By  on January 23, 2012

NEW YORK — Macy’s Inc. and J.C. Penney Co. Inc. are squaring off over Martha Stewart — in court.

Macy’s on Monday sued Martha Stewart Living Omnimedia Inc. for breach of contract in New York state court, according to the retailer. The suit accuses Martha Stewart of violating the 2006 deal to make and sell certain products exclusively to Macy’s.

Penney’s bought a stake in the media and lifestyle brand last month, and plans to sell a wide range of Martha Stewart-branded products, starting in 2013. The deal was one of the first moves by chief executive officer Ron Johnson, who is trying to reinvent the chain.

The Macy’s suit could be seen as an effort to splash a bit of cold water on the much-anticipated introduction of Johnson’s new vision for Penney’s. Johnson, the former Apple retail chief, will present his plan to Wall Street at a two-day presentation starting Wednesday.

After word of the lawsuit spread, shares of Martha Stewart slipped 3.5 percent to $4.15 in after-hours trading. Penney’s stock was up 0.9 percent to $35.27 and Macy’s shares dipped 0.1 percent to $35.05 after hours.

“Macy’s has renewed its agreement with Martha Stewart Living Omnimedia Inc. to exclusively sell Martha Stewart-branded product in categories such as cookware, kitchen utensils, bed and bath for another five years,” said a Macy’s spokesman, who added that the agreement now expires in January 2018.

“Macy’s plans to fully support its exclusive Martha Stewart-branded product going forward,” the spokesman said. “Martha Stewart is among a wide range of leading brands offered in Macy’s home store and we will continue to expand and improve our home offering based on localized customer preferences across the country.”

Sources familiar with the matter said that the Macy’s-Martha Stewart deal was set to expire at the end of this month.

As part of its lawsuit, Macy’s is seeking a preliminary injunction to stop Martha Stewart from breaking the contract, and according to published reports, the retailer is seeking an order to seal the lawsuit and motion, citing that it is prohibited from disclosing certain information.

Martha Stewart is “in direct violation of the terms of the agreement,” which agreed to “grant Macy’s the exclusive right to manufacture and sell Martha Stewart branded products in certain exclusive product categories,” according to a published report citing court papers.

“We can confirm that today, Macy’s notified us of its intention to renew and extend its commercial agreement with MSLO to feature and promote the Martha Stewart Collection — its number-one home brand — in Macy’s stores,” said a Martha Stewart spokeswoman. “J.C. Penney’s investment in Martha Stewart has closed and our commercial agreement with them remains in effect.”

J.C. Penney declined to comment.

Monday’s news wasn’t the first time Macy’s was caught “off-guard” by Martha Stewart, noted Credit Suisse analyst Michael Exstein, who cited MSLO’s agreement to sell a fresh food line at Costco Corp. in 2007, a year after the company signed its deal with Macy’s.

“Macy’s has defined its merchandising focus of the last several years as offering key national or limited distribution brands, such as Martha Stewart, while continuing to offer moderate price points and promotions to the consumer,” Exstein said last month when the Penney’s-Martha Stewart deal was inked. “We do not think there will be a material impact to the bottom line for either Macy’s or J.C. Penney’s…but the psychological impact is of one company, J.C. Penney, on the offensive and another, Macy’s, caught essentially flat footed.”

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