macy’s CEO Terry Lundgren told the New York State Court in Manhattan that her deal with JCPenney ended their friendship.
“I was completely shocked and blown away,” Lundgren said. “I was literally sick to my stomach.”
Stewart’s contract with Macy’s was just renewed last year and will expire in 2018.
“We’re here to protect our rights. Rights that we paid for. Rights that we worked on. Rights that we took tremendous risks for,” Macy’s attorney Theodore Grossman told the courts according to Reuters.
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