J.C. Penney Needs to Puts This Drama to Bed for Good

Moving on from its fling is the best thing this retailer can do.

Jun 18, 2014 at 10:05AM


Of all the changes former J.C. Penney (NYSE:JCP) CEO Ron Johnson initiated that led to the retailer's near total collapse, none was more egregious than his signing up the domestic diva Martha Stewart's company to hawk her wares in its stores, and it's a partnership it needs to end once and for all.

It's not that the move caused the most damage, though the upscale products may have caused its discount shoppers to run for the exits; rather it's galling because it was such a seemingly flagrant violation of Martha Stewart Living Omnimedia's (NYSE:MSO) exclusive contract with Macy's (NYSE:M). Now a judge has ruled that Penney did interfere with Macy's contract with MSLO, and a judicial hearing officer or special referee will determine damages and attorney's fees will be assessed.

Unlike with  most of Johnson's other policies, which were seen as mistakes and reversed, Penney continues to dig in its heels on this matter and is considering an appeal. To an outside observer, though, one can only wonder what took the judge so long to come to this conclusion. 

In 2006, Macy's signed up the doyenne of domesticity's Martha Stewart Living Omnimedia to sell branded bed, bath, and kitchen goods exclusively at Macy's. But then, in December 2011, Johnson had Penney take a 17% stake in the multimedia company, paying $38.5 million for 11 million shares and two seats on the board of directors. In return, Martha Stewart Living Omnimedia would sell a line of bath towels, pots and pans, and other household items in new shops-in-shops inside J.C. Penney stores. It didn't take Macy's long to realize that sounded suspiciously just like the stuff in its own agreement, and it quickly hauled both companies into court.

As the case wound its way through the system, MSLO settled with Macy's (and still has an arrangement with the retailer), but Penney couldn't reach an amicable agreement. After Johnson was tossed out, the retailer began unbranding Stewart's wares by selling them under the "JCP Everyday" label, which seemed to be an admission its actions were wrong. It also gave back the shares it bought in Stewart's company and gave up its seats on the board. But it still couldn't settle with its rival

All of which led to yesterday's ruling by a judge who described Penney's actions as "less than admirable." Fortunately, he also said Macy's didn't prove that its rival's actions were "wanton, reckless, malicious and evinced a high degree of immorality," so it was not entitled to punitive damages.

Even so, Penney still denies its culpability, which only serves to prolong the matter. It should simply put the sordid affair to bed. Macy's had an exclusive deal with Stewart to sell certain items and Penney's hired her to sell almost the exact same things in its stores. Admitting you're wrong is hard to do, but J.C. Penney needs to focus on its future, and this is an unnecessary distraction.

The Ron Johnson era at the retailer was a dark chapter in its history, but Penney has largely put the memory behind it and is doing well in gaining traction moving forward. Accepting its due punishment may not be palatable, but will be a good step in allowing this story to have a fairy tale ending.

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