Martha Stewart's Carpet Coup

The latest battle in the war between Home Depot (HD) and Lowe's (LOW) has produced an unlikely winner: Martha Stewart. Her company, Martha Stewart Living Omnimedia (MSO), this month began selling its branded carpeting in Home Depot's nearly 2,000 U.S. stores.

That's no small victory. Home Depot led all rivals in carpet sales to homes and small businesses last year, generating U.S. sales of $922.5 million, estimates Santo Torcivia, founder of Market Insights/Torcivia. He predicts industry sales will advance 9.8 percent in 2010, to $10.3 billion.

The ultimate homemaker's company, which also produces The Martha Stewart Show, is betting big on Home Depot after ending a partnership with Kmart (SHLD) that accounted for 10 percent of its 2009 sales. Martha Stewart Living already sells patio furniture and its paint brands at Home Depot stores. After the carpet rollout, it will add a line of cabinets and countertops in September, followed by gardening tools and Christmas decorations before yearend.

"We've got a lot of product categories at Home Depot that we never could have done at Kmart," says Robin Marino, chief executive officer in charge of merchandising at Martha Stewart Living Omnimedia. "Our goal is to provide the consumer with everything that they need to decorate their home."

Martha Stewart can thank a move by Invista's Stainmaster unit for her good fortune. Stainmaster had been a major Home Depot carpet brand since 1996. Invista recently dumped the leading home improvement retailer to boost its sales through No. 2-ranked Lowe's and a string of smaller distributors. Home Depot managers figure Stainmaster was under pressure by its independent carpet dealers, who had trouble competing with the big box retailer's low prices. "We were selling a lot of carpet at very good prices," says Gordon Erickson, Home Depot's senior vice-president for decor. "We were a bit surprised."

When Stainmaster severed ties, Erickson called Stewart's company in February. After conducting consumer research, the new partners extended Martha Stewart Living carpets' stain warranty to lifetime—besting Stainmaster's seven years. They also worked with the Stewart flooring maker, the Shaw Industries Group unit of Berkshire Hathaway (BRK), to improve softness.

Home Depot plans to begin national advertising for the brand by Labor Day. "It is brilliant for Martha Stewart and smart for Home Depot," said Candace Corlett, president of consulting firm WSL Strategic Retail. "Home Depot is the go-to place for home repair and some home decorating. Now they've added a decorator to help."

The bottom line: Selling its carpet in Home Depot is a big win for Martha Stewart Living Omnimedia.

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