Two major U.S. retail chains — J.C. Penney Co. and Macy's Inc. — are expected to duke it out in New York State Supreme Court starting Wednesday over the right to sell Martha Stewart merchandise.
At the heart of the case is whether Macy's has the exclusive right to sell certain Martha Stewart branded products, including cookware, bedding, and bath items. Company founder Martha Stewart, J.C. Penney's CEO Ron Johnson and Macy's CEO Terry J. Lundgren are expected to testify during the trial, which could last three weeks.
In December 2011, J.C. Penney announced a partnership in which it would open with Martha Stewart mini shops in most off its stores this spring. It also announced it had acquired a 16.6 per cent stake in Martha Stewart Living.
J.C. Penney is trying to re-invigorate flagging sales under Johnson, once an executive at Apple Inc.
Macy's sued Martha Stewart Living almost immediately, saying that it had exclusive rights on certain products until 2018. The pact goes back to 2007.
"J.C. Penney wanted to rob Macy's of market share and destroy the competitive advantage that it enjoys as a result of its existing exclusive agreement with (Martha Stewart Living)," Macy's said in its lawsuit.
Macy's has claimed substantial damages and said the manoeuvr by J.C. Penney "threatens to inflict incalculable further harm on Macy's. Billions of dollars of sales are involved."
Macy's is also trying to stop Martha Stewart from providing designs to J.C. Penney even if it gets rid of the Martha Stewart moniker.
Macy's won a preliminary injunction against Martha Stewart Living that would prevent it from selling housewares and other exclusive products at Penney. But Supreme State Court Judge Jeffrey K. Oing did allow J.C. Penney to open Martha Stewart shops as long as items under the exclusive contract are not sold in them. Penney plans to open the Martha Stewart shops on May 1.
Judge Oing will have to decide whether the shops meet a stipulation that allows the home maven to sell goods in Martha Stewart Living stores. Martha Stewart says the shops meet the definition, and the Macy's agreement doesn't impose any restriction that they have to be "stand-alone" stores. But Macy's contends these Martha Stewart shops at Penney don't meet the requirement since they are operated by Penney.
According to a memo filed by Penney, Macy's rights to Martha Stewart aren't nearly as sweeping as Macy's suggests. And it says that Macy's seeks to interpret the agreement as turning Martha Stewart Living into "little more than an in-house designer for Macy's"
"Macy's should stop competing in the courtroom and start competing in the marketplace," according to the memo filed by Penney.
The stakes are high for both retailers.
J.C. Penney is looking to Martha Stewart to bring popular brands to its stores as it grapples with mounting losses. Penney began adding various branded shops late last year and plans to overhaul the home department this spring with new names like Jonathan Adler and Michael Graves. But Martha Stewart is the major household name.
As for Macy's, having another major department store sell Martha Stewart towels, pots and other home merchandise could dilute its business.
Burt Flickinger, III, president of retail consultancy Strategic Resource Group says if Penney is unable to carry Martha Stewart, it could hurt Penney tremendously.
"It leaves Penney with one less power brand,"Flickinger said.
Judge Oing will be deciding the outcome rather than a jury.