Tied to the Mall, J.C. Penney and Macy's Need Each Other

Martha Stewart testifies in Manhattan Supreme Court March 5, 2013 Photograph by David Handschuh-Pool/Getty Images

With Macy’s and J.C. Penney back to battling over Martha Stewart in a Manhattan court, it’s easy to forget how much both retailers may suffer if one of them fails. The reason: both chains are under the same roof in some 400 malls nationwide. While that shared turf helps explain why Macy’s lawyer Michael Platt brought rival Martha-branded pitchers to court on April 9 — so much for exclusivity! — it also conveys an element of shared fate.

As anchor tenants, both are critical in wooing shoppers who then walk around and spend their money in other outlets. Any drop in foot traffic to one store could curb sales throughout the entire mall. With mall traffic just starting to recover from years of overbuilding, the collapse of stalwarts like Circuit City, and competition from online sales, the last thing any tenant needs is another reason for people to stay home.

That doesn’t mean Macy’s CEO Terry Lundgren is about to drop the lawsuit that would halt Martha’s deal with J.C. Penney, which he says violates her contract with his company. Product exclusivity is simply too important. The month-long mediation process ordered by the court seemed to yield nothing more than fresher-looking combatants.

Still, perhaps there’s some room for compromise now that Ron Johnson, the man who wooed Martha to J.C. Penney, has been ousted. Stewart may have mixed feelings about tying her fate to a brand buried in bad press. Whatever emotional blow Lundgren may feel from Stewart’s rejection, he still appreciates the power of personalities in boosting his bottom line.

If J.C. Penney doesn’t survive, there aren’t many others with the heft and range of goods to occupy thousands of square feet in its place. Sears’ Eddie Lampert may have a way with money, but few would accuse him of being a retail visionary who’s obsessed with hip brands and a better retail experience. Almost half of Macy’s stores are in malls where a J.C. Penney also has space. For JCP, the fraction is closer to a third. Each knows it’s better to have a healthy rival at the other end of the parking lot than one whose aisles evoke a ghost town.

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