JC Penney buying stake in Martha Stewart Living

AP News
Posted: Dec 07, 2011 7:45 PM
JC Penney buying stake in Martha Stewart Living

Department store chain J.C. Penney Co. is looking to homemaking doyenne Martha Stewart as it takes one big step toward re-imagining itself under its new CEO, a former Apple Inc. executive.

"A store has to be much more than the products that it sells," Ron Johnson said in an interview with The Associated Press. "That's what I learned from Apple. You can really move product and change and enrich people's lives."

Johnson, who married hot gadget offerings with helpful expertise when his team created Apple's highly successful stores, says he wants to do the same for the home goods arena, which has been a big challenge for Penney.

Plano, Tex.-based Penney announced Wednesday that it is spending $38.5 million for a 16.6 percent stake in Martha Stewart Living Omnimedia Inc. Starting in February 2013, mini-Martha Stewart shops will appear inside most of J.C. Penney stores, and the companies will operate a joint website.

Much as you can get hands-on technical advice on Macs, iPads and other Apple devices at one of Apple's Genius Bars, customers at the Martha Stewart shops will be able to get expert advice on topics like cooking a complete Thanksgiving dinner. Having a partner like Martha Stewart gives Penney a chance to "re-imagine" the department store experience, Johnson said.

"I have been an admirer of Martha Stewart for two decades," he said. "We're going to unlock the potential of this partnership."

Both Penney and Martha Stewart are in the midst of revitalizing their businesses. Penney has faced lackluster sales and stiff competition from Macy's and other clothing sellers, while Martha Stewart has grappled with declines in print advertising revenue for its magazines and fierce competition from other websites that also offer recipes and lifestyle advice.

Johnson joined Penney's board in August and took over merchandising and marketing responsibilities on Nov. 1. He will assume the remaining CEO functions on Feb. 1, succeeding Myron Ullman III.

In the deal announced Wednesday, the Martha Stewart shops inside J.C. Penney stores will carry items chosen by Martha Stewart and her team. The joint website will sell those products, along with other items designed or chosen by lifestyles guru Stewart.

With the 11 million Martha Stewart Living shares that Penney is buying at $3.50 apiece, it gains representation on the New York company's board, but it didn't say how many seats.

The media and merchandising company is expected to receive more than $200 million over the course of the 10-year deal. Stewart founded the company that bears her name and rejoined the board a few months ago following a five-year exclusion that was part of a settlement with the Securities and Exchange Commission for lying to federal investigators about a stock sale.

"To partner with J. C. Penney, Ron and his extraordinary 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," Stewart said in a statement.

Martha Stewart Living hired investment company Blackstone Advisory Partners in May to explore new partnerships and investments. The company also has exclusive arrangements with Penney rival Macy's Inc. and Home Depot Inc.

Lisa Gersh, president and chief operating officer at Martha Stewart, said told The Associated Press Wednesday that details of the Penney deal were still being hammered out. But she said it would not affect the company's relationships with other stores.

"This is a different presentation and a different view," Gersh said. "We think this is great for the brand and for all our (store) partners."

Gersh said the goal is for customers to go to the Martha Stewart shops at Penney's for the experience, just as they visit Apple stores for the experience.

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But Macy's said Wednesday in an emailed statement from spokesman Jim Sluzewski that it was reviewing the partnership "in light of the proliferation of Martha Stewart-branded product in the marketplace."

"No decisions have been made at this time," Sluzewski wrote.

Macy's began selling Martha Stewart products in 2007.

Home Depot's spokeswoman Jean Niemi, declined to comment.

The deal with Martha Stewart is just Johnson's latest stamp on Penney. Earlier this fall, he hired Target Corp.'s top marketing executive, Michael Francis, as Penney's new president, and the chain hired two of Johnson's former Apple colleagues, Daniel Walker and Michael Kramer. Walker will serve as chief talent officer and Kramer as chief operating officer.

Under his predecessor, Ullman, Penney added popular brands like European clothing line MNG by Mango and Sephora cosmetics. But the department stores are still struggling to be more inviting. Johnson said details of new strategies at Penney, including the Martha Stewart shops, will emerge during a late January meeting with investors.

Penney said its third-quarter revenue at stores open at least a year fell 1.6 percent, in contrast with a 4 percent increase in that key indicator at Macy's and a 2.1 percent rise at Kohl's Corp. The decline continued at Penney, with a 2 percent drop in November for the measure, a key barometer of a retailer's health.

Penney's shares rose 21 cents to close at $33.51 and gained another 13 cents after hours. Martha Stewart shares rose $1.04, or 33 percent, to close at $4.16 but slipped 6 cents after hours.