Penney's Wins Battle, Loses Martha Stewart War

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It's something of a Pyrrhic victory for J.C. Penney (NYSE: JCP  ) . The department store chain gets to sell the products designed by Martha Stewart that Macy's (NYSE: M  ) had been trying to block, but in no way, shape, or form can it associate those wares with the domestic diva. Penney's plans to market the goods under its JCP Everyday line beginning on Mother's Day -- but in the end, why bother?

As part of ousted CEO Ron Johnson's plan to revitalize Penney's, the once-venerable department store acquired a 17% stake in Martha Stewart Living Omnimedia (UNKNOWN: MSO.DL  ) back in 2011 for $38.5 million, with an eye toward bolstering its cachet. There were airy plans to introduce mini-stores with trained personnel giving out tips and advice. It was likened at the time to Apple Genius Bars, but I guess employees would be decked out in aprons and dishing out domestic pointers.

Macy's, however, which had been selling Stewart's branded products for several years after wooing her away from Sears Holdings' Kmart, objected since its agreement with her was exclusive. It contends it invested a lot of time, energy, and money in rebuilding her brand after she got sprung from jail in 2005 and that Penney's is trying to capitalize on it.

Macy's initially took Stewart to court, but then sued the department store chain too. It's been trying to halt the sale of the JCP Everyday items, but a judge last week wouldn't go along with that line of reasoning, though he held open the possibility of forcing Penney's to remove all items from its shelves if it could be proven Macy's is harmed.

In yesterday's decision, the court held that Penney's can sell the Martha Stewart products, only as long as "they do not promote, advertise, display or associate, directly or indirectly, said goods with the name Martha Stewart in any way or fashion."

So as I said, what's the point? Penney's gets nothing out of the deal, really, other than products the likes of which it was already selling. Customers don't know they're buying Martha Stewart gear, so there's no benefit to be gained from the partnership, yet they're undoubtedly still on the hook for the $200 million or so the domestic goddess expected to reap from royalty payments, design fees, and advertising commitments that were part of the original agreement (though one can imagine the last item won't be needed).

J.C. Penney is floundering badly, still trying to pick up the pieces of a changed sales strategy that caused shoppers to flee to, among all places, Macy's -- among others. So it may have won the battle, but ultimately it's still losing the war.

J.C. Penney's stock cratered under Ron Johnson's leadership, but could new CEO Mike Ullman present the opportunity investors have been waiting for? If you're wondering whether J.C. Penney is a buy today, you're invited to claim a copy of The Motley Fool's must-read report on the company. Learn everything you need to know about JCP's turnaround -- or lack thereof. Simply click here now for instant access.

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9/26/2016 4:00 PM
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