David M. Russell/The Martha Stewart ShowMartha Stewart and Johnny Knoxville in a 2010 broadcast of “The Martha Stewart Show.”
First J.C. Penney brought in the man behind Apple’s stores to lead a turnaround. Now, the retailer is looking to a symbol of homemaking to provide a further jolt to lagging sales.
J.C. Penney plans to announce on Wednesday that it will buy a 16.6 percent stake in Martha Stewart Living Omnimedia for about $38.5 million, according to people briefed on the matter. The company will also receive two seats on the Martha Stewart board.
J.C. Penney, as part of a 10-year partnership, plans to introduce ministores and a revamped online presence dedicated to the Martha Stewart brand beginning in February 2013, these people said. The in-store areas will be stocked with Martha Stewart products, and will have trained employees who will provide advice and tips not dissimilar to Apple’s Genius Bar concept, these people added.
The deal will bring together two famous brands that are trying to rebuild themselves amid tough times. J.C. Penney brought in Ron Johnson, a former Target executive who became the architect of Apple’s wildly successful push into retailing, as its new chief executive earlier this year as sales declined. And Martha Stewart, a media and brand licensing company, has grappled with losses in eight out of its 10 recent quarters, hurt by an advertising slump.
Martha Stewart expects to reap more than $200 million from the arrangement, including royalty payments, design fees and advertising commitments. The company will continue its existing partnerships with other retailers, like Macy’s and Home Depot. Ms. Stewart will remain her company’s biggest shareholder, controlling most of the voting B shares. J.C. Penney will be the biggest holder of the Class A shares, these people said. She rejoined the company’s board in August after a five-year ban imposed by regulators after her conviction for lying to federal investigators about a stock sale.
J.C. Penney will pay $3.50 a share for its stake, a 12 percent premium to Martha Stewart’s closing price on Tuesday.
Representatives for J.C. Penney and Martha Stewart declined to comment.
In May, Martha Stewart hired the Blackstone Group to review the company’s strategic options after investors had expressed interest in taking a piece of the business. The announcement Wednesday is expected to draw that process to a close.
Talks between Martha Stewart and Penney began several months ago, with Mr. Johnson flying to New York to meet with Ms. Stewart, the people briefed on the matter said. Among the main moments that solidified the partnership was a trip to Martha Stewart’s headquarters, where Mr. Johnson grew excited by an array of merchandise and retail concepts ensconced in the company’s 150,000-square-foot showroom.
The two executives continued to refine the details of the partnership over additional meetings, including at her favorite coffee shop on the Upper East Side of Manhattan — where Ms. Stewart discovered that Mr. Johnson doesn’t drink coffee.
For J.C. Penney, a partnership would bring in not only a recognizable brand, but also an opportunity to draw on retail practices that Mr. Johnson first developed at Target and Apple.
And for Martha Stewart, an alliance with J.C. Penney would bring in an eager partner promising prominent space and an additional new source of revenue.
Aligning with Martha Stewart in some ways continues what J.C. Penney has already done with the likes of Sephora, having created ministores for those brands within its stores.
Such exclusive lines were a cornerstone of J.C. Penney’s strategy under Mr. Johnson’s predecessor, Myron E. Ullman III, who focused on brands like Call It Spring, MNG by Mangostyle and Modern Bride.
So far, the company’s biggest exclusive bet has been Liz Claiborne, which had been widely sold until August 2010, when J.C. Penney bought exclusive distribution rights for the brand. In October, J.C. Penney sped up a plan to buy the brand outright, spending $267.5 million.
J.C. Penney said in its earnings call last month said that Claiborne had been a “standout performer” in the quarter, and that more than a quarter-million shoppers new to J.C. Penney had bought Claiborne merchandise there.
Still, the reliance on exclusives has not turned around J.C. Penney’s sales. In the third quarter, its sales at stores open at least a year dropped 1.6 percent, while its competitors Macy’s and Kohl’s rose 4 percent and 2.1 percent, respectively.
The deal will tie J.C. Penney closely to Ms. Stewart, who remains the company’s chief saleswoman, with a broad presence across the retail world. She stars in commercials for Macy’s and promotes cookware, furniture and bedding — in patterns like “Holiday Scottie” and “Penguin Choir” — for the retailer. Home Depot produces Martha Stewart-brand paint, cabinets and faucets. And PetSmart features a Martha Stewart Pet line of grooming tools, leashes and clothes.
As recently as September, Staples announced an agreement to sell office supplies designed by Ms. Stewart.
Article source: http://feeds.nytimes.com/click.phdo?i=d7be268c345d0f58be32c0d870461611
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