August 6, 2007
Martha and Eddie: A Case of Irreconcilable Differences
It’s not quite at the War of the Roses stage, but it’s growing increasingly clear that Martha Stewart and Edward Lampert are not going to be able to work things out.
Martha Stewart Living Omnimedia’s CEO Susan Lyne has been clear that Kmart’s lack of support has led to declining sales of the Everyday line.
Mr. Lampert and Ms. Stewart have been unable to agree over terms of a new deal to extend the relationship between the parties past 2009. Few, if any, at this point expect a deal can be reached to keep the Everyday line in Kmart stores.
While it has taken some hits because of its reliance on its relationship with Mr. Lampert’s company, Ms. Lyne has said she is "more confident than ever that we will close the Kmart gap."
Some of Ms. Lyne’s optimism comes from Ms. Stewart’s burgeoning relationship with Macy’s. The department store chain is scheduled to rollout The Martha Stewart Collection in September. The line will encompass a broad range of home goods from textiles to cookware to holiday decorating items. The department store chain is also looking to other Martha-branded items for the future including home furnishings, bridal registry items, cookbooks and more.
On another retail front, Martha Stewart Crafts was rolled out in Michaels 900 stores back in May. The 650 SKU line is said to be "delivering solid results," according to Ms. Stewart’s company.
Back to Kmart, Wall Street analyst Dennis McAlpine told the New York Post, "It is no surprise there’s no lost love between Lampert and Stewart. Kmart has been cleaning out her inventory, basically dumping it, to make room for other new lines. That transition out of Kmart is actually going to help her Macy’s sales."
Discussion Question: What do you make of Edward Lampert’s and Kmart’s handling of its relationship with Martha Stewart? What do you think will happen with the Martha Stewart Everyday line after the Kmart deal has expired? Assuming it is still in business, what will the loss of the Everyday line mean for Kmart?
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The mishandling of Martha Stewart, the brand with perhaps the most credibility at Kmart, is typical of how the combined Sears/Kmart team has mismanaged its assets over the past few years. I’m not referring to the real estate and financial assets that attracted Lampert’s attention in the first place. Rather, Martha Stewart Everyday is one of several retail strengths that could have resonated with customers after the merger…Lands’ End is another exclusive brand at Sears that comes to mind.
I’ve suggested before in these postings that Sears Holdings would be wisest to shut down the Kmart brand entirely, and to convert as many of those locations as feasible to small-format Sears stores. Whether Martha Stewart plays a role in Sears’s future is another story. Certainly the recent blowup between Macy’s and Liz Claiborne over the Liz & Co. program at JCPenney is a good example of how Macy’s is trying to punish vendors who want to do business with the middle tier. So the long-term solution for Martha Stewart may in fact involve a much broader assortment of product at Macy’s.
The executives who run Sears Holdings are competent businesspeople. If MS product lines were profitable, significant, and valuable, every effort would have been made to renew the agreement.
Having said that, perhaps all of those things are true, and every effort on the part of Sears Holdings might still not be sufficient. I would bet that MSO executives want nothing more than to sever the Kmart relationship. As has been noted, outside of licensing cash flow, the relationship does little positive for the MS brand or its long term valuation.
Let’s play the odds here, folks. Sears Holdings probably wanted to retain the deal, but MSO may have made the renewal terms economically not viable. Take it one step further: what does MS bring to Kmart outside of merchandise gross margin? Does the MS product line enhance the Kmart brand? I’m not even sure that’s still possible, but if it were, the MS brand wouldn’t be the one to do it. So if the economics were awful and the strategic value is questionable, why are we critical of Sears Holdings?
Hindsight: would it have been a good idea to try to migrate the MS line from Kmart to Sears? May be worth testing, if the contract allowed for it. Many licensing deals I’ve helped structure would not have allowed for that without a new deal having to be in place…which might have triggered an out clause, allowing MSO to terminate the relationship much sooner than 2009.
I agree that Kmart needs Martha but I also believe Martha needs Kmart.
It is highly unusual for an established brand to shift to a more upscale perception by consumers. I can’t see Macy’s more upscale customers being excited by a brand mostly associated with Kmart.
