What Can Retailers Learn From the Martha Stewart Flap?
The recent Macy’s/J.C. Penney’s flap over Martha Stewart Living Omnimedia (MSLO) reminds me of The Celebrity Apprentice — it may be wild, embarrassingly funny, and hugely entertaining (for awhile), but it’s no way to run a business.
Among the many questions raised in the tussle: Is Martha Stewart a good business partner? Opinions vary, but there’s no argument that she’s an icon, having built a media and merchandising empire, and stamping her name on everything from cookbooks and linens, to houses, carpet tiles, wine and frozen food. She also gained a huge amount of press when she spent five months in federal prison as a result of a conviction related to insider trading, and continued to draw tens of millions in compensation while MSLO struggled in recent years.
The current three-way mess centers around whether MSLO had a deal to sell home categories merchandise exclusively in Macy’s, or whether the company can get around that by opening separate MSLO boutiques within J. C. Penney. (The terms of the deal allowed MSLO to sell merchandise in their own stores and online.) While the J.C. Penney boutiques are to be staffed by JCP associates, according to JCP CEO Ron Johnson, his company would set prices and promotions and own the goods.
Currently, the three parties are in mediation at the request of the trial’s judge. JCP has agreed not to stock the new line of MSLO products, at least until April 8 when the trial may resume if mediation fails. JCP will stock and promote other MSLO products that are non-exclusive to Macy’s.
Meanwhile, Mr. Johnson left an e-mail trail showing he was looking to find a way to break the exclusive agreement MSLO had with Macy’s. Analyst Walter Loeb, quoted in a recent New York Times article on the trial, said that Mr. Johnson’s "naiveté and lack of experience" could cause JCP a self-inflicted "fatal blow." The Times also reported Mr. Johnson as saying at trial that he never read the Macy’s – MSLO contract.
The final player in this trio, Terry Lundgren, CEO of Macy’s, comes off a bit better as his hanging up on Martha Stewart when she announced the JCP deal is probably considered reasonable by many. And Macy’s has performed much better financially than the other two brands in the ‘he-said, she-said’ debacle.
Three Lessons for Retailers:
- Think long and hard about the risk-reward relationship before you ink a deal with a celebrity, especially one with an iffy track record.
- Opening stores within your stores won’t typically solve your core business issues anyway.
- When bringing in an outsider to run your business, make sure he/she has a strong grasp on do’s and don’ts in your industry — outsider perspective can be great, but it can be a huge liability as well
- Martha’s Brand Struggling for Right Fit – The New York Times
- The Headache in Housewares for J.C. Penney – The New York Times
- J.C. Penney Is Least of Martha Stewart’s Problems – 24/7 Wall St.
- Martha Stewart Demanded No Competition From Her Celeb Friends At JCP – Radar Online
- JC Penney Delays Stocking Some Martha Stewart Products – Advertising Age
Discussion Questions
What lessons does the Martha Stewart/Macy’s/J.C. Penney squabble offer to retailers? Are celebrity-endorsed product lines worth the risk of having to deal with celebrity personalities?
Al—it looks like you’re trying to blame MSLO. It strikes me that JCP is at least as culpable, if not more so, although I’ll admit, MSLO could have been a bit more forthright. If I’m Macy’s, I’d be rethinking how important that product is to me. But I’m thinking the bigger issue here is when will Johnson be fired for incompetence and killing a once-respected retailer?
Good article Al. It seems like we have JCP and Martha Stewart on one side and Macy’s on the other. Macy’s appears to be the “good guys.” My read on this all along has been Martha Stewart was seeking to get her merchandise in as many places as possible. How no one was aware there might be contractual obligations at that level of business is unacceptable. I can see the judge ordering them to mediation. But that also seems to be delaying the inevitable.
“Martha Stuart Living Omnimedia” has done wonders for Martha Stuart simply by creating demand for product. The bad news is only the targeted retailers are demanding product. A look at the successes that some retail companies have had with both new and old product will give reason to support this. In fact if given the opportunity to examine the sales to consumer numbers on a store basis this might demonstrate some very interesting price vs upscale product information for all to earn from. But that’s just what I think.
I don’t think you can compare MSO/Martha Stewart with other celebrity deals. In most cases, the celebrity endorses a range of products which may or may not have been designed with their input. The deals are with manufacturers. MSO is a manufacturer.
So, the lesson for a retailer looking for exclusivity, with or without a celebrity endorsement, is brand ownership and contract strength.
The lesson here is to hire better attorneys. If the original contract between MSLO and Macy’s had been crafted a little tighter, we wouldn’t have this story to kick around.
This deal focuses on exclusivity. Here it appears that MSLO overstepped on its promises and JCP did not do its due diligence. Add new management and difficult retail conditions, and you have a recipe for disaster.
Since the first contract was with Macy’s, it should take precedence whenever possible. MSLO should not be the “winner” here, since it was MSLO that over promised on both products and representation. Any damages should be their fault and payment.
Overall, it is an embarrassment and a disaster.
“As Mr. Lundgren testified: ‘This is business. And from a business perspective, I need the Martha Stewart brand in our stores.’” So in answer to the question asked a few weeks ago (really it’s a related question): No, we DON’T all live by the same rules.
The problem normally faced in connection with celebrity involvment is when that (celebrity) image is tarnished; that really isn’t the case here, since a prison stint prior to the Macy’s deal had presumably already accomplised that, and Ms. Stewart’s involvement extended far beyond “endorsement.” This seems to be a simple case of breach of contract.
So what to do when your business partner has talent but no scruples? Cross your fingers, I guess (and hope she/he doesn’t meet up with some third party that has no clue).
Thin-sliced category segmentation and nuance are here to stay in licensing as there are only a handful of big U.S. retailers that can drive major volume for a brand. MSLO was built for this slice and dice model and the very “omnimedia” opportunities that MSLO presciently predicted are now an everyday reality—lines between channels are blurring, touch points exploding and business models evolving.
My take is that Ron Johnson took full advantage of this murky situation and assumed that the fruits of his transformation would be evident by now, thereby mitigating any backlash. Innocent until proven guilty. It has come out that Ron Johnson never read the Macy’s contract. Oversight? I think not.
Last week during a break in her court proceedings, Martha Stewart told a reporter from the New York Times, “I’m surprised we are here. It’s a lot of uproar over a contract.” So much for her scruples. At that point celebrity becomes a negative.
She instantly destroyed a friendship with the person (Mr. Lundgren) who had put his name on the line to save her company after her jail sentence was completed.
As per his emails, it seems that Ron Johnson was expecting that when Macy’s discovered his predatory contractual behavior they would insist on not renewing Stewart. His behavior wasn’t based on lack of due diligence but on cunning miscalculation that Macy’s execs lack the scruples he does.
I wonder how many people have followed this and decided not to buy from Ms Stewart or at JCPenney.