I’m not a huge fan of Martha Stewart — her smile hurts my eyes — but I’m not going to deny that having her name on cheap ceramic bowls makes those bowls easier to sell. For years, she’s been the face of the American home, with its linens, gravy bowls, and house arrest anklets. So it’s not surprising that companies like Macy’s, Inc. (NYSE:M) and J.C. Penney Company, Inc. (NYSE:JCP) want to use her name on everything they can. What’s also not surprising is that the Stewart Empire is going to try to milk that for all the endorsement cash that it can. Combine those two and it’s easy to see how we got here — where “here” is a place that Macy’s sues Stewart and J.C. Penney for breaking an exclusive contract.
The case hinges on whether the little fake stores within JCPenney locations count as J.C. Penney’s or their own brands. If they count as J.C. Penney subsidiaries, then Macy’s will show that its exclusivity with Stewart has been infringed upon. If they count as tiny Martha Stewart stores, then they’ll fall into the exception clause of the Macy’s contract, which stipulates that Stewart can sell her wares at her own stores. The questions for investors are: Will it matter? and Who’s likely to win?
The (mixed) nuts and bolts (of cloth)
In 2007, Macy’s signed the exclusivity deal with Martha Stewart Living Omnimedia, Inc. (NYSE:MSO). The company has filed memos as part of the suit alleging that it added Stewart to its lineup at a time when no one was interested in working with her. In 2007, she had just been released from prison and her company was only being represented in Kmart. Now, Macy’s claims, J.C Penney “is trying to harvest the field planted and cultivated by Macy’s.”
Unsurprisingly, that’s not how J.C. Penney sees things. It doesn’t dispute that Macy’s and Stewart have an exclusivity agreement, but it disputes the terms of that agreement. According to J.C. Penney, the contract stipulates that Stewart has every right to sell her goods through Martha Stewart Living stores. J.C. Penney then goes on to claim that the in-store stores it’s setting up with Stewart count as Martha Stewart Living locations, not as parts of J.C. Penney. That would mean that Stewart has every right to sell merchandise out of the locations. The key, J.C. Penney’s lawyers claim, is that the contract doesn’t say that the stores have to be stand-alone — therefore, an in-store store is a store.