J.C. Penney Kicks Martha Stewart to the Curb

Like regime change in the old Soviet Union, the scrubbing of all vestiges of ex-CEO Ron Johnson's tenure as the head of J.C. Penney (NYSE: JCP  ) continues moving apace. Hospitals are envious of the cleansing going on.

The latest bit of memorabilia from that dark time to be shoved into the memory abyss is the department store chain's deal with Martha Stewart Living Omnimedia (NYSE: MSO  ) , the complicated transaction that did nothing for Penney other than land it in court. The retailer has agreed to stop selling the domestic diva's products in its home goods category, the exact space Macy's (NYSE: M  ) had claimed exclusive ownership over.

After being hired away from Apple to remake the tired retailer, Johnson saw a deal with Stewart as a means of injecting some "good things" into its stumbling sales reports by giving its customers an easily recognizable brand name. In addition to taking a near-17% minority ownership stake in Martha Stewart Living, Johnson would grace Penney's shelves with Stewart's pots and pans, bedding, and curtains -- all the stuff she apparently had agreed to sell only through Macy's, who promptly sued both the doyenne of domesticity and Penney. Things haven't been looking good for the partnership ever since.

In a move that should have happened a lot sooner than this, Penney's agreed to stop selling Stewart's kitchen, bed, and bath products that it started selling under the "JCP Everyday" label as an unsuccessful means of mollifying its rival, and it will return the 11 millon shares of Stewart's stock it acquired. More pertinent, though, it will also give up the two seats on the Martha Stewart Living board of directors it had gained for the cash injection into the home goods maker.

Penney's isn't completely washing its hands of Stewart, however, as the revised agreement still has her designing products around window treatments and hardware, lighting, rugs, holidays, and celebrations, but she may as well be selling Bob's Nuts & Bolts for all they really want to do with her.

The move is the final admission that Johnson's tenure was a disaster out of which little if any good will have come. And the memory-scrubbing is so complete there likely won't be a remnant of his presence by the end of the year.

Gone is the revised logo Johnson created to make the retailer appear more hip; the store-within-a-store boutiques -- except for Disney tchotchkes -- have been removed; the store brands like St. John's Bay that customers preferred but were eliminated as passe have been restored; and of course, most notable of all, the everyday-low-pricing policies that seemed to be the start of its customers fleeing to rivals have been replaced with the doorbuster sales and coupons they expect.

It's also no coincidence that Johnson's biggest champions at the company, Bill Ackman and his Pershing Capital hedge fund, along with Perry Capital, which backed Ackman's failed effort to oust Johnson's successor Myron Ullman, have left or dramatically reduced their stake in the retailer. Ackman sold his entire position; Perry cut its in half. 

Like a bad dream, J.C. Penney is still trying to wipe the memory of that bleak period from its mind. The regime change that occurred may have been bloodless, but it wasn't painless, and the Martha Stewart deal is one misguided distraction everyone would like to forget.

Winds of change
it's not just J.C. Penney doing some housecleaning recently: The entire retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2695955, ~/Articles/ArticleHandler.aspx, 11/28/2014 9:42:55 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement