Martha Looks to Life After Kmart
It seems pretty clear based on current circumstances that Martha Stewart and Kmart will be splitsville when the contract between the two parties expires in January 2010. But, where will that leave Ms. Stewart’s Living Omnimedia (MSLO) business that now receives roughly 80 percent of its licensing revenue from sales of the Martha Stewart Everyday line in the mass merchant’s store and on its website?
In the past couple of years, MSLO has reached separate deals with Macy’s, Michael’s, Costco, Lowe’s and 1-800-flowers to begin bridging the dollar gap it may face should the Kmart deal not be renewed.
Susan Lyne, president and chief executive at MSLO, recently told attendees of the Bank of American Consumer Conference, “While we don’t know if we will be at Kmart, I think you can assume that we will have a mass market partner and we will continue to play in that space.”
When asked what MSLO was looking for in a new mass partner, Ms. Lyne said, “If you look at all of our new licensing partnerships, they are all with first-in-class retailers. So what is really important is for us to be with someone who is investing in their business and who will really work with us to grow a product line. Costco, Macy’s, all of these people have been really terrific about helping us to understand their customer and making sure they invest along with us in the success of these new launches.”
Discussion Questions: Where do you think Martha Stewart will go for a mass merchant partner when the deal with Kmart expires? Will the brand just carry over its Everyday concept or do you see a major change for the brand after the current deal with Kmart expires?
It’s hard to imagine MSLO wanting to partner with Sears stores once its contract with Kmart has run its course, so this is an open question. Food Network is establishing a partnership with Kohl’s, so Martha Stewart might be too much duplication. You can make a case that Penney has opportunity in this area, but the overlap with her Macy’s program becomes too close for comfort. The real question is whether MSLO can play both sides of the “mass vs. class” game if she expects the Macy’s initiative to reach its full potential.
Martha Stewart’s licensing endorsement will go to the highest bidder. Full stop. Period. That’s the 100% story. No exceptions. No small print. No ambiguity. No qualitative lifestyle demographic psychographic positioning analysis. The “winner” could be Dollar General or Tiffany or BP or Brookstone or Sherwin-Williams or CVS or Nordstrom.
Every retailer, large and small, high and low, wide and narrow, has to ask, “Will Martha’s license fee increase my profit?” License fees generally come off the top, so the licensor (Martha Stewart) isn’t penalized if the retailer destroys the store’s margins. In many auctions, the winner is really the loser, because one must overpay to be the highest bidder. That’s the conundrum.
This to me is a no brainer–have the MSLO line at Wal-Mart. I totally agree with Gene.
Just looking at this from a numbers perspective, the only possible way for MSLO to make up the volume of business is to sell at Wal-Mart and Wal-Mart.com–how else do you make up 80% of your business?! This takes your breath away when you think about it. This is a lot of business to maintain and secure.
Wal-Mart’s home division has been suffering, and a Martha Stewart line offering would be an excellent addition, and a very good “overall” traffic driver to the stores. (Ed’s wife will definitely duck into WM if they carried the line).
The line does not even need to be in all 3000+ WM stores. Focus on the top 1000 performing stores only, make a home lifestyle section in these stores, and that alone will make up the business.
In regards to the level of quality and style difference from what is carried at Macy’s, this would have to be thoroughly evaluated before an agreement is made in order to make it a home run for everyone involved.
I have to say, although I love the idea of freestanding Martha Stewart stores, I don’t think you can get that volume made up so quickly.
While I think Martha Stewart would do well at Target, I think Bed, Bath and Beyond is a good fit.
Her products are in so many different stores right now that I don’t think she has to commit to just one major retailer.
Yes, the obvious partner is Macy’s, considering their current relationship. I believe the brand has become so well known and established she could add several retail partners to strengthen the brand even more. These could include retailers like Kohl’s, Target and even JC Penney. The strength and value of the brand could be leveraged even further with wider distribution.
I agree that Ms. Stewart will go where she wants to go. Wal-Mart is sorely in need of her style and would benefit greatly. Wal-Mart Does have a LOT of rules for its’ vendors and can be demanding and it is said that Ms. Stewart is not very flexible–although I think this comes from Ms. Stewart being particular and requiring a certain level of quality before her name goes on the product. Over all, her Kmart line is very nice.
Personally, I do not shop Kmart much at all, however, IF I am in their store, I usually look for her product first.
She needs to be careful as many people inside and outside the industry remark on how very similar the assortment and offering at Kmart and Macy’s is. I am not certain of this as I shop Kmart so infrequently. Her products at Macy’s also seem of good quality and she has a nice assortment there as well.
I am uncertain that Target needs Ms. Stewart. I don’t think that they do, although they may acquire her line simply to further broaden their assortment.
It will definitely be interesting to see how it all plays out.
