Martha’s Kmart Future Foretold

Discussion
Apr 26, 2006
George Anderson

By George Anderson


It doesn’t take a crystal ball, tealeaves or cards to see that Martha Stewart’s future with Sears Holdings is not likely to last.


The recent announcement from Macy’s that it would begin carrying an exclusive line of upscale Martha Stewart home goods beginning in 2007 along with a failure to put together a deal to expand the Everyday Living line from Kmart stores to Sears suggests that Ms. Stewart’s future will not be with Edward Lampert and Sears Holdings.


Susan Lyne, CEO of Martha Stewart Living Omnimedia Inc., said the deal with Macy’s would give the brand a nationwide department store presence while providing other opportunities for growth outside of the core Martha Stewart Collection line.


“Macy’s also expects to sell other Martha Stewart-branded products on a nonexclusive basis,” she said.


This aspect of the deal, reports MarketWatch, will allow Martha Stewart Living Omnimedia to develop other products in areas including home and garden products that would be carried through chains such as Home Depot.


The Martha Stewart Collection is expected to generate initial annual sales of around $400 million or 10 percent of Macy’s revenues from home goods.


As to whether their still remains a possibility that Ms. Stewart’s company can work out a deal with Kmart, Ms. Lynne said, “We have nothing new to report on any negotiations with Kmart. What I have said always was that we would do a deal if we felt that it was in the long-term interest of our company and our shareholders, and the Macy’s deal is that.”


Ms. Stewart and Kmart’s fortunes have been closely intertwined. The Everyday line generates about $1 billion in sales annually for Kmart while 80 percent of Ms. Stewart’s merchandise sales come from the retail chain.


Moderator’s Comment: What will it mean for Kmart if the retailer is not able to work out a deal for the Martha Stewart
Everyday line beyond the current contract? How does the chain prepare for a future without a brand that it is so closely associated with?

George Anderson – Moderator

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21 Comments on "Martha’s Kmart Future Foretold"


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Robert Antall
Guest
Robert Antall
14 years 10 months ago

MSO sees Sears for what it is, a declining retail enterprise with little future except as a financial instrument for Mr. Lampert. They clearly have decided to change horses.

For Sears Holdings, losing sales and customers is no problem for a chain that views comp store sales as unimportant.

Mark Lilien
Guest
14 years 10 months ago

Martha’s brand was hurt by her criminal defense because it lacked credibility and the prosecution story made her look bad, too. Her brand was helped when she asked to go to jail, even before her appeal decision was due. But her brand today is nowhere near its original strength when her company sold its stock to the public. And her company isn’t profitable. Edward Lampert’s recent remarks about the Martha Stewart brand indicated that he wouldn’t be inclined to expand or extend the deal if the profitability was lacking. On similar topics he’s made it clear that he isn’t a sales junkie, he’s a profit junkie. Licensing terms vary widely. The brand might be a profit winner at a 4% fee but a loser at a 14% fee.

Jeremy Sacker
Guest
Jeremy Sacker
14 years 10 months ago

Ed Lampart may have squeezed some overhead dollars out of Kmart, but has anyone seen any vision or clear direction? Kmart is still going after the same market segment as Wal-Mart and their stores seem sparse, albeit a little more organized than in the past. All the while, Sears is losing as well. Craftsman was the de facto name in tools when I was growing up and I know many people, including myself, respect the brand. Sears Holdings needs focus and a clear vision; I see none of that.

Bernie Slome
Guest
Bernie Slome
14 years 10 months ago

This does not bode well for a chain that is seeing a reduction in sales revenue. Martha Stewart brought people into Kmart & Sears. Unless the $ billion in sales revenue was unprofitable, it looks like another piece of bad news for Mr. Lampert and Sears Holdings.

Mark H. Goldstein
Guest
Mark H. Goldstein
14 years 10 months ago

MSO doesn’t have the the faith in Sears long-term merchandising strategy; can you blame them? Sears Holdings can’t keep key merchandising and marketing management in place for longer than a year at a time and are a declining player in a world where their competitors are all moving upscale smartly.