Furthermore, Macy’s is struggling with its acquisition and rebranding of former May Department store locations and Marshall Field’s. I hardly think carrying a brand associated with Kmart will win over customers and in fact will probably repel customers from Macy’s stores.
It looks as if Martha Stewart’s long-term relationship with Macy’s will be somewhat of a repeat of the problems Kmart had circa 2000.
“The idea of Martha stores is interesting. While potentially a high overhead gamble, it would certainly give Martha the control that she wants and she might just be able to pull it off.”
It certainly worked for Apple.
Stores are only part of the story. But the moral is, when you have a strong vision of what the brand is about, it’s probably good to give the visionary her head.
Steve Jobs came back to Apple ten years ago, when the stock was at $13, give or take. Now it’s ten times that, give or take.
So there’s precedent for retail experience as brand builder.
Her own stores would let her leapfrog the upscale/downscale debate by setting prices according to objective quality standards–fabric grades, thread counts, wood species and more.
I feel confident that once a certain number of people have been in a store and touched an 800-thread-count sheet on a bedding display, everyone within a five-mile radius of that store will forget all about Kmart–in which they likely never set foot anyway.
What’s more, I’d be hard pressed to believe that the readers of her books and magazines ever thought for a minute that Martha herself ever touched the [things] KM was selling in her name. So her retail stores can start out anywhere on the demographic curve she wants to go, and the positioning is still: Now you can have the stuff Martha really uses herself.
And then, as everyone pointed out, she can start over and do it by the book–establish the high-end, then travel downscale with licensees to pick up the mass revenues.
Martha had a big following at Kmart but the Kmart image also may have permanently positioned Martha as having stylish, affordable, but lower end products. I am having a hard time imagining her going elsewhere, raising her prices, and raising her image quotient successfully at this point. In my experience most designers go the other direction–start more exclusively at the high end and then move down into the mass market to capitalize on the name and capture larger market share. I agree with others who feel maybe Martha’s time to make a big retail impact has passed. Anyway, MS aligning with Macy’s is a real head scratcher since they are having their own image problems of late (and appear to be trying to appeal to younger fashion girls rather than middle aged home decorators). Several people I know who are Martha fans and who have already seen the new Macy’s/Martha line now starting to be displayed in some Macy’s locations report being underwhelmed.
Martha Stewart’s line is hot, Kmart stores are not.
Eddie Lampert mustn’t care if Kmart goes to rot.
Martha, when the right time comes get out of there.
Say “Goodbye, Eddie” for your future holds much cheer.
I’ve heard it said that the worst thing that could happen to someone is to wake up one morning and find your company had been sold to A&P. Sears Holdings would be far worse. They are not investing in any of the brand opportunities they’ve acquired.
Martha Stewart is a valuable franchise. They are screwing up Lands’ End and Craftsman. The people at Sears Holdings are not brand builders, they are cost cutters and know nothing else.
If MS could replace Kmart with J.C. Penney, the company would have a much better low-middle story. Macy’s is always a risk, because it’s so big, and seems to be cannibalizing its vendors (talk to Liz Claiborne) with private label. Sears and Kmart…they’re just not winners.
Martha needs to get out of Kmart ASAP. Sales per unit and traffic counts are just too low to have an exclusive in that type of store. For all practical purposes, the Kmart stores are closed. They just haven’t locked the doors yet. Martha needs to get in a legitimate retail facility.
I agree that Kmart lowers Martha’s image and she will do better without them in the long-term. However, it sounds like Kmart has been very profitable for Martha and she would miss their margins in the short-term. Macy’s is a much better fit demographically but is also struggling at the moment.
The idea of Martha stores is interesting. While potentially a high overhead gamble, it would certainly give Martha the control that she wants and she might just be able to pull it off.
Eddie has priorities other than growing his retail companies–clearly, they are a means to an end. Martha Stewart is interested in maintaining and continuing to build her brand at retail. She is better off shedding the Kmart relationship for more brand congruent retail distribution channels.