The quick answer is Martha will go wherever she wants to go. She already has a gig with Macy’s and I would expect that to get stronger BUT Martha’s forte is improving the quality and style of middle market merchandise. Her line in Kmart could represent the only quality product in the stores that actually sells.
Fortunately, Kmart pulled out of our market a few years back (filled nicely by Target, thank you) but when we travel, my wife will occasionally duck into Kmart to see what Martha has to offer.
She may be difficult, but she has the knowledge to insure that products with her name on them are quality products. If only Wal-Mart could get her help…but that will never happen!
Food Network deal notwithstanding, Kohl’s is the best brand fit for Martha Stewart. With a reputation built on service and soft lines, Kohl’s would fit nicely with the image Ms. Lyne says MSLO is looking for.
I believe there are two options for Martha Stewart. First, she could expand her distribution even more aggressively than she does now. Most of the previously mentioned retailers carry some MS product; everywhere you look you see her. Like Starbucks and Paul Newman, go ahead and make the products available everywhere. Why not make her products a commodity and change the lives of all Americans that can afford her product? Don’t limit distribution to just one retailer; just so she can get a seat on the Board?
The second option and maybe this goes hand in hand with the first, like Nike, she could open her own flagship stores with in-store classes, demonstrations, clinics, etc. These flagships could sell product, but also drive traffic to other store chains that sell her product. Her shows could also be broadcast from the different locations to bring her face to face with her admiring public.
Martha if you’re out their, I’m ready to help on this one.
Martha Stewart’s best outlet is Martha Stewart. Private Label goods in own-brand stores in strategic locations are her best bet. Sure, throw in e-commerce and catalog too.
This wouldn’t preclude Costco from picking up some of her merchandise also. She can have her cake and eat it too. But Martha going Wal-Mart is like Martha becoming Rachel. Too much of a stretch.
From a retailer POV, I wonder about channel oversaturation. One of the reasons retailers like partnerships with “name” brands is to drive trips to their stores via differentiated product assortment. If MSLO continues to strive to be everywhere, what incentive do retailers have to continue to “feature and display” her merchandise as a way to differentiate from competitors across the myriad channels consumers shop in already?
Target would seem like the best strategic fit for both her and the retailer, but Wal-Mart would certainly be an option. It would be interesting to see how a marriage between her and W-M would play out. Neither are known for their fairness or flexibility.
I shop Kmart regularly and at my Kmart, the traffic is definitely there. Their demise is very much exaggerated.
That being said, it remains to be seen if a new agreement can be forged. With the recent naming of their new Chief of retail operations, a former Meijer executive, Kevin R. Holt, Sears Holdings and Kmart in particular might just surprise the analysts and grab the Martha Stewart Everyday account again.
They both need each other, but if you’ve seen the quality of Kmart’s Abbey Hill line, they are already covering their bases nicely. And besides, the mass merchandisers who are left won’t play the kind of ball even close to MS rules, especially Wal-Mart. Everyday is MS’s bread and butter line. Her executives need to be careful who they finally sign up with.
Even supermarkets such as A&P have introduced their own line of home furnishing accessories and cookware. A&P’s MORE brand line of stainless steel cookware has MS beat by a mile in quality and price.
With sales per square foot at Kmart at historically low levels, for all practical purposes, the Kmart stores are closed. If the Kmart stores are still open by 2010 it will be a miracle.
Target might be a good move for Martha. Wal-Mart might hurt the reputation for quality. Even though Wal-Mart would give her world wide high volume, high sales per square foot exposure, Target would also provide good exposure and a quality image.
Who says she needs a contract with a mass merchandiser? Her platform is well established with Macy’s, Costo and her website. There’s no reason for her to go after a mass outlet since all it would do is dilute her brand image. Long-term, her best outlet is going to be her website.
Me thinks–Martha Stewart will probably try to get a deal with Wal-Mart in 2010. Target or Penney’s may be more compatible to her quality level, of course, but Wal-Mart would produce more revenue–and that would be very valuable. Some think Martha’s quality and Wal-Mart’s aren’t compatible, but doesn’t Wal-Mart’s overall image compare favorably to Kmart these days?
Martha Stewart is amazingly resilient. She and the company will have good options when the run with Kmart is finally over. The public adores her and she has retained a high level of credibility with her core market, and in my opinion it’s far elevated beyond Kmart.
Not too sure if Kmart is the best vehicle for her line of merch. I suspect Target would be a better fit or even Costco seems like a good idea but she’ll never get the volume at Costco that she would at places like Target or Kmart. From a category point of view, Martha’s merchandise would fit well with Target’s assortment.
I completely agree with the writer saying the license will go to the highest bidder, period, end of story. From Kmart to Michaels and beyond, Martha Stewart has proven that money talks in the end, not best fit, best in class, quality retail environment, etc. Just who pays the tab for largest distribution. I sincerely hope other name licensors don’t mistake it for the model; I think it speaks volumes for any true commitment to the “brand.”