Penney CEO emails suggest aim at breaking deal

Embattled Penney CEO's emails suggest seeking Martha Stewart to break agreement with Macy's

Associated Press
Penney CEO emails suggest aim at breaking deal
.

View photo

Ron Johnson, CEO of J.C. Penney, arrives at New York Supreme Court, …

NEW YORK (AP) -- It's been a tough week to be Ron Johnson.

J.C. Penney's CEO was in the hot seat again on Friday in New York State Supreme Court after facing investors earlier this week over a dismal quarterly earnings performance that marked one year of snowballing losses and sharp sales declines since he came on board.

This time, he was being grilled for four hours by lawyers from rival Macy's Inc. who presented emails that he wrote that they believe illustrate how he plotted to push home diva Martha Stewart to breach an exclusive deal with his rival. They contend he wanted Macy's backed into a corner so Penney would be the sole department store distributor of some of Stewart's goods.

But in cross examination by Penney's attorneys, Johnson, dressed in a dark suit and striped navy tie, rejected their claims and painted a far less devious portrait of himself. He said he just wanted to get a piece of the action while helping the struggling Martha Stewart business grow. And he says that the expanded partnership could be good for everyone, including Macy's.

"Your success is based on a success of a vendor," Johnson testified. "Competition can be your friend."

Penney ended up signing a pact in December 2011 with Martha Stewart Living to open shops at most of its stores in spring 2013. But one month later, Macy's renewed its long-standing exclusive deal until 2018 and then immediately sued Martha Stewart Living and Penney.

The trial, which began Feb. 20, focuses on whether Macy's has the exclusive right to sell some Martha Stewart branded products such as cookware, bedding and bath items.

Macy's is seeking to block Penney from opening Martha Stewart mini shops in its stores. The shops are part of Johnson's plan to reinvent the shopping experience at the beleaguered chain. The stakes are high for all three companies but particularly for Penney.

Penney's shares have now lost nearly 60 percent of their value since early last year when Johnson revealed his plan to scale back most sales in favor of everyday low prices. The stock drop is the latest indictment that Johnson's turnaround is failing Wall Street as much as on Main Street. Johnson is counting on the shops, particularly Martha Stewart's, to bring back shoppers who have fled to rivals like Macy's.

Johnson's appearance comes four days after Macy's CEO Terry Lundgren testified in court that the company had built the Martha Stewart brand to be the biggest name in home items since it began to carry the products in 2007. Having a rival carry similar products would hurt business, he testified.

Martha Stewart, the founder of Martha Stewart Living, is expected to testify Tuesday.

During Johnson's examination Friday, Theodore M. Grossman, an attorney representing Macy's, used a string of emails that Johnson wrote to various people including Bill Ackman, head of Pershing Square Capital Management and Penney board member, Penney executives and others. Grossman's aim appeared to be to show how, since the summer of 2011, Johnson had targeted Martha Stewart because she was the biggest, most recognizable brand in the home business — without any regard to Macy's exclusive agreement that was up for renewal in 2012.

"I need to propose a deal so she (Martha Stewart) can go to Terry Lundgren at Macy's and break the agreement," according to one email Johnson wrote to an Penney executive in August 2011.

In one email that Johnson sent to Ackman on Dec. 7, the day the deal went public, he wrote, "We put Terry in a corner. Normally when that happens and you get someone on the defensive they make bad decisions. This is good."

Johnson, looking tense with his hands clasped, acknowledged that getting a deal with Martha Stewart was critical but stopped short of saying his goal was to break the exclusive agreement. He said he knew there would have to be "an amendment" to a deal between Macy's and Martha Stewart so that Penney could move forward.

Johnson's testimony marks a culmination of a legal battle between the three companies that started shortly after the Penney-Martha Stewart deal was announced on Dec. 7 2011.

Macy's renewed its 2006 pact with Martha Stewart Living in January 2012 but then immediately sued the company, saying it breached a long-standing contract when it penned the 10-year deal with Penney. Penney also invested $38.5 million in a nearly 17 percent stake in Martha Stewart Living.