Martha needs a retail partner that will focus on the mainstays of her brand–accessible style and design. Hmmm, there’s a retailer out there with the same brand values…but if that doesn’t work, there are many others that could use that angle to appeal to the millions of women seeking accessible style and design. Shoppers gravitate to her products because they are solutions that are easy to implement and give consumers built in confidence that the room “works” from a design standpoint.
I agree with Liz, a Latina style and design superstar is a glimpse into the future. Wonder which retailer will get the jump on that giant opportunity?
She’ll be replaced by Rachel Ray…who will be replaced by the next Rachel Ray (who will be Latina).
It is not surprising these two groups are not getting along. Stewart is interested in selling products and Kmart is clearly not. Successive reporting of double digit sales declines indicates another strategy. The remaining Kmart customers likely have a lower income level than Kmart had with Stewart signed up. Continued sales decreases do not benefit Stewart. For any agreement, both sides must gain a benefit. Stewart should have no trouble finding other retailers to sell her product.
I have noticed recently at my Kmart that they are having a clearance sale on certain lines of her stuff, selling out various MS Everyday sheet sets.
MS has feasted off Kmart for all so many years. She will never get such a sweetheart deal again. Eddie has other lines at Kmart and Sears that he can use as well as the likes of Rachael Ray and others which could fill this void. And his Lands’ End line at Sears is a great asset.
Martha needs the big box discounter. Macy’s is slumping, and is not a store embraced by most of America. Kmart has great locations, She better wise up and have her people make the best deal she can with Eddie. If she doesn’t, she’ll never have Mr. Bluelight to hawk her everyday lines, especially the seasonal stuff, patio, etc., and especially Christmas and the Holiday season.
Martha Stewart’s stock has declined around 28% in the past year. Sears declined around 7%. Sears is profitable. Martha Stewart’s losses widened in the most recent quarter. If Martha’s licenses made good money for Kmart, why wouldn’t the relationship be as constructive as possible? In licensing, great sales sometimes aren’t the key to success, because the license fees can be excessive. So great sales do not always equal great profits.
The Martha Stewart line will be gone from Kmart in a “New York minute” as soon as it can. Eddie Lampert is not interested in owning anything he can’t control 100%. Unlike Craftsman, Kenmore and other brands, Martha Stewart is a licensed brand that comes with a live person. The Martha Stewart line will be much better off at Macy’s than it ever will at Kmart or whatever Kmart winds up becoming.
Once again Martha Stewart proves to be the savvy negotiator. Getting out of Kmart is the best possible thing that can happen to Martha Stewart’s brand. Kmart brings absolutely nothing to the brand, and in fact one could argue that having the product line in Kmart actually devalues the brand equity. Lampert is not a marketer, so he has no ability to help grow Martha Stewart.
Don’t be surprised if down the road we start to see “Martha” stores. It would not be a stretch to see dedicated Martha sections in Macy’s grow into a full Martha chain, with Martha stores located in malls throughout the country. Martha’s fans are located between the two coasts and she will find ways to get her products to her legions.
This move by Kmart will only hurt Kmart, and only help Martha.
Martha will probably better off going to retailer like Target.
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The mishandling of Martha Stewart, the brand with perhaps the most credibility at Kmart, is typical of how the combined Sears/Kmart team has mismanaged its assets over the past few years. I’m not referring to the real estate and financial assets that attracted Lampert’s attention in the first place. Rather, Martha Stewart Everyday is one of several retail strengths that could have resonated with customers after the merger…Lands’ End is another exclusive brand at Sears that comes to mind.
I’ve suggested before in these postings that Sears Holdings would be wisest to shut down the Kmart brand entirely, and to convert as many of those locations as feasible to small-format Sears stores. Whether Martha Stewart plays a role in Sears’s future is another story. Certainly the recent blowup between Macy’s and Liz Claiborne over the Liz & Co. program at JCPenney is a good example of how Macy’s is trying to punish vendors who want to do business with the middle tier. So the long-term solution for Martha Stewart may in fact involve a much broader assortment of product at Macy’s.
The executives who run Sears Holdings are competent businesspeople. If MS product lines were profitable, significant, and valuable, every effort would have been made to renew the agreement.
