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Macy’s Settles With Martha Stewart

The retailer's legal battle with J.C. Penney continues.

Terry has made up with Martha, at least businesswise — but he is still mad at J. C. Penney Co. Inc.

Macy’s Inc., led by chairman, president and chief executive officer Terry J. Lundgren, has settled its breach-of-contract lawsuit against Martha Stewart Living Omnimedia Inc., but its claim against Penney’s remains subject to a decision by Manhattan state court judge Jeffrey Oing.

Macy’s said: “Macy’s has resolved its breach-of-contract lawsuit against Martha Stewart Living Omnimedia. We are pleased to be able to put this matter behind us. The terms of our settlement are confidential, will not be disclosed and are not deemed to be material to Macy’s. We can now return our focus to what we do best — bringing beautifully designed, high-quality, affordable products to consumers nationwide. We look forward to a continued, successful partnership together.”

MSLO essentially said the same thing in its statement, also noting that the terms of the agreement are not deemed material to it.

Macy’s added that the settlement has no effect on its outstanding claim against Penney’s. The court still has to rule on its claim, as well as assess damages.

Neither Macy’s nor MSLO provided any additional comment. A spokeswoman for Penney’s declined comment. But Penney’s in October substantially scaled back its earlier tie-up with Martha Stewart, agreeing to sell a smaller number of categories and to return its stake in MSLO and give up its seat on the Martha Stewart board.

RELATED STORY: Martha Stewart Revises J.C. Penney Deal >>

Shares of Macy’s on Thursday slipped 0.02 percent to $53.39, while MSLO’s stock shot up 8.8 percent to close at $4.57. Shares of Penney’s were down 3 percent to $8.88.

The settlement between Macy’s and MSLO defuses what had been one of retail’s most riveting legal cases in recent memory. The case has been intermittently at trial since February, and while the main presentation of the case was completed in June, closing statements weren’t heard until August.

The three companies became embroiled over Martha Stewart-branded shops-in-shop at Penney’s stores in a deal that had been inked by Penney’s former ceo Ron Johnson. Penney’s signed the deal even though Stewart already had her own line of exclusive branded home categories at Macy’s. MSLO’s contract with Macy’s was signed in 2006, which the department store said gave it the exclusive for the cookware, bedding and bath categories. MSLO’s deal with Penney’s was inked in 2011, under which the retailer also bought 11 million MSLO shares for $38.5 million. In addition to suing Penney’s for interference of contract, Macy’s wants to bar Penney’s from selling products designed by Stewart, whether her name appears on the product line or not.

MSLO and Penney’s revised their partnership agreement in October, essentially reversing the bulk of the original deal they signed. There’s also now a more focused range of product categories over a shorter period of time, through June 30, 2017, versus the original term that would have expired in 2021. And the product categories that were never in dispute, and are now Penney’s domain, are in window treatments and hardware, lighting, rugs and holiday and celebrations. MSLO will receive design fees and guaranteed minimum royalties.

Mitchell Epner, counsel to the law firm Wilk Auslander, said, “It’s been clear all along that the judge wanted, and still wants, the parties to settle this, and that if he was called in to do the dividing, he could not have done it with the sort of knowledge that the people in the business have.”

Epner, who said that “most of the Macy’s battle is done,” noted: “What this agreement tells us is that when the dust settles, Martha Stewart is still married to Macy’s.”

While the two companies are still working together, it wasn’t clear if the home doyenne and Lundgren have managed to personally bury the hatchet.

When Lundgren took the stand in February, he stuttered in response to whether he still had a friendship with Stewart. He said, “We were, we were, we were friends. I told my team to prioritize her business.”

He also said he was “shocked and blown away” by Stewart’s call to him regarding the deal with Penney’s, and stated that he had hung up on her, noting that he had never hung up the phone on anyone before that.

Macy’s did renew the agreement it had with MSLO months later, even after it filed its lawsuit against MSLO.

According to Lundgren: “This is a very important business to us. I don’t have an answer of what to do if I don’t have Martha Stewart brands in our home [division]. I don’t have a substitute.…I don’t have a personal relationship with Martha Stewart. I haven’t responded to her since that phone call and I don’t intend to.”

As for possible insight on Stewart’s decision to partner with Penney’s, she said during her testimony: “I love Macy’s. I’ve shopped at Macy’s since I was a young child. Macy’s has been a fixture in our home. Macy’s has changed a lot over the years.…As a company, we couldn’t survive without growth.…Macy’s is a $300 million business for MSLO. I don’t want it to go away, but I thought our business would be much bigger than $300 million after five years.”