What Makes Martha Stewart Such a Bad Partner?

I’ve read lots of articles about Martha Stewart’s recent bout of litigation, but none of them addresses why someone would have ended up litigating this case to begin with, and what Martha (and her partners) could have done to avoid it.

The Third Marriage a Charm?

As a lawyer, I don’t find the claims underlying the Martha’s/Macy’s legal dispute very intriguing; it’s a pretty standard contract claim, with a pretty glaring breach.  In 2007 Martha’s company (MSLO) granted Macy’s the exclusive rights to lots of housewares product categories, but reserved the right for Martha to open her own branded stores.  Martha argues that this clause allows her to open a “store-within-a-store” at JC Penney’s – even when the store has no walls and is stocked staffed by Penney as MSLO’s licensee.  Her defense was weak enough that the parties are discussing settlement out-of-court.

What intrigues me is how this case and the underlying dispute ever came to be.

At IMC, what we negotiate are license agreements, but what we develop and manage are partnerships.  There is no sustainable value in a brand license unless both parties treat each other as partners.

This is not how Martha Stewart treated Macy’s.

To put this story in context, we should remember how Martha ended up with Macy’s to begin with.  Starting in the late 1990s, Martha Stewart licensed her name and design sensibility to Kmart.  Martha moved her brand “from class to mass” and got very well paid for it.  At its peak, Kmart was paying MSLO $65 million per year and selling more than $800 million in Martha-branded merchandise.

But Martha wanted more, and – while still under contract to Kmart, which she had sued in yet another lawsuit – she found another suitor.  Not long after Martha’s release from prison, Macy’s took on her brand, and started selling Martha-branded housewares even before her partnership with Kmart had expired.

Four years later Martha again wanted more, and found herself talking to Penney’s CEO (Apple Store-genius Ron Johnson).  Johnson wanted some of Martha’s class for his own housewares department, but he knew that her partnership with Macy’s was a problem.  MSLO then told Johnson that its lawyers found a loophole in their agreement with Macy’s: he could sell Martha merchandise through a store-within-a-store.  And as soon as Johnson announced his deal with Martha (which included Penney’s buying a substantial minority stake in MSLO), Macy’s sued.

What Partnership Means to Martha vs. What it Means to Others

In watching Martha move from one partner to another, trailing a wake of litigation and complaints behind her, I feel like I’m watching the passages of a man who left his first wife for another, and now argues that the marital vows he swore to his second wife (his former mistress) might actually allow him to keep another girlfriend on the side.   Who believes that such a man could ever be loyal to his partner?

As ad revenue from its limited slate of print magazines dries up, the future of MSLO depends on merchandising and licensing, which means that its future depends on the success of its partners.  For that reason, I understand why MSLO wants to maximize the number of partners who can sell Martha-branded merchandise (and why it has struck partnerships with Staples for office products, PetSmart for pet supplies, Michael’s for crafts and Home Depot for home improvement).  But MSLO needs to understand – which 30 years in this business don’t seem to have taught it – that treating partners unfairly will always drive them away.

In the settlement conversations that are now taking place between MSLO and Macy’s, I imagine that MSLO is offering to pay damages to Macy’s in exchange for giving up some of Macy’s exclusivity over the Martha brand.  And it may be true that provoking litigation was the only way to get Macy’s to the table for this conversation.  But even if we assume that this step was necessary to renegotiate the Macy’s deal, and even if we assume that the Macy’s deal is negotiated to MSLO’s liking, what kind of loyalty and long-term revenue can MSLO expect from Macy’s in the future?

The likeliest scenario is that Macy’s will find another brand or designer to work with, and will (like Kmart before it) start cutting back on its own Martha-branded products.  (Macy’s has already discontinued its line of cookware products featuring MSLO’s Emeril brand.)  And it seems likely that Martha will make good money from Penney’s – before she starts complaining about Penney’s, threatening litigation, and seeking yet another retailer as she continues the retail roundabout that finds her another . . . well, MSLO might call them a licensee, but they’ll never be a partner.

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