Martha and Macy's: A Mutual Attraction

Martha and Macy's -- it's a deal that goes down as sweetly as those other M&Ms. The Apr. 6 announcement that Martha Stewart-branded designs would be sold at Macy's stores cheered investors, and for good reason. Macy's is growing its brand like never before, while Martha's other branding outlet, the more downscale Kmart, is withering.

Indeed, ever since Sears (SHLD) and Kmart merged last year, the combined company has shut down 30% of Kmart stores, leading to a drastic 8% decline in sales of the exclusive Everyday line from Martha Stewart Living Omnimedia (MSO). The all-new Martha Stewart Collection of home merchandise exclusively at Macy's, which will debut in the fall of 2007, should reverse that trend. "This is a very strong new revenue stream for us," Susan Lyne, MSO's CEO said. "Today Macy's has $4 billion sales in the home area -- we believe that we can grow that significantly (see BW Online, 1/17/06, "Martha Needs Some Polish")."

Macy is the fastest growing department store brand, particularly now that parent, Federated Department Stores (FD), has purchased May Department Stores, which added hundreds of stores to the fold. By the end of 2006, there will be 810 Macy's stores nationwide, a 60% increase.


  "As Macy's becomes bigger, it clearly needed a big national brand name like Martha -- and putting the two M's together is a big opportunity for both of them," says Wendy Liebmann, principal at WSL Strategic Retail, a marketing consulting firm in New York. And the stock market agrees: MSO shares gained 14% during the day's trading to close at $19.45 on Apr. 6. Federated shares gained 0.87%, to $77.32 (see BW Online, 8/9/05, "All Martha, All The Time").

This deal is the latest in a trend that has been dominating the home furnishings line -- retailers seeking to lure celebrity designers for exclusive deals. For instance, Linens 'n' Things (LIN) signed up Oprah's favorite designer, Nate Berkus, Target (TGT) signed up Todd Oldham and Thomas O'Brien, and Bed, Bath & Beyond (BBBY) signed up Nicole Miller (see BW Online, 2/12/04, "La-Z-Boy: Up From Naugahyde").

Of course, these designers aren't as focused on all aspects of the home, and don't have their own TV show and company like Stewart, which makes this deal even more significant.

"People want a celebrity designer they trust and an esthetic to tell them what color and couch goes with which table -- and hers is instantly recognizable," says Wendy Liebmann, principal at WSL Strategic Retail, a marketing consulting firm in New York.


  The Martha Stewart Everyday brand will likely continue to sell at Kmart. Lyne wouldn't divulge details on how the two Stewart brands would co-exist or whether the Kmart agreement, which runs through 2009, would be renewed. The Martha Stewart Collection line will include bed and bath textiles, housewares, casual dinnerware, flatware and glassware, cookware, holiday decorating, and trim-a-tree items.

It will decidedly be more upscale than the Kmart line. "Macy's starts where Kmart leaves off," says Robin Marino, MSO's President of Merchandising. Marino played a key role in ironing out this deal. "Having started her career at Macy's, Marino saw an opportunity open up when the Federated-May deal was signed, and the rest is history," says CEO Lyne.

For the company, this will potentially boost sales substantially. Macy's will sell other Martha Stewart-branded products such as holiday celebration concepts, bridal registry items, and a full assortment of "how-to" books and cookbooks. Indeed, as analyst Dennis McAlpine of McAlpine & Associates puts it: "For MSO, there's money to be made with very little cost, what's there to complain about?"

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