In an emotional testimony, Mr. Lundgren described hanging up on Ms. Stewart after she revealed that Martha Stewart Living Omnimedia had struck a deal with J.C. Penney. The court saw a list of points that Ms. Stewart was to cover in the conversation, but she insists she was not reading a prepared statement as Mr. Lundgren had thought.
"I don't know if I even got through half the points before I was hung up on," Ms. Stewart said. She later added, "It was only a one-sided acrimonious phone call. [Mr. Lundgren] was not very talkative."
The whole exchange upset Ms. Stewart who said she was taken aback by his response and was "flabbergasted" when Mr. Lundgren hung up on her.
"Looking back I would probably change a few things," Ms. Stewart admitted, referring to how she handled informing Mr. Lundgren of the J.C. Penney deal.
Ms. Stewart was the picture of calm on the stand in the packed courtroom as she was questioned by both Macy's and MSLO's attorneys about her relationship with Macy's.
"I have shopped at Macy's since I was a young child. It's been a fixture in our home," she said. "Macy's has been a nice partner."
She added, "We've lived up to our obligations under the contract. Macy's has lived up to most of their obligations under the contract."
Through questioning by MSLO's lawyer, Ms. Stewart clarified that she and MSLO were disappointed in Macy's ability to maximize the Martha Stewart business. "We got to a certain dollar amount and struggled and never got any further," she said.
The dollar amount she refers to is $300 million, the amount of the Macy's Martha Stewart business as it now stands. In the first two years of the contract, that number was $200 million, but Ms. Stewart had hoped it would have been doubled that after five years.
She also said that MSLO had hoped to be a much more important part of Macy's home business. Martha Stewart products and other private label brands make up 40% of Macy's home offering and, although Martha Stewart is the largest brand, "they've kept us static," she claimed. "As a company, we couldn't survive without growth."
At J.C. Penney, the plan is to make Martha Stewart more dominant. MSLO would have its own shop and be the star of the home show. And the investment and partnership with J.C. Penney would certainly help the company, which has seen revenues decline due to the poor performance of its media properties.
"My dream was within a year of signing with JCP was to have the Martha Stewart Home Store within 700 stores," Ms. Stewart said.
Ms. Stewart says she did not think that MSLO was breaching its responsibility to Macy's in any regard. She thought that a brand as strong as MSLO could be at a number of outlets serving a variety of customers. She said that she had heard that J.C. Penney customers had a third less household income than Macy's customers and thought that there would be room for two retailers serving different customers with different products.
Macy's lawyer then called her out for admitting that J.C. Penney as a retailer was downscale from Macy's; MSLO cannot market with downscale retailers according to the Macy's contract.