By David Gill
The agreement between J.C. Penney and Martha Stewart Living Omnimedia (MSLO), announced last month, is seen by both companies as a crucial step toward meeting their individual business goals.
In the joint statement announcing the deal, Ron Johnson, J.C. Penney's CEO, said the agreement is "a key centerpiece of our new strategy to transform J.C. Penney into America's Favorite Store." For Martha Stewart, partnering with Johnson and his team "is a big and important step in realizing my dream of putting our Martha Stewart-designed products within easy reach of an even broader consumer audience."
Under the terms of the agreement, as detailed in the statement and a filing by MSLO with the U.S. Securities and Exchange Commission, J.C. Penney will team up with MSLO to create distinct Martha Stewart retail stores within about 600 J.C. Penney stores nationwide. The two companies will also collaborate on an e-commerce website devoted to Martha Stewart home products.
The in-store retail locations are slated to open in February 2013, and the site will also debut in that year. During the period of the agreement, which is scheduled to expire in January 2023, J.C. Penney will pay MSLO a minimum of $172.4 million in fees against commissions on sales of the products, annual design fees and spending on marketing.
The deal also makes J.C. Penney a part owner of MSLO. The retailer will make an initial investment of $38.5 million in MSLO at $3.50 a share, amounting to a 16.6 percent stake in MSLO, and will give J.C. Penney representation on the MSLO board of directors.
The in-store stores will offer home and lifestyle products designed and curated by Stewart and her team, and provide shoppers with tips on home decor. The site will provide "a wide range of home and lifestyle products, including those sold in the Martha Stewart stores inside J.C. Penney, and other merchandise designed or selected by Martha Stewart," the statement said.
With this agreement, Johnson has made a major move to improve J.C. Penney's fortunes by allying with an icon. "For nearly two decades, (Stewart) has been the primary person we turn to for advice regarding food, entertaining, decorating and celebrating life's memorable moments," he said.
For her part, Stewart described Johnson, who took the J.C. Penney helm on Nov. 1 after leading Apple's retail segment, as "a true innovator and someone who has been fundamentally redefining the retail experience. I am greatly impressed with his plans for changing an American classic, J.C. Penney, to make it a very new and different shopping experience."
Macy's: Martha Under Review
The deal between J.C. Penney and Martha Stewart Living Omnimedia (MSLO), brought a quick reaction from Macy's, which has offered the Martha Stewart Collection of home products since September 2007.
A statement issued by the department-store retailer said, "In light of the proliferation of Martha Stewart-branded product in the marketplace, Macy's is reviewing the Martha Stewart products sold at Macy's for potential changes in the future. Martha Stewart products in categories such as cookware, kitchen utensils, bed and bath will continue to be sold exclusively at Macy's until further notice."
The Martha Stewart Collection at Macy's encompasses bed and bath textiles, housewares, casual dinnerware, flatware and glassware, cookware, holiday decorating and tree-trimming items. The statement said, "Martha Stewart is among a wide range of leading brands offered in Macy's home store, and we will continue to expand and improve our home offering based on localized customer references across the country."
A source close to the J.C. Penney-MSLO agreement said the deal would not affect the Macy's program. The source said MSLO is "business as usual" with all of its partners.
Other MSLO license partners include The Home Depot for home-improvement products; Martha Stewart Crafts at Michaels, Jo-Ann Fabric and Crafts stores and other independent retailers; Martha Stewart Pets at PetSmart; Martha Stewart Clean at Home Depot, Amazon.com and selected grocery chains; Martha Stewart Rugs with Safavieh; and Martha Stewart Home Office, which is scheduled to debut exclusively at Staples early this year.