NEW YORK -- Macy’s CEO Terry Lundgren testified on Monday that he hung up on home diva Martha Stewart after she called to inform him on Dec. 6, 2011 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. He hasn’t spoken to her since, even though the two used to be good friends.
“I was sick to my stomach. 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 New York Supreme 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 Martha Stewart branded cookware, bedding and other products. Other key witnesses expected to take the stand this week include Penney’s CEO Ron Johnson and Martha Stewart.
Lundgren testified on Monday that Macy’s had built the Martha Stewart brand to be the biggest in its home business. Under Lungren’s leadership, Macy’s has focused on building exclusive brands that are not carried by rivals to get shoppers to the store. In the home area, exclusivity is key: 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 even though the home category represents 17 percent of sales. He says that having Penney have access to the brand will not be good for the business and will confuse shoppers. He recalled how he saw the Liz Claiborne brand’s sales kept dropping when some of the labels became exclusive to Penney. Penney bought the Liz Claborne business a few years ago.
“I need the Martha Stewart business to be exclusive,” Lundgren said. “I don’t have a substitute.”
The testimony is a culmination of a legal battle between the three companies that started in 2011.
Macy’s sued Martha Stewart Living in January 2011, 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, over which Supreme State Court Judge Jeffrey Oing is presiding; it is expected to last three weeks.
At issue seems to be a lophole in the agreement with Macy’s. It’s a provision that allows Martha Stewart to sell goods in categories like bedding in Martha Stewart Living’s own stores.
And because, according to Martha Stewart, 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.
Macy’s Inc., based in Cincinnati, disagrees. Lundgren argues that a typical definition of a store is that it has a parking lot or is part of a mall.