Kmart Takes Martha to Court

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In light of today's news that comeback retailerKmart (Nasdaq: KMRT) is suing embattledMartha Stewart Living Omnimedia (NYSE: MSO) in an apparent attempt to get the terms of its contract renegotiated, some of the past descriptions of the relationship between the two seem almost funny.

It sometimes appeared as though Martha and Kmart were the quintessential you-and-me-against-the-world couple, sticking together even as the retailer was assailed by financial and competitive pressures while the homemaking brand giant was beset by the legal troubles and bad publicity that circled around its namesake.

The pair extended their contract through 2008 -- with an option for another five years -- in mid-2001. Generally speaking, the deal has been seen as providing Kmart with some respectability and a high-end brand while giving Martha Stewart Living Omnimedia (MSLO) a large, well-distributed sales channel. We covered Kmart's very public decision to stick with MSLO as recently as late October.

But is there trouble in paradise? Today Kmart, according to reports, filed a suit in bankruptcy court alleging that while it paid MSLO fewer royalties in 2003 than it's contractually obligated to, MSLO was over billing Kmart -- in short, trying to squeeze extra fees out of its partner. MSLO responded with a press release saying Kmart is trying to reduce the amount of money their contract guarantees it pays them for its licenses, advertising, and other things. (No press release from Kmart could be found easily by press time.)

Who knows what's going on behind the scenes -- or how much of what's going on in court these days might have to do with this. For now, all we know is that for business partners, as with all couples, what we see in public and what's going on beneath the surface are often quite different.

It's sad, but true -- especially with Valentine's Day right around the corner.

David Gardner recommended Martha Stewart Living Omnimedia for Motley Fool Stock Advisor subscribers in the November 2002 issue. Since then, shares are up 93.7%, compared to the S&P 500's 37.17% return.

Motley Fool contributor Dave Marino-Nachison doesn't own any of the companies in this story. He can be reached via email.