Fred R. Conrad/The New York Times
Exclusive products, like the Martha Stewart lines, are competitive products prized by retail chains, particularly in a rebounding housing market.
Two of the biggest names in retail are fighting over Martha Stewart.
In one corner is Ron Johnson, the chief executive of the embattled J. C. Penney. In the other is Terry Lundgren, the chief of Macy’s. Both want the home diva’s housewares, and this week some of their maneuvers were laid bare in a courtroom in Lower Manhattan.
Only days after J. C. Penney stunned Wall Street with news of a big loss, Mr. Johnson described how the hobbled chain was trying to win over Ms. Stewart. He was willing to offer lucrative inducements, worth a potential $500 million in all, to persuade her to sell her branded and designed products in Penney stores.
E-mails in court documents suggest Mr. Johnson was keenly anticipating the reaction of Mr. Lundgren, whose chain has an exclusive contract with Ms. Stewart’s company, Martha Stewart Living Omnimedia, to sell certain housewares.
“Terry might have a headache tonight,” Mr. Johnson wrote to top lieutenants on Dec. 7, 2011, the day the deal between Penney and Ms. Stewart was announced.
“We put Terry in a corner,” he wrote to the Penney investor William Ackman the same day. To Penney’s president, he wrote, “He now has to work again,” of Mr. Lundgren.
Beyond the drama, which is expected to continue with Ms. Stewart’s testimony next week, the trial underscores how competitive the middle-market home goods category is and how much one brand like Martha Stewart can matter.
Home is not the sexiest of categories. It is things like sheets, towels, pots and toasters that are broadly available, low-margin and slow selling. Both Mr. Johnson and Mr. Lundgren said home goods rang up remarkably few sales per square foot. Mr. Johnson said that the category made $185 per square foot in 2007, but now made less than $80. And Mr. Lundgren said that at Macy’s, home was “generally the least profitable part of the store.”
Macy’s, which has been selling Ms. Stewart’s housewares for six years, filed suits last year against both Martha Stewart Living Omnimedia and Penney’s to stop the deal to bring her housewares into that retailer.
The fight over the dud home category might seem counterintuitive. But analysts say it is crucial to a department store’s offerings, and is particularly important now.
“The housing market is rebounding,” said Michael Brown, a partner in the consumer and retail practice at A. T. Kearney, “therefore the home products category is going to be in demand over the next 18- to 24-month period.”
Home departments bring in traffic, particularly from consumers who don’t want to make a separate trip to big-box competitors that are dedicated to home products only, Debra Mednick, home industry analyst for the NPD Group, said in an e-mail. Plus, she said, it brings in a wide range of demographics and ages. Most people need a pan at some point in their lives. Because high-end stores like Saks and Neiman Marcus sell few housewares, it is also a chance for the midrange stores to snag wealthier shoppers, Mr. Lundgren testified Monday.
Home-goods sales have been struggling as they tend to rise or fall in concert with the housing market, and new competition has been introduced from online-only vendors like One Kings Lane.
Exclusive products, like the Martha Stewart lines that Macy’s and Penney’s are fighting over, are particularly important in the home category. “The competitive advantage really lies with private label brands,” Mr. Brown said. “What drives consumers to a physical store is, is there something different?”
Ms. Stewart is the biggest vendor to Macy’s home department, and Mr. Lundgren said that Macy’s had nothing lined up to replace her line.
In a deposition, Mr. Johnson said that there was no other supplier to Penney’s that he expected to have the sales that Ms. Stewart would.
Sales are desperately needed at J. C. Penney, which has been in business for 111 years. Penney’s this week announced a $552 million loss and steep sales declines in the fourth quarter, as well for the year.
And Mr. Johnson, the former retail chief at Apple who took over the chain in 2011, is under increasing pressure to turn the retailer around. Ms. Stewart’s brand is a centerpiece of that strategy.
Penney is renovating an average of 19,000 square feet in each store to feature its new store-within-a-store home emporiums. It has signed up housewares designers like Michael Graves and Jonathan Adler. And Mr. Johnson told investors that when the home departments are unveiled in May, the company should see improved customer traffic.
On the stand on Friday, he said that Ms. Stewart was popular with middle-class shoppers, which fit Penney’s demographic, and that the Martha Stewart stores-within-a-store would serve as a showpiece for other vendors. “What a perfect example to show other vendors what these shops could be,” he said.
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