EagleTribune.com, North Andover, MA

February 26, 2013

Macy's CEO testifies in fight over Martha Stewart

By Anne D'innocenzio
Asscociated Press

---- — NEW YORK — Macy’s CEO Terry Lundgren testified on Monday that he hung up on home diva Martha Stewart after she called to tell him that the company that bears her name had inked a deal with J.C. Penney to open shops within most of the chain’s stores.

Lundgren, whose company had been the exclusive carrier of some Martha Stewart’s branded products, hasn’t spoken to her since that phone call on Dec. 6, 2011 — even though he used to be good friends with Stewart.

“I was sick to my stomach,” Lundgren testified on Monday in New York Supreme Court. “I can’t remember hanging up on anyone in my life.”

The testimony comes as Macy’s Inc. and J.C. Penney Co. duke it out in court over the partnership with Martha Stewart Living Omnimedia. The trial, which began Wednesday, focuses on whether Macy’s has the exclusive right to sell some of Martha Stewart branded products such as cookware, bedding and bath items. Other witnesses that are expected to take the stand in coming days include Penney’s CEO Ron Johnson and Martha Stewart, who founded Martha Steward Living.

Martha Stewart’s brand, which has been at Macy’s stores since 2007, has been important to the department store chain. Under Lundgren’s leadership, Macy’s has focused on building exclusive brands like Martha Stewart that are not carried by rivals to get shoppers to the store.

In the home area, exclusivity is key. Lundgren testified on Monday that Macy’s had built the Martha Stewart brand to be the biggest in its home business. Sales last year were up 8 percent, double the rate for the entire company.

Lundgren said Macy’s has spent 40 percent of its overall marketing on the Martha Stewart brand and other labels in the home area, even though the home category represents 17 percent of total sales. That’s because even though the home area is typically slow turning, it drives shoppers to the store.

“I need the Martha Stewart business to be exclusive,” Lundgren said. “I don’t have a substitute.”

His testimony is a culmination of a legal battle between the three companies that started shortly after the Penney-Martha Stewart deal was announced in December 2011.

Macy’s sued Martha Stewart Living in January 2012, saying the company breached a long-standing contract when it penned the deal with Penney, which invested $38.5 million in a nearly 17 percent stake. In a separate lawsuit, Macy’s sued Penney claiming it had no regard for the Macy’s contract and that Johnson had set out to steal the business that it had worked hard to develop.

The two suits were consolidated for the bench trial. Supreme State Court Judge Jeffrey Oing is presiding over the trial, which is expected to last three weeks.

At issue seems to be a loophole in the agreement between Macy’s and Martha Stewart. It’s a provision that allows Martha Stewart to sell goods in categories like bedding in Martha Stewart Living’s own stores.

According to Martha Stewart, because the Macy’s agreement doesn’t say the goods under dispute can be sold “only in “stand-alone” stores, the mini shops within J.C. Penney stores do not fall under the exclusive agreement.