FOOL PLATE SPECIAL
Kmart and Martha Stewart Living Omnimedia greatly strengthened their ties today. Beyond the news that even more Martha Stewart items will be available at Kmart in the near future, the partnership between the two companies has been extended to at least 2008. This is good news for both companies.
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KMart (NYSE: KM) investors can officially and neatly store away their worries about key supplier Martha Stewart Living Omnimedia (NYSE: MSO) jumping ship, as the companies this morning said they were extending their successful partnership another seven years to 2008 with an option to renew the contract until 2013. The number of Martha Stewart Everyday items available exclusively at KMart will also be expanded. Beyond the core home and garden categories, shoppers will soon be able to buy holiday and craft items bearing the Martha Stewart brand. The partnership, which first saw Martha Stewart items invade Kmart stores in 1997, has been enormously beneficial for both companies. Sales of Martha Stewart merchandise in Kmart stores has reportedly been in excess of $5 billion since the partnership began. There had been some recent rumors that the staunchly independent and entrepreneurial Martha Stewart was not totally happy with the arrangement with Kmart, but Martha's concerns have obviously been addressed now that the two companies have expanded their product line and strengthened ties. This is good news for both companies. For Kmart, Martha has been pure gold. In a retail sector where competitive advantages are rare and price is often the only meaningful differentiator between stores, the Martha Stewart line has given Kmart a unique draw. (For more information, visit our InDepth: Retail page.) The fact the Martha Stewart items tend to be upscale and larger-ticket than generic household items has also helped Kmart's image as well as its profits. For Martha Stewart Living Omnimedia, designing and licensing the household items is a lucrative business, reportedly with operating profit margins approaching 99%. Though a relatively small portion of the company, merchandising is one of the most profitable. It's also one of the highest-growth areas of Martha Stewart, growing 27% year-over-year in the first quarter even though company-wide sales only grew 3%. Moreover, the partnership greatly helps the company with its goal to be omnipresent. Having Martha's name and face plastered over thousands of high-quality items in a large chunk of over 2,100 Kmart stores across the country has done wonders for the Martha Stewart brand. It is certainly a large part of the reason Martha's company has a market capitalization of just under a billion dollars. News that the successful partnership has been extended should be mutually beneficial for both companies and their shareholders. Now if you will excuse me, I have to go organize my sock drawer.... Martha Stewart would have a stroke if she saw Paul Larson's closet. You can see Paul's stock holdings online. The Motley Fool is investors writing for investors.
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