Martha Retreats but Doesn't Withdraw

In quitting her board yet becoming founding editorial director, Stewart may be putting her company in a painful purgatory

Martha Stewart isn't going away any time soon -- at least as the creative inspiration behind her brand. The former chairman and CEO of Martha Stewart Living Omnimedia (MSO ) downgraded her status to chief creative officer in 2003, when she was charged with conspiracy and lying to the government. Now that she has been found guilty of those charges, she has stepped back even further. On Mar. 15, the company announced she would give up her director spot and take up the position of founding editorial director.

That, in effect, slaps back the naysayers who think her company should distance itself from its famously controversial -- and now convicted -- founder. If anything, Stewart seems set to be as busy as ever, writing two new books on homekeeping and baking, contributing to the flagship magazine, taking on TV assignments, and consulting on a host of strategic issues. As CEO Sharon Patrick put it: "Wherever and whenever possible, we believe that MSO and our consumers should not be deprived of Martha's unique gifts."


  Investors hardly seemed cheered by the news, driving down the stock by almost 4%, to $9.97. They may worry, and with some reason, that Stewart's new role leaves the company in a purgatory where neither fans nor foes of the brand will be pleased. She's not quite there, yet she's not quite gone. This may be a preemptive move ahead of her sentencing. But the issue of who will embody the face and soul of the brand remains unclear. For the moment, it looks likely that Stewart will continue to fulfill that role.

To some extent, the company may have little choice but to keep Stewart heavily involved. The woman who taught America how to whip up a Thanksgiving Day feast for 40 simply has no immediate replacement. No substitute leaders with her charisma are waiting in the wings, though there's certainly a line-up of outsiders waiting to fill the void that her absence may leave behind.

MSO has legitimate reasons to keep her in the picture -- albeit in the background. Stewart's well-known good taste isn't affected by the guilty verdict. Moreover, a substantial number of consumers remain loyal to her brand, even as advertisers trip over each other as they flee. And MSO has profitable products that either don't bear her name or can be marketed and tailored to focus less on her (see BW Online, 3/10/04, "Stain-Removal Hints for Martha's Brand").


  The daunting challenge for Patrick and crew is to draw on Stewart's inspiration and fan base while trying to nurture those brands that don't rely so heavily on her name. That includes the merchandise, Everyday Food magazine, and minor personalities like pet-keeping expert Marc Morrone, who now has a TV series of his own. Stewart also may be able to vindicate herself in the eyes of an ever-forgiving American public, especially if she doesn't serve much time in prison for her crimes.

Martha's company has had a yearlong dress rehearsal for figuring out how to sell her products and her brand without her. The results are mixed, but not nearly as disastrous as many had predicted. Things won't get any easier anytime soon. But the demise of Stewart's company doesn't seem destined just yet. Reducing the role of its founder is just the first step in a tough road for Martha Stewart Living Omnimedia, though the jury is still out on whether it can survive with a namesake who seems likely top do time.

By Diane Brady in New York

Edited by Beth Belton

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