Macy's CEO Emphasizes Exclusivity With Martha Stewart During Testimony

Emotions run high as Terry Lundgren describes his reaction when he found out about deal with J.C. Penney

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Terry Lundgren
Terry Lundgren

The trial between Macy's, J.C. Penney and Martha Stewart Living Omnimedia resumed today with emotional testimony from Macy's Chairman and CEO Terry Lundgren.

What was evident in the courtroom is that the dealings between Ms. Stewart's MSLO and J.C. Penney hit the Macy's CEO hard. Mr. Lundgren revealed today that Ms. Stewart has the distinction of being the only person he has ever hung up on. He did so after she revealed the J.C. Penney deal, explained the chain had taken a 16% stake in MSLO and was going to launch a series of shops in stores, along with an online catalog. Immediately following that call, he emailed his colleagues about the deal.

"I told her I was shocked, appalled and disgusted that she would not come to us first with the opportunity to counter, especially since her business problems have nothing to do with us," wrote Mr. Lundgren in an email admitted by Macy's counsel. "We have done everything for her and have been totally loyal. She said they had to do something since the company is failing."

He testified that he was caught off guard because there was no question that they were going to renew the MSLO contract. In addition, MSLO never gave any indication that it was upset with its brand's performance at Macy's. Macy's was held up as the one outstanding business that they had, said Mr. Lundgren.

"I'm Sick"

He later wrote in an email to the Macy's CMO, Martine Reardon, "I'm sick." On the stand, Mr. Lundgren said, "I don't normally write emails like that. I'm finding myself upset right now as I talk about it."

Still Mr. Lundgren said, "We are totally committed to the business with MSLO. We had a record year, even after [the lawsuit] was public." Macy's has renewed its contract through January 2018 and continues to use Stewart in its advertising. He added, "I don't have an answer as to what to do without Martha Stewart."

But despite being invested in the business relationship with MSLO, Mr. Lundgren said, "I don't have a personal relationship anymore with Martha Stewart."

In fact, he hasn't spoken with her since that call when she told him about her deal with J.C. Penney. Although, Ms. Stewart reached out in November of this year, according to Mr. Lundgren, to ask about getting tickets to the Macy's Thanksgiving Day Parade. Macy's provided the tickets.

Both Macy's and J.C. Penney believe that Martha Stewart is key to their home businesses. Macy's argues Martha Stewart Living Omnimedia breached a contract that has been in place since 2007 when it agreed to open Martha Stewart shop-within-a-shop for J.C. Penney in December 2011.

Key to Macy's argument today was the idea that it had exclusive rights to sell Martha Stewart products in a number of home product categories like bedding, housewares, home décor and cookware.

Mr. Lundgren testified that since it started selling the Martha Stewart brand in 2007, it was a priority for Macy's and that because of the attention paid to it, it had grown from zero to a several hundred million dollar business. In fact, he said that growth of the Martha Stewart line outpaced the home business and it outpaced the entire store by double.

"[The Martha Stewart Collection] is a reason that consumers come to our store," said Mr. Lundgren. "It's exclusively ours."

Macy's Protects Its Turf

Macy's has not been tolerant of other company's on its Martha Stewart turf. When Martha was featured in a Walmart spot that included paper plates, Macy's asked for the spots to be pulled despite the fact that it does not sell paper plates, but dining products. MSLO and Walmart agreed to pull the spot.

Mr. Lundgren went on to say that while the home store is usually the least profitable section of its stores – because of long lead time and slow turn of products – 40% of its advertising is attached to the home business.

The Macy's vs. J.C. Penney and Macy's vs. MSLO cases are being heard at the New York State Supreme Court in downtown Manhattan and are expected to run for the next two to three weeks. Opening arguments took place last week. On Friday, J.C. Penney CEO Ron Johnson is expected to testify. Justice Jeffrey Oing will decide the case.

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