Art Williams
Guest
Art Williams
14 years 10 months ago

In my view Sears/Kmart will be hurt by the loss of Martha Stewart’s products, but the reverse isn’t true. While Kmart likely helped Martha when the deal was first made, she will be better served to distance herself from Sears Holdings as their ship sinks.

Camille P. Schuster, PhD.
Guest
14 years 10 months ago

Lack of a deal between Martha Stewart and Sears will be negative for both parties. Martha Stewart products have been a strength of Kmart; loss of Martha Stewart for Kmart would be negative for Martha Stewart. Martha Stewart’s current clients are not the typical Macy’s consumers. An upscale line might work at Macy’s but not if it is called Marth Stewart because that line is identified clearly with Kmart. These deals or lack of them have the potential of hurting everyone and will only help Macy’s if the right marketing strategy is used.

Dan Raftery
Guest
14 years 10 months ago

In addition to sinking the Sears ship, if MSO does not have that outlet – no matter how weak it is – this sea change will hurt many of Martha’s suppliers. Remember that most housewares are contract manufactured overseas. MSO can’t just stop ordering for a year and expect their suppliers to be there when they want to ramp up for Macy’s. The pipeline needs to keep flowing.

Karin Miller
Guest
Karin Miller
14 years 10 months ago

From Martha’s perspective, Macy’s is probably paying her a higher royalty on the potential $400MM vs. KMart on the $1B, so financially, the deal may be at least equal. From a positioning perspective, Macy’s will allow her to be less cost conscious and therefore more “Martha.” That so many (sometimes competing) retailers carry her products and continue to pursue her demonstrates that her brand is still well perceived.

Martha’s program at Kmart was groundbreaking in quality, design and cross-merchandising when it was introduced a decade ago, and it has been refined since. Granted, Target has surpassed Kmart’s home fashions presentation in the mean time, however, it is hard to imagine that the potential loss of Martha will bode well for SHLD.

Randall White
Guest
Randall White
14 years 10 months ago

Are you kidding?? After world-wide drought and global destruction has wiped out our planet, we will be left with cockroaches, Cher…and Martha Stewart still making everything pretty. I would always bet on on the smart, tenacious and creative entrepreneur over a rusting retail giant…as long as everyone can stay out of prison.

Mark Burr
Guest
14 years 10 months ago

It really won’t make a single bit of difference to Sears/Kmart. At this point, I don’t think anything could hurt them much more – just the same as little could help them. Their problem isn’t product, it’s people, execution and marketing. This does, however, instantly reduce the brand perception of Macy’s. It’s a really poor decision on their part. Good, positive decision making doesn’t seem to be their strong suit. If they were looking for a way to stem the decline of the ‘department store’ woes, this just isn’t it.

David Livingston
Guest
14 years 10 months ago

Sears’ and Kmart’s problems go far deeper than Martha Stewart. Martha Stewart will just be an afterthought in a few years. The sales volumes per store are so low now that it’s hard to understand how they manage to stay open. It’s like discussing how we are going to rearrange the deck chairs on the Titanic.

Kai Clarke
Guest
14 years 10 months ago

I disagree with most of the other folks. MSO was a groundbreaking name. After Martha’s tarnished image (lost TV show, decreasing magazine sales), Kmart is doing the right thing in not paying for the extra dollars that her brand requires. They still have Jacqueline Smith and others, and as other retailers have proven, they can simply bring in their own brand, or have a revolving line of brands which occupy different spaces to attract their customers. Sticking to the same old concepts is not winning Kmart customers, so change is a good thing.

Daryle Hier
Guest
Daryle Hier
14 years 10 months ago

In the long run, Martha Stewart will come out on top and Kmart will be gone. Revenue for MSO continues to rise although their net income is still at a loss. That being said, Sears and especially Kmart are a retail loser through and through and Martha knows it. Her brand will eventually rebound and become bigger than before – but not with Sears and Kmart. Sears’ and Kmart’s marketing departments have changed somewhat but they’re still making very little positive modifications in execution. Martha is bigger than Kmart and this relationship will end. Kmart…they will too end soon.

