Tug of War Between J.C. Penney and Macy's Over Martha Stewart

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The Martha Stewart brand is being pulled left and right by retail giants J.C. Penney (NYSE: JCP)  and Macy's (NYSE: M). The battle is over which retailer has the contractual rights to sell certain branded and unbranded products designed by Martha Stewart Living Omnimedia (NYSE: MSO).

Rights to Martha Stewart's brand

According to Bloomberg, in a recent court hearing, Supreme Court judge Jeffrey Oing ruled against an earlier injunction filed by Macy's to prohibit J.C. Penney from selling Stewart-designed products in certain categories under the label "JCP Everyday." The judge ruled that Macy's had not proven its business had suffered irreparable harm due to the product sales by its competitor. Macy's earlier injunction prohibits J.C. Penney from selling Martha Stewart-branded products exclusive to Macy's, such as bed and bath items, cookware, and tableware. The Stewart line at Macy's is worth about $300 million.

According to Reuters, Macy's has appealed the judge's decision and cites the judge had 'erred in several significant respects.' Until 2018, Macy's has an exclusive agreement with Martha Stewart to sell her products. When J.C. Penney acquired a 17% stake in Martha Stewart in 2011, Macy's sued Martha Stewart, claiming it had exclusive rights to sell her products. Three months later, Macy's also filed suit against J.C. Penney.

Martha Stewart’s company filed a motion to dismiss the suit, claiming it had not violated its contract terms with Macy's by designing products under a different label and for a different retailer. The motion was not granted and the court urged both sides to settle their issues outside the legal system. However, mediation efforts were unsuccessful between the two parties.

Brand's impact on J.C. Penney

According to Reuters, Penney’s inventory of Stewart-designed merchandise could be valued around $100 million. The stake in Martha Stewart was one of several bold business moves made by former J.C. Penney CEO, Ron Johnson, in his quest to reinvent the struggling retailer. 

In addition to its Martha Stewart-designed products, J.C. Penney has introduced various new brands, such as Joe Fresh and Pantone Universe, in its stores to attract new customers. If these brands are successful, the possible $100 million loss of the Martha Stewart products would be minimized. So, it's in Penney's interest to go after consumers outside of Stewart’s target demographic.

According to NBC News, Martha Stewart partnered with J.C. Penney to revitalize its own business, which did not grow as expected with Macy's. Taking advantage of an apparent loophole in the Macy's contract, Stewart and Penney planned on opening mini-shops within J.C. Penney stores. The deal has affected Stewart's relationship with long-time friend, Macy's CEO, Terry Lundgren, who has not spoken to Stewart since he heard about it.

Conclusion

In the long run, this very public lawsuit may work against Macy's if the company ends up losing the case. As this issue drags on in the media, the public's exposure to the JCP Everyday brand, and its link to Martha Stewart, provides free advertising for J.C. Penney. If Macy's wins the lawsuit, J.C. Penney would take a $100 million hit that would be detrimental to the company's stock. That would be more bad news for a company trying to raise $1 billion in cash and struggling to turn around last year's 25% drop in revenue.

As the fight continues, it's clear that Martha Stewart is regarded as a strong brand coveted by retailers, despite the company's recent sales declines and five straight years of losses. With 30% of its revenue riding on its merchandising business, Martha Stewart stands to gain from having relationships with both retailers. If the shop-within-a-shop concept succeeds at J.C. Penney, this could provide a boost to the stock price of both companies.


Eileen Rojas has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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