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Macy’s Exec Testifies in Martha Stewart Case

Leonard Marcus’ fears were realized when the home goods brand cut a deal with Penney’s.

NEW YORK ­— Leonard Marcus, long-time president of Macy’s Merchandising Group, helped negotiate and ultimately signed the department store’s 2006 agreement to make and sell Martha Stewart home goods — but only after he spent months as a self-described “roadblock” to the deal.

This story first appeared in the February 22, 2013 issue of WWD.  Subscribe Today.

“I was very skeptical of the business opportunity,” said Marcus, noting Martha Stewart had recently been released from prison, that her brand had a history with the lower-priced Kmart chain and that he preferred to own brands rather than build them up only to risk losing them.

That last concern was realized, in dramatic form, in 2011 when Martha Stewart Living Omnimedia Inc. sold a 16.6 percent stake in its business to J.C. Penney Co. Inc. and inked a deal to set up home goods shops-in-shop with the chain. Macy’s Inc. disputed the agreement in January 2012, beginning the legal battle that ultimately brought Marcus to the witness chair in a Manhattan courtroom Thursday.

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“When I heard about [the Martha Stewart deal with Penney’s], I was shocked, I was angered, I was ticked off,” Marcus said. “The first thing that went through my mind was, ‘I cannot believe [it], this is exactly what I was afraid of when we did this contract, that we were going to do a deal and then somehow we’re not going to have the exclusive rights.’ I was flabbergasted.”

Marcus was just the first witness in what’s expected to be hard-fought case with testimony from Macy’s chairman, president and chief executive officer Terry J. Lundgren, Martha Stewart herself and Penney’s ceo Ron Johnson.

One of the key matters to be decided by New York Supreme Court Judge Jeffrey Oing during the trial will be if MSLO was within its rights under its contract with Macy’s to set up shops-in-shop at Penney’s.

The Macy’s agreement allows for MSLO to set up its own stores, which the home goods firm contends covers shop-in-shops in Penney’s.

Marcus said the issue of Martha Stewart stores came up near the end of Macy’s negotiations with the brand. He said Martha Stewart’s chairman at the time, Charles Koppelman, said, “Ms. Stewart always had a dream to have a concept store, à la Ralph Lauren.…It was his request that Macy’s has to make merchandise for that store because he knew they couldn’t do it themselves, they have no manufacturing arm… It was, ‘We may at some point decide to do this.’ There was always going to be a Rodeo Drive, a Madison Avenue [store], a big ‘wow’ for Martha Stewart.”

It was a different kind of “wow,” with lots of legal fireworks, that Stewart ultimately made by signing on with Penney’s.