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Retail Wars

Why Martha Stewart Roasted the Hand that Fed Her

Stewart rides away from a New York court on March 5

Photograph by Jin Lee/Bloomberg

Stewart rides away from a New York court on March 5

For Martha Stewart, love is a relative term. Now that she has explained what motivated her merchandising deal with J.C. Penney (JCP), it seems her passion for Macy’s (M) faded when a more desirable suitor came on the scene.

Sure, she loves Macy’s, she told a Manhattan court on March 5, having shopped there since she was a “young child.” (Only with Martha does the image of a preschooler scanning cookware prices not seem odd.) But it had become a ho-hum relationship; the domestic doyenne testified she was “not always thrilled” with the exposure her brand got in Macy’s. While she lived up to “everything” in the partnership, Stewart claims the retail chain’s execs lived up to only “some of it.” As for those boardroom minutes in which she claimed to be  “thrilled” at becoming Macy’s top home brand? Those were, well, just words. Or rather, as she clarified in court, talking points prepared by Macy’s itself.

Stewart’s testimony in defending Martha Stewart Living Omnimedia (MSO) and J.C. Penney against the suit by Macy’s left little doubt about where her affections lie. While Stewart insisted there is room for both retailers in her life, she behaved like someone less interested in juggling two partners than in moving on to a better provider.

What planted the seeds of discontent was not Macy’s, at which her company’s sales continued to grow amid the financial crisis. It was the lure of life under Penney and Ron Johnson, the man who had built Apple’s stunning retail franchise and was expected to work his magic at Penney. As J.Crew chief Mickey Drexler, an Apple (AAPL) board member, told Stewart in an e-mail presented in court: “Ron would do Martha Stewart the right way.” Instead of putting her stuff on shelves alongside other brands, Johnson would give Martha her own in-store boutiques. She’d have full creative control, more prestige, more lucrative licensing fees. Instead of a fleeting partnership, she’d get real commitment from a man she still calls “a visionary,” a man who agreed to buy 17 percent of her company. Stewart herself could make half-a-billion dollars in the deal, Johnson had speculated. Together, they’d pull off the retail renaissance of our time.

So what did Stewart expect when she broke the news to Macy’s Chief Executive Officer Terry Lundgren, who had bet millions on resurrecting her brand after she went to jail for lying about a stock trade? Well, more than she got. Not only was Lundgren “not very talkative” when she informed him of the done deal, Stewart said, she was “flabbergasted” when he hung up during their call. Could she tell that Lundgren was “shocked and blown away” or “made sick to his stomach” by the acrimonious call, as he testified last week? Hey, ask him. As she cheerfully pointed out in court, the acrimony wasn’t coming from her.

Perhaps that’s because she had already moved on. The attitude is vaguely reminiscent of the visible disdain that Stewart had for Kmart and its chairman Eddie Lampert in the waning years of that retail relationship. There, too, Stewart had overlap—with one key difference: Lampert dumped her. Everyone knew the relationship was going to end in 2009, when Stewart turned her attention to Macy’s. Back then, she’d complained on CNBC that her brand had been diminished, cheapened, even “kind of ripped off” under Lampert, a man who’d filled her with hope when he took over Kmart parent Sears Holding (SHLD) in 2003. Never mind what she’d put him through in subsequent years. Kmart wasn’t worthy of her merchandise.

Macy’s, though, is another matter. The mystery isn’t why Stewart broke the news so late. With three public companies involved, news of talks would have to be disclosed, potentially costing her the deal. (The Penney plan anticipated opening Martha mini-stores in February 2013.) What’s perplexing is the assumption that Lundgren would walk away and let a rival reap the rewards of his work.  Stewart had told him she was happy. They had agreed to stay together until at least 2014. With a new contract in hand and an exclusive brand in his stores, Lundgren had no intention of moving on to a new mate.

Stewart, meanwhile, finds herself stuck with a retailer whose star no longer burns as bright. Even if this has helped reignite her affection for Macy’s, it may be too late to repair the damage.

Brady is a senior editor for Bloomberg Businessweek in New York.

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