Having said that, perhaps all of those things are true, and every effort on the part of Sears Holdings might still not be sufficient. I would bet that MSO executives want nothing more than to sever the Kmart relationship. As has been noted, outside of licensing cash flow, the relationship does little positive for the MS brand or its long term valuation.
Let’s play the odds here, folks. Sears Holdings probably wanted to retain the deal, but MSO may have made the renewal terms economically not viable. Take it one step further: what does MS bring to Kmart outside of merchandise gross margin? Does the MS product line enhance the Kmart brand? I’m not even sure that’s still possible, but if it were, the MS brand wouldn’t be the one to do it. So if the economics were awful and the strategic value is questionable, why are we critical of Sears Holdings?
Hindsight: would it have been a good idea to try to migrate the MS line from Kmart to Sears? May be worth testing, if the contract allowed for it. Many licensing deals I’ve helped structure would not have allowed for that without a new deal having to be in place…which might have triggered an out clause, allowing MSO to terminate the relationship much sooner than 2009.
I agree that Kmart needs Martha but I also believe Martha needs Kmart.
It is highly unusual for an established brand to shift to a more upscale perception by consumers. I can’t see Macy’s more upscale customers being excited by a brand mostly associated with Kmart.
Furthermore, Macy’s is struggling with its acquisition and rebranding of former May Department store locations and Marshall Field’s. I hardly think carrying a brand associated with Kmart will win over customers and in fact will probably repel customers from Macy’s stores.
It looks as if Martha Stewart’s long-term relationship with Macy’s will be somewhat of a repeat of the problems Kmart had circa 2000.
“The idea of Martha stores is interesting. While potentially a high overhead gamble, it would certainly give Martha the control that she wants and she might just be able to pull it off.”
It certainly worked for Apple.
Stores are only part of the story. But the moral is, when you have a strong vision of what the brand is about, it’s probably good to give the visionary her head.
Steve Jobs came back to Apple ten years ago, when the stock was at $13, give or take. Now it’s ten times that, give or take.
So there’s precedent for retail experience as brand builder.
Her own stores would let her leapfrog the upscale/downscale debate by setting prices according to objective quality standards–fabric grades, thread counts, wood species and more.
I feel confident that once a certain number of people have been in a store and touched an 800-thread-count sheet on a bedding display, everyone within a five-mile radius of that store will forget all about Kmart–in which they likely never set foot anyway.
What’s more, I’d be hard pressed to believe that the readers of her books and magazines ever thought for a minute that Martha herself ever touched the [things] KM was selling in her name. So her retail stores can start out anywhere on the demographic curve she wants to go, and the positioning is still: Now you can have the stuff Martha really uses herself.
And then, as everyone pointed out, she can start over and do it by the book–establish the high-end, then travel downscale with licensees to pick up the mass revenues.
Martha had a big following at Kmart but the Kmart image also may have permanently positioned Martha as having stylish, affordable, but lower end products. I am having a hard time imagining her going elsewhere, raising her prices, and raising her image quotient successfully at this point. In my experience most designers go the other direction–start more exclusively at the high end and then move down into the mass market to capitalize on the name and capture larger market share. I agree with others who feel maybe Martha’s time to make a big retail impact has passed. Anyway, MS aligning with Macy’s is a real head scratcher since they are having their own image problems of late (and appear to be trying to appeal to younger fashion girls rather than middle aged home decorators). Several people I know who are Martha fans and who have already seen the new Macy’s/Martha line now starting to be displayed in some Macy’s locations report being underwhelmed.
Martha Stewart’s line is hot, Kmart stores are not.
Eddie Lampert mustn’t care if Kmart goes to rot.
Martha, when the right time comes get out of there.
Say “Goodbye, Eddie” for your future holds much cheer.
I’ve heard it said that the worst thing that could happen to someone is to wake up one morning and find your company had been sold to A&P. Sears Holdings would be far worse. They are not investing in any of the brand opportunities they’ve acquired.
Martha Stewart is a valuable franchise. They are screwing up Lands’ End and Craftsman. The people at Sears Holdings are not brand builders, they are cost cutters and know nothing else.