Harry Price
Guest
Harry Price
14 years 10 months ago

Most of the significant growth in retail has been fueled by offering competitive pricing. The old Kmart grew this way and was crushed by Wal-Mart’s lower pricing coupled with a better distribution system. Mr. Lampert is not stupid; he knows, given the choice, the consumer will buy the same item at a cheaper price rather than pay an outrageous royalty. The customer that Sears Kmart is seeking is and will always be price sensitive.

Ben Ball
Guest
14 years 10 months ago

Look for Martha to show up somewhere besides just Macy’s. I agree with Doc and others that she can’t afford to just drop $600 million in revenue (if that’s the right number). She either has other plans or a big problem.

Carol Spieckerman
Guest
14 years 10 months ago

Martha and Kmart are not inextricably linked…far from it. Martha has had her furniture in upscale retailers for quite a while (Abide and others). The Macy’s deal is not out-of-step but rather, a much more compatible move for her brand that will create powerful synergies with the rest of her growing empire…the unprecedented partnership with KB Homes, Martha’s multiple magazine launches, television shows, internet, and satellite radio presence…it ain’t called “Omnimedia” for nothing! Kmart schmaymart.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
14 years 10 months ago

Is this a $600 million roll-of-the-dice for the doyenne of nesting? If my math is correct, $1 billion in current sales minus $400 million in expected sales yields a bit of a shortfall.

Yet, for Sears Holdings, the stakes are higher. Many of us envisioned a vastly expanded opportunity for Garden Party Marty with the extension of her brand into Sears stores. Clearly that association is unwanted by the Stewart people, opting instead for a chance to move upscale – where Martha-the-icon is much more comfy. I’m having difficulty connecting “upscale” with the suggested Home Depot angle, but surely someone has done the math and looks to that and other non-restricted branding opportunities to make up for the $600 million in lost sales.

Justin Time
Guest
14 years 10 months ago

Kmart and MSO, strange bedfellows from the start, but each using the other for their own gain.

Switch to 2006. MSO is still losing money. Kmart is resurrecting itself, albeit, within the Sears Holdings retail sales tailspin.

Kmart has its bases covered. The Martha Everyday line of home furnishings are doing very well for Kmart. Its Essentials Home line compliments as well as extends the Everyday line in domestics. Kmart has the edge with its Martha line of outdoor furniture, patio accessories and garden tools. Most of the outdoor furniture has sold out in many Kmarts.

What the two parties need to do is sit down, revise the license fee to a more reasonable fee and extend the contract another 5 years. Kmart is rebounding. True, the new Macy’s will have over 800 stores. But it is still a high priced mid-level department store. Well healed customers will continue to shop at Kmart for Martha Everyday because of the quality and price. That’s a no brainer.

Jack Borland
Guest
Jack Borland
14 years 10 months ago

One point that no one has made is that even if MSO pulls its product from Kmart, the product suppliers around the world will still be producing it or something like it and looking for outlets. Given the prevalence of third shift counterfeiting, and the quality + low price equation of the current product line we should expect to see Kmart/Sears filling its shelves with Martha Stewart Everyday brand knock-offs soon after the contract expires.

Whether those are Kmart/Sears private-label products or whether they’re smaller niche brands aggregated, the effect should be the same. With relatively minimal effort for Kmart/Sears marketing, the shoppers accustomed to finding Martha Stewart Everyday in Kmart won’t see a noticeable drop-off in availability of quality low cost products.

This won’t fix the Sears downward spiral, but having Martha move on won’t be the straw that broke the camel’s back.

Craig Sundstrom
Guest
14 years 10 months ago

W/opinions all over the board, I’m sure I agree w/someone here…Camille: (and I repeat what I said a few weeks back) Macy’s might be good for Martha, but is Martha good for Macy’s? If you believe that Martha is America’s designer doyenne, then it’s only fitting she be carried in (self-proclaimed)”America’s Store;” but if you think she’s yesterday’s news – or you just aren’t sure – then you probably aren’t too keen on it. But one thing if for sure: she’s several few steps removed from Ralph Lauren, Coach and the other names we remember from Macy’s glory days as an indie; and it’s one more reason – even beyond the Fields’ nameicide – to dislike/question Federated’s strategy(ies).

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