Breakout

Macy’s vs. JC Penney: Battle Over Martha Stewart Gets Nasty

Jeff Macke
Breakout

The Martha Stewart, Terry Lundgren, Ron Johnson courtroom showdown continues this week and things are just heating up. Ostensibly it's a relatively simple case over brand exclusivity. In reality it's a bizarre corporate love triangle; the stuff soap operas are made of.

The basics are relatively simple. Macy's (M) has a deal with Martha Stewart Living Omnimedia (MSO) under the terms of which Martha can open free-standing stores not in Macy's competitors. JC Penney (JCP), who plans to begin selling MSLO products in May, argues that their "store-within-a-store" concept means they're not carrying Martha Stewart goods, but are instead acting like a landlord for free standing Martha Stewart shops.

"Terry Lundgren feels he built this business for Martha Stewart," says retail analyst Hitha Prabhakar in the attached clip. Lundgren testified that he felt betrayed by Stewart who he claims was good friends with Lundgren's wife. Macy's spends up to 40% of its marketing budget on promoting Stewart's product.

Related: Martha Stewart, Macy's & JC Penney Take High-Stakes Love Triangle to Court

"He feels both personally and financially he invested a lot in this brand," says Prabhakar. Hell hath no fury like a CEO scorned.

On Friday, JC Penney CEO Ron Johnson took the stand. In a series of emails presented by the prosecution, Johnson boasted to shareholder Bill Ackman that the MSO deal would back Lundgren "in a corner" and likely cause him to make bad decisions.

Johnson said in another give Lundgren "a full-on migrane :)". Yes, the CEO of a $5 billion company used an emoticon to express his feelings about causing another CEO physical pain. No word if JCP lawyers used a frowny face ":(" to describe the turn of events.

Martha Stewart is expected to testify on Tuesday. No one knows what she'll say but it better be good. Prabhakar says JC Penney doesn't need Stewart as much as they had thought. With Macy's angry and JCP's ardor fading Stewart risks ending up in neither chain.

It's not a stretch to say a worst-case scenario in the trial could jeopardize MSLO's long-term existence. In order to save her company Martha Stewart will have to put on the performance of her life tomorrow in a NYC courtroom.

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