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.

Penney Co. Inc., based in Plano, Texas, is aiming at what it believes is 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 specify that these Martha Stewart stores have to be '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 argued that a typical definition of a store is that it has a parking lot, is part of a mall or has a sidewalk in front.

Rates

View Comments (22)

Recommended for You

  • Tycoon buys 30 Rolls-Royces for Macau hotel

    A Hong Kong tycoon has placed the biggest ever order for Rolls-Royce cars, agreeing to buy 30 Phantoms to chauffeur guests at a luxury resort he's building in the global gambling capital of Macau. Stephen Hung's $20 million purchase surpasses the 14 Phantoms bought by Hong Kong's Peninsula Hotel in…

    Associated Press
  • Enjoy this refreshing Triple Play offer!

    Get FIOS TV Mundo starting at $79.99/mo. w/ no annual contract + 2-yr. price guarantee. Or sign for 2 yrs. & get a $300 prepaid Visa. Click here.

    AdChoicesVerizon FiOS ®Sponsored
  • Tycoon's arrest sends shock wave through Russia

    Tycoon's arrest sends shock wave through Russia MOSCOW (AP) — The arrest of a Russian telecoms and oil tycoon has sent shock waves through the country's business community, with some fearing a return to the dark days of a decade ago, when the Kremlin asserted its power by imprisoning the country's…

    Associated Press
  • Before You Buy Alibaba, Check Out 4 Top China Stocks

    Before You Buy Alibaba, Check Out 4 Top China Stocks While investors gear up for Alibaba Group 's (BABA) hotly anticipated initial public offering, don't forget about other Chinese stocks that are worth keeping an eye on. Today's Young Guns Screen of

    Investor's Business Daily
  • As Fed takes baby steps, Cramer's trick for profit

    In turn, Cramer says making money in the market, involves looking at the environment through the lens of the Fed. "The trick is to remember that they speak for the common person," Cramer said. "The Fed wants the common person to make money." With that backdrop always in mind, Cramer says it becomes…

    CNBC
  • Costco Stores in Canada to Stop Taking American Express

    “The credit card relationship between American Express and Costco Wholesale Canada will not be renewed when it expires” on Dec. 31, the company said today in an e-mail to Canadian customers. The message was attributed to Lorelle Gilpin, vice president of marketing and membership for Costco…

    Bloomberg
  • "The Retiree Next Door": How successful retirees stretch their savings

    "The Retiree Next Door": How successful retirees stretch their savingsBy the time she hit her late 40s, Toni Eugenia wasn’t sure she would ever be able to retire. Eugenia, 56, a pharmacy technician who lived in Houston, was nearly $200,000 in debt and

    Yahoo Finance
  • CNBC Anchor Calls Out Fed-Hater Bill Fleckenstein In Startling Shouting Match

    CNBC Bill Fleckenstein of Fleckenstein Capital appeared on CNBC's Futures Now program on Tuesday. Futures Now host Jackie DeAngelis came out swinging, asking Fleckenstein right at the top if he was willing to admit that he had misunderstood monetary policy. Sounding taken aback, Fleckenstein…

    Business Insider
  • 1 Tip To Lose Belly Fat

    It's Hollywood's Hottest Diet And Gets Rid Of Stubborn Fat Areas Like Nothing Else.

    AdChoicesagoodcooksSponsored
  • Play

    Citi, Bank of America Offer Discounted Mortgages

    Citigroup and Bank of America will offer mortgages at discounted interest rates to help borrowers with low incomes or subprime credit. AnnaMaria Andriotis joins MoneyBeat. Photo: Getty.

