The Exchange

The Comedown Continues for Martha Stewart

The Exchange

A few months ago, J.C. Penney (JCP) apparently felt it was worth fighting for Martha Stewart. Now it’s casting her and her eponymous company aside.

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The embattled retailer has been embroiled in a lawsuit with its competitor Macy’s (M) over which company can peddle which Martha Stewart products. The suit dates to January 2012, so both firms have spent considerable sums on legal fees for the right to claim Martha as their own. But J.C. Penney’s two-time CEO, Mike Ullman, has reportedly decided that Martha Stewart merchandise is too expensive for the penny-pinching Penney’s shopper, a mismatch that has led to weak sales. So Macy’s can have her.

Penney’s has been the tortured adolescent of the business world lately, generating enough drama to keep a mallful of pundits and analysts busy yapping. That’s mostly due to hedge-fund honcho Bill Ackman, who bought a big stake in Penney’s in 2010, fired Ullman, installed former Apple retail guru Ron Johnson as CEO, oversaw a failed turnaround plan, then fired Johnson and sold his entire stake in the company, losing nearly half a billion dollars. Few companies undergo so much turmoil, only to end up back where they started.

Martha Stewart Living Omnimedia (MSO) may end up the bigger loser, however. The once-hot lifestyle firm has been slumming it lately, with five straight years of losses that have been getting worse, not better, as the brand ages and the company's TV and print properties lose their luster. The company has also seen a series of CEOs exit the building in the past several years, the latest being Lisa Gersh in February. Company sales in 2012 were only $179 million, down from $328 million in 2007, the company’s peak year. Analysts surveyed by S&P Capital IQ expect another drop in sales this year, to $171 million — and that’s before accounting for the loss of Penney’s business.

Stock in the basement

The company’s stock has been in the basement as well. It’s down 72% during the past five years, and it fell nearly 6%, to a mere $2.32, on the news of the divorce from Penney’s, which came just days before a judge was expected to rule in the Macy’s lawsuit. For its part, Martha Stewart Living said it plans to remain a Penney’s supplier, suggesting further negotiation between the two companies may be possible.

Practitioners of schadenfreude could hardly find a better target than Martha Stewart herself. Since serving five months in prison following her 2004 conviction in an insider-trading scandal regarding the drugmaker ImClone, Stewart has been banned from an active management role in her firm and seen her personal fortune decline. She’s still a majority shareholder in her firm, so her wealth has tumbled along with the company’s fortunes.

Stewart suffered a further indignity earlier this year when the company cut her pay by $500,000, as part of a “plan to return Martha Stewart Living Omnimedia … to profitability.” Stewart remains the company’s non-executive chairman, and she also earns a licensing fee for the use of her name as the company’s principal brand. Stewart's wealth may have peaked around 2005, when Forbes put her on its list of billionaires. She's no longer included, but don’t cry too much for Martha: She still gets paid $3.5 million per year in salary and fees.

Stewart is 72 and, after a turbulent decade, it’s not clear how much fight she has left in her. Macy’s and several other retailers will continue to carry her products and, as a brand, Martha Stewart may be as well-known as ever, thanks in part to all the controversy that has enveloped it. If the company can put an end to its legal battles, perhaps the brand — and the woman — will enjoy a brighter and calmer future.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.

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