If MS could replace Kmart with J.C. Penney, the company would have a much better low-middle story. Macy’s is always a risk, because it’s so big, and seems to be cannibalizing its vendors (talk to Liz Claiborne) with private label. Sears and Kmart…they’re just not winners.
Martha needs to get out of Kmart ASAP. Sales per unit and traffic counts are just too low to have an exclusive in that type of store. For all practical purposes, the Kmart stores are closed. They just haven’t locked the doors yet. Martha needs to get in a legitimate retail facility.
I agree that Kmart lowers Martha’s image and she will do better without them in the long-term. However, it sounds like Kmart has been very profitable for Martha and she would miss their margins in the short-term. Macy’s is a much better fit demographically but is also struggling at the moment.
The idea of Martha stores is interesting. While potentially a high overhead gamble, it would certainly give Martha the control that she wants and she might just be able to pull it off.
Eddie has priorities other than growing his retail companies–clearly, they are a means to an end. Martha Stewart is interested in maintaining and continuing to build her brand at retail. She is better off shedding the Kmart relationship for more brand congruent retail distribution channels.
Martha needs a retail partner that will focus on the mainstays of her brand–accessible style and design. Hmmm, there’s a retailer out there with the same brand values…but if that doesn’t work, there are many others that could use that angle to appeal to the millions of women seeking accessible style and design. Shoppers gravitate to her products because they are solutions that are easy to implement and give consumers built in confidence that the room “works” from a design standpoint.
I agree with Liz, a Latina style and design superstar is a glimpse into the future. Wonder which retailer will get the jump on that giant opportunity?
She’ll be replaced by Rachel Ray…who will be replaced by the next Rachel Ray (who will be Latina).
It is not surprising these two groups are not getting along. Stewart is interested in selling products and Kmart is clearly not. Successive reporting of double digit sales declines indicates another strategy. The remaining Kmart customers likely have a lower income level than Kmart had with Stewart signed up. Continued sales decreases do not benefit Stewart. For any agreement, both sides must gain a benefit. Stewart should have no trouble finding other retailers to sell her product.
I have noticed recently at my Kmart that they are having a clearance sale on certain lines of her stuff, selling out various MS Everyday sheet sets.
MS has feasted off Kmart for all so many years. She will never get such a sweetheart deal again. Eddie has other lines at Kmart and Sears that he can use as well as the likes of Rachael Ray and others which could fill this void. And his Lands’ End line at Sears is a great asset.
Martha needs the big box discounter. Macy’s is slumping, and is not a store embraced by most of America. Kmart has great locations, She better wise up and have her people make the best deal she can with Eddie. If she doesn’t, she’ll never have Mr. Bluelight to hawk her everyday lines, especially the seasonal stuff, patio, etc., and especially Christmas and the Holiday season.
Martha Stewart’s stock has declined around 28% in the past year. Sears declined around 7%. Sears is profitable. Martha Stewart’s losses widened in the most recent quarter. If Martha’s licenses made good money for Kmart, why wouldn’t the relationship be as constructive as possible? In licensing, great sales sometimes aren’t the key to success, because the license fees can be excessive. So great sales do not always equal great profits.
The Martha Stewart line will be gone from Kmart in a “New York minute” as soon as it can. Eddie Lampert is not interested in owning anything he can’t control 100%. Unlike Craftsman, Kenmore and other brands, Martha Stewart is a licensed brand that comes with a live person. The Martha Stewart line will be much better off at Macy’s than it ever will at Kmart or whatever Kmart winds up becoming.
Once again Martha Stewart proves to be the savvy negotiator. Getting out of Kmart is the best possible thing that can happen to Martha Stewart’s brand. Kmart brings absolutely nothing to the brand, and in fact one could argue that having the product line in Kmart actually devalues the brand equity. Lampert is not a marketer, so he has no ability to help grow Martha Stewart.
Don’t be surprised if down the road we start to see “Martha” stores. It would not be a stretch to see dedicated Martha sections in Macy’s grow into a full Martha chain, with Martha stores located in malls throughout the country. Martha’s fans are located between the two coasts and she will find ways to get her products to her legions.
This move by Kmart will only hurt Kmart, and only help Martha.
Martha will probably better off going to retailer like Target.