    WSJ Live
  • Beanie Babies creator's sentence debated in court

    Beanie Babies creator's sentence debated in court CHICAGO (AP) — Federal prosecutors seeking to put the billionaire creator of Beanie Babies in prison for hiding millions in Swiss bank accounts told appellate court judges Wednesday that the toymaker's sentence of probation threatens to erode the…

    Associated Press
  • Apple to unveil new iPads, operating system on Oct. 21 : report

    The company plans to unveil the sixth generation of its iPad and the third edition of the iPad mini, as well as its operating system OS X Yosemite, which has undergone a complete visual overhaul, the Internet news website said. Trudy Muller, a spokeswoman for Apple, declined to comment. The iPad is…

    Reuters
  • Margaritaville casino owners seek bankruptcy

    The owner of Biloxi's Margaritaville casino has filed for Chapter 11 bankruptcy protection Tuesday, only hours before a hearing where the landlord aimed to seize the property. The filing by MVB Holding LLC in U.S. Don Dornan, a lawyer for landlord Clay Point LLC, said the company had planned to ask…

    Associated Press
  • Embraer to sell 50 E-175 jets to Republic in $2.1 billion deal

    Brazil's Embraer SA, the world's third largest commercial planemaker, said on Wednesday it booked a firm order from U.S. The deal, which will be included in Embraer's order book for the third quarter, is valued at $2.1 billion, the planemaker said in a securities filing. The planes will be operated…

    Reuters
  • Gilead Stock Is Falling On These Drug Setbacks

    Gilead Stock Is Falling On These Drug Setbacks Gilead Sciences (GILD) shares are backsliding Wednesday on news that the patient drop-out rate for hepatitis C drug Sovaldi is quadruple that of clinical trials. In addition, the biotech's Phase 2 study results

    Investor's Business Daily
  • Accomplish your career goals

    At Capella University, you can learn the skills you need to succeed. Why wait another day? Get started today.

    AdChoicesCapella UniversitySponsored
  • Here's What Mark Cuban Wishes He Knew About Money In His 20s

    Cuban is the owner of the Dallas Mavericks basketball team. Billionaire investor and entrepreneur Mark Cuban is generous with his advice. When we asked him what he wishes he'd known about money in his 20s, he said:

    Business Insider
  • Play

    What the Fed Meeting Means for Bonds

    Janet Yellen & Co. are expected to hint at their timetable for raising interest rates. Here's how investors should prepare ahead of the meeting.

    WSJ Live
  • Don't buy Alibaba stock: 'Dean of Valuation'

    Investors should steer clear of Alibaba , valuation expert Aswath Damodaran said Wednesday. On CNBC's " Fast Money ," Damodaran, a professor of finance at New York University's Stern School of Business, noted that he was looking at Alibaba stock from the perspective of a long-term investor, not a…

    CNBC
  • SHOE COMPANY: Our CEO Just Disappeared And Most Of The Money Is Gone

    "and like that: he's gone." This is an actual headline from a company press release: "CEO and COO disappeared, most of the company's cash missing." (Via FastFT) In a statement, German-based shoe company Ultrasonic said its CFO,  Chi Kwong Clifford Chan, has been unable to reach the company's CEO,…

    Business Insider
  • 10 rock-solid stocks for conservative investors

    10 rock-solid stocks for conservative investors Shares with low volatility can beat their indexes with less risk Bloomberg News/Landov U.S. Bancorp is the cheapest S&P 500 stock

    MarketWatch
  • Billionaire Investor Says Chinese People Work Harder And Western Companies Could Face Deep Trouble After Alibaba IPO

    Michael Moritz, the chairman of VC firm Sequoia Capital, is a huge fan of Chinese internet companies and reiterated his enthusiasm for the Chinese market in an interview with The Wall Street Journal Wednesday. The billionaire investor described the Alibaba IPO as a “major landmark event” that is as…

    Business Insider
  • Norwich Information Security MS

    Online, accredited, top ranked. NSA Center of Academic Excellence. Recognized by the Department of Homeland Security. Download your free brochure!

    AdChoicesNorwich UniversitySponsored
  • Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More

    Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More Stocks were firm on Wednesday morning ahead of the FOMC meeting outcome. Tuesday’s rally may have sparked higher interest again, and investors are looking for bargains

    24/7 Wall St.