Is Martha Stewart Living?
Halina is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Just about all of us have watched Martha Stewart on TV or read her magazine publication Martha Stewart Living by now. And almost all of us have envied her ability to create the perfect batch of scones while simultaneously finding a way to repurpose the spent eggshells into decorative tomato seed planters. While you're dreading the thought of making four dozen cupcakes for your daughter's troop meeting and scurrying to locate that "insta" cake mix you bought several years ago, Martha is already piping out homemade buttercream frosting - with just a touch of homegrown lavendar - onto hers.
Thus, when the diva of high-end domestic bliss decided to take things public in 1999 with the IPO of Martha Stewart Living Omnimedia (NYSE: MSO), expectations were riding high that this would be the perfect stock for investors. However, the outcome has been anything but; since its "coming-out party," the market capitalization of MSO has depreciated from $1.7 billion to $200 million. Last year, the company reported revenues that were actually below those of 1999. Pricewise, the stock has been languishing ever since the start of the Great Recession and now trades at roughly $3:
What might Martha Stewart Living Omnimedia do to get back into the good graces of stockholders as well as aspiring homemakers? Here are some ideas:
Cut the multimillion dollar salary
For the past three years, while Martha Stewart Living Omnimedia has been posting earnings losses of roughly $40 million, Ms. Stewart has been collecting a hefty salary and other compensation in excess of $21 million. Some of the compensation just for 2010 alone included $56,000 for a weekend driver and $30,000 for a personal trainer. Martha's daughter Alexis, the co-host of Martha's TV and radio shows, earned over $400,000 in 2010. Such salaries are justifiable when a company is healthy and growing but just plain foolish (with a small "f") when it's trying to keep its head above water.
Furthermore, even leaders of more successful companies such as Apple let their rightly earned compensation go back to the company rather than their coffers; Steve Jobs was well noted to earn a $1/year salary from 1997 until his death in 2011. Eric Schmidt, Larry Page and Sergey Brin of Google have done likewise, living off of their company stock options and perks rather than drawing a massive paycheck from the company. After a tough year in 2009, Jen Hsun-Huang of NVIDIA, along with his entire board, nobly decided to take $1/year salaries rather than lay off employees.
Limit the branding
There are Martha Stewart PetSmart goods, Martha Stewart branded KB homes and Martha Stewart Home Depot paint and patio furniture. More recently, there are Martha Stewart branded Avery products for the home office. There is even a Martha Stewart branded toilet bowl cleaner "that leaves your toilet sparkling."
Granted, merchandising did help MSO realize a profitable year in 2007. However, there have been concerns that the Martha Stewart name has been overbranded and thus diluted. Furthermore, overbranding has led to partner companies stepping on each other's toes; for example, when Martha Stewart Living Omnimedia formed a partnership with J.C. Penney (NYSE: JCP), Macy's sued, stating that the partnership violated Macy's exclusive rights to sell Martha Stewart products.
Fortunately for both Martha and J.C. Penney, Judge Jeffrey Oing declined to rule against the partnership, saying it would hinder J.C. Penney from conducting business. While the latest court decision is a clear win for Martha Stewart Living Omnimedia, it's also a good indicator that there is a limit to merchandising. Rather than going nuts and licensing everything from vitamins to clothing to financial services (all MSO marketing duds, by the way), MSO should focus on marketing and promoting a select array of products in defined categories. Likewise, the company could look into making its very own unique products without the aid of a partner, thus enhancing profit margins.
Get in touch with economic reality
When Martha Stewart Living Omnimedia went public in 1999, the U.S. was a different place economically. People could afford to purchase top-of-the-line cookware and exotic ingredients like Robiola and white truffle oil. The tech bubble burst, followed by the housing market collapse and Great Recession, changed the way homemakers perceived what constituted "essential."
Practical cooking shows like the Rachael Ray Show and Everyday Italian gained followers. Online recipe sites like eMeals provided families with quick and easy meal solutions that came complete with food cost calculations. As a result, "The Martha Stewart Show" slid in its ratings and by September 2010 was switched from NBC to the Hallmark Channel. Early this year, Hallmark decided not to renew the show's contract, due in part to its low ratings and to the high cost of its leased Manhattan studio.
Going forward, MSO needs to emphasize how certain expensive items save money in the long run; for example, a good set of copper-clad pots prevent food from being easily burned and the cookware can last several lifetimes. Alternately, "The Martha Stewart Show" could emphasize how buying local produce in season saves money and ensures that you are getting top quality food at its peak of freshness and flavor.
Summary
Martha Stewart Living Omnimedia may be down but it's certainly not out just yet. Lisa Gersh, the company's president and CEO, has been looking at cutting costs at MSO, such as by finding a more economical location for "The Martha Stewart Show" and closing job positions at Martha Stewart Living magazine.
However, with Martha Stewart insisting on top quality everything and also holding 87% of the voting rights, a leaner MSO will be a challenge. The company is also looking at branching out into online media, including increasing its digital magazine subscriptions and posting recipe videocasts along with beefed-up content for the Web and mobile devices.
Martha Stewart Living Omnimedia has already been attempting to go international with its product licensing, and there might even be another reality TV show in store, like the short-lived Martha Stewart version of "The Apprentice." Such maneuvers are bound to put a fresh and hopefully more profitable face on the homemaking company.
halina23 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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.If you have questions about this post or the Fool’s blog network, click here for information.
