Macy’s Delivers Blow to J.C. Penney

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On Monday, Macy’s Inc. (NYSE:M) announced it is suing Martha Stewart Living Omnimedia Inc. (NYSE:MSO) in order to block a new licensing agreement with rival retailer J.C. Penney (NYSE:JCP).  Macy’s claims the agreement violated its own exclusive deal with Martha Steward Living.

The lawsuit comes shortly after J.C. Penney agreed to sell its own line of Martha Stewart-branded home and kitchen products.  J.C. Penney is also planning on opening Martha Stewart stores within its department stores early next year.  In December, J.C. Penney also purchased a minority stake in Martha Stewart for $38.5 million.  Macy’s was not pleased with the move, as it has carried a line of Martha Stewart home products since 2007.  The product line is also Macy’s best selling home brand.

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Martha Stewart declined to comment on the lawsuit, but Lisa Gersh, the company’s president claimed last month that the J.C. Penney line would be “completely different” from the products carried at Macy’s.  The legal battle highlights the need for companies to capitalize on home goods and improvement sales.  According to the WSJ, “The category made up 15% of Macy’s $25 billion in sales in 2010. Home sales were 18% of Penney’s total sales in 2010, but have been the department store’s worst performer.”  Other home goods and improvement stores such as The Home Depot, Inc. (NYSE:HD) and Lowe’s (NYSE:LOW) have seen increasing sales as people are still willing to spend money on their homes.

This is hardly the first time Martha Stewart has been at the center of controversy.  In 2004, she was convicted of lying to investigators about insider trading in ImClone Systems, and served five months in a West Virginia federal prison.  More recently, Stewart found controversy with Sears Holdings Corp. (NASDAQ:SHLD) after saying during a television interview, “Have you been to a Kmart lately? It’s not the nicest place to shop.”  The comment came near the time her contract with the retailer was ending.

While shares of Macy’s and Martha Stewart Living Omnimedia fell a modest half percent, shares of J.C. Penney declined 1.5 percent in afternoon trading.  If J.C. Penney is not allowed to carry the Martha Stewart line, it will be a blow to the company’s turnaround efforts.  Penney recently hired former Apple (NASDAQ:AAPL) executive Ron Johnson as CEO to help increase sales.  “We intend for Martha Stewart stores to be a key centerpiece of our new strategy to transform J.C. Penney into America’s favorite store,” CEO Johnson said in a statement.  Penney also hired Target’s (NYSE:TGT) top marketing executive, Michael Francis, as its new president in October.

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To contact the reporter on this story: Eric McWhinnie at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

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