Macy’s CEO Says He Expected Martha Stewart Exclusivity

Terry Lundgren, chief executive officer of Macy’s Inc. (M), said he was so upset when Martha Stewart called to tell him about her company’s deal to sell products at J.C. Penney Co. stores that he hung up on her and hasn’t spoken with her since.

Lundgren, 60, testified he was “completely shocked and blown away” when Stewart called in December 2011 to tell him about the pact, which was announced the next day. When Stewart said the agreement would be “good for Macy’s,” Lundgren said he replied “this conversation is over” and ended the talk.

“I was literally sick to my stomach about this,” Lundgren said yesterday during a trial in New York State Supreme Court in Manhattan over Macy’s lawsuit seeking to block J.C. Penney from selling some Martha Stewart-branded goods. “It was something I couldn’t imagine.”

The second-biggest U.S. department store chain, which has sold Martha Stewart-branded home goods since 2007, sued her namesake company in New York State Supreme Court in Manhattan in January 2012, saying it had the exclusive right to sell goods in certain categories including bedding and cookware. Macy’s sued Plano, Texas-based J.C. Penney about three months later.

Stewart Postponed

Justice Jeffrey K. Oing is conducting a combined non-jury trial of the suits brought by Cincinnati-based Macy’s. Stewart’s testimony, scheduled for today, was postponed until later in the trial because of a scheduling conflict, Oing said. Stewart is the nonexecutive chairman and chief creative officer of her namesake media and housewares company, which is based in New York. J.C. Penney CEO Ron Johnson is slated to take the stand March 1.

J.C. Penney in December 2011 acquired a 17 percent stake in Martha Stewart Living for $38.5 million as the U.S. department- store chain seeks to revive sales with new mini-stores dedicated to Martha Stewart and other brands.

Martha Stewart Living in July said J.C. Penney agreed to pay at least $282.9 million in sales commission over a 10-year period under an amended agreement, a $110.5 million increase from the terms disclosed in December. The amended deal also adds new products.

Lawyers for Macy’s have argued that J.C. Penney is trying to “reap the rewards” of its work with the Martha Stewart brand, which the chain says it rebuilt after Stewart’s release from prison in 2005, when her products were being sold at Kmart.

Renewal Option

Martha Stewart Living has defended its agreement with J.C. Penney, accusing Macy’s of breach of contract and saying the retailer stocked and priced Martha Stewart products in a way that favors private-label brands. Martha Stewart Living also said Macy’s couldn’t have exercised a five-year renewal option because of the breach.

Martha Stewart Living has argued that its original 2006 contract with Macy’s allows Martha Stewart Living to design and sell products within the exclusive categories as long as they are sold through the Internet, television or at any retail store branded with the Martha Stewart name that’s operated by the company or its affiliates or “prominently” features the brand, according to court filings in the case.

“This is a contractual dispute,” Katherine Nash, a spokeswoman for Martha Stewart Living, said in a statement. “However, rather than focus on the specific terms in the contract that are in dispute, Macy’s continues to distract with emotional stories that are not relevant. The contract is written to allow MSLO to sell a broad range of branded and non-branded products in JCP, including any MSLO-branded products within MSLO stores in JCP. We look forward to presenting our case.”

Oing in July granted Macy’s a preliminary injunction blocking Martha Stewart Living from moving ahead with its agreement with J.C. Penney in regards to products in the exclusive categories. The judge denied a Macy’s motion for a preliminary injunction against J.C. Penney, saying it hadn’t proved that J.C. Penney had improperly interfered with its 2006 contract.

Haiti Trip

Lundgren testified that he spoke with Stewart every few months before the J.C. Penney agreement was announced and considered her a friend, mentioning that she often asked about his wife in e-mails.

Yet Stewart never mentioned the pact with J.C. Penney until her call the night before the announcement -- even when the two flew to Haiti together in July 2011 and during a $10,000-a-plate fundraiser in October, Lundgren said.

Stewart was “always positive” about her relationship with Macy’s, and Lundgren “never heard any word of concern or disappointment” from his contacts at her company about their agreement, he said.

Lundgren said that while he no longer has a personal relationship with Stewart, Macy’s is “totally committed” to its business with her company.

“This is an extremely important brand and we are going to continue highlighting the brand,” Lundgren said.

The cases are Macy’s Inc. v. Martha Stewart Living Omnimedia (MSO) Inc., 650197/2012, and Macy’s Inc. v. J.C. Penney Corp., 652861/2012, New York State Supreme Court (Manhattan).

To contact the reporter on this story: Chris Dolmetsch in New York State Supreme Court in Manhattan at cdolmetsch@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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