NEW YORK — J.C. Penney Co. Inc. caught a break in its court battle with Macy’s Inc. over selling Martha Stewart products, and it’s a particularly timely gift for Penney’s new chief executive, Myron “Mike” Ullman 3rd.
The judge ruled Penney’s can sell unbranded products designed by Martha Stewart Living Omnimedia Inc., giving Ullman just the edge he needs when he meets with brands and suppliers in New York this week. It will be his first meetings with the Seventh Avenue crowd since taking over from the ousted Ron Johnson, and he’s bringing Liz Sweney, Penney’s chief merchant, along for the ride.
The agenda for Ullman’s meetings with vendors will be broad, according to market sources, focused on formulating a Christmas strategy, shifting the fashion appeal toward Penney’s older, core customer and fits for those over 35 and away from the younger silhouettes and brighter colors currently permeating the chain. The Penney’s team is also expected to be tackling delivery terms, co-op advertising, markdown money, promotions and shops-in-shop.
“The biggest thing Mike Ullman has in front of him is getting Christmas together and making sure that on Black Friday he has the store filled with goods that his former customers will run to buy,” said one retail source.
“He’s coming to the market next week to meet with vendors,” confirmed Jared Kahn, president of Cipriani Accessories/Max Leather, the accessories division of LF USA. “Our business is healthy there,” Kahn said, adding that the president of LF USA will meet with Ullman. Kahn also said that the 583 Lulu Guinness accessories shops inside Penney’s are performing well. Lulu Guinness for Penney’s is an LF USA licensee.
One former Penney’s executive said: “Mike is going to be focused on holiday and bringing core customers back, on the basics, and reestablishing a promotional cadence. He might be able to change some of back-to-school, but more from a promotional standpoint.”
The ex-Penney’s executive recently visited one of the company’s stores, which he said is “a sea of sameness, all geared to a younger, more fashion forward customer” with brighter colors, younger cuts, with the exception of some private labels like Worthington. “Izod is great. Stafford pieces are good.” The source also said the store lacked enough “really solid core basics….They need to drive product and promotion back to the core customer. Liz Sweney understands it. She is in sync with Mike.”
Sweney, a 13-year veteran of Penney’s, worked with Ullman when he ran the store as ceo from December 2004 to November 2011. Sweney is credited with the launch of several successful private and exclusive brands during that time, including Liz Claiborne, MNG by Mango, Call It Spring, a.n.a., City Streets, Decree and I [Heart] Ronson by Charlotte Ronson.
But Ullman and Sweney also have to decide what to do with the new lines Johnson introduced — or wanted to. On Friday, Judge Jeffrey Oing ruled that Penney’s could sell what amounts to warehouses filled with Martha Stewart goods. The issue had been hanging over Penney’s and its retail partner MSLO since it was brought to trial by rival Macy’s Inc. in February. The development couldn’t have happened at a better time for Penney’s, which had been swatting away at bad headlines after it fired Johnson, the architect of its contract with MSLO.
Macy’s won a preliminary injunction last summer that banned Penney’s from selling Martha Stewart-branded products. But during the trial, Macy’s sought for the judge to keep Penney’s from selling Martha Stewart unbranded, designed wares that were marked with Penney’s “double-house” logo and the JCP Everyday logo. Unbranded goods were not covered under the Macy’s/MSLO contract, Oing noted.
Central to the judge’s decision Friday was that Macy’s could not prove it had suffered “irreparable harm,” a key element to obtaining a preliminary injunction. “Where’s the damage?” Oing asked Macy’s lawyer Theodore Grossman, who pressed on for over an hour, trying to prove his client would be damaged if Penney’s sold the unbranded goods.
The judge repeatedly gave the metaphor of a building that developers threatened to tear down. Without the court’s interference, the building would be destroyed. “That’s irreparable harm,” he said, explaining that because none of the MSLO products had been sold yet, it was impossible to assess damages.
By allowing Penney’s to sell the goods, the court could monitor if Macy’s sales or foot traffic was impaired. “Macy’s can be compensated by money damages,” Oing offered.
The normally smooth talking Grossman began to stutter and tried to shift gears. He argued that it would behoove the court to keep things as they are, to not allow Penney’s to sell any of the wares, until a final decision was made at the conclusion of the case.
He almost convinced Oing but eventually the judge said Penney’s would “suffer” harm without the unbranded merchandise. “It will cause a ripple effect,” Oing said. “They [JCP] lose the money, the money they’ve spent; employees may be terminated.”
He added that down the line, if Macy’s proves it has been harmed, the unbranded product can be yanked and the retailer would get a fat check, “probably seven figures” as compensation. “More,” Grossman muttered.
The judge offered that this scenario would be a “publicity nightmare” for Penney’s.
Lawyers from MSLO and Penney’s began exchanging crooked grins.
Penney’s attorney, Mark Epstein, said Grossman “danced around” the issue of irreparable harm without being able to prove his client suffered it.
“At this moment, right now, we are about to unveil the reimagining of JCP stores. It costs a lot,” Epstein said, explaining that it was his client that would suffer most. “It’s a game changer and [pulling the product] is particularly harmful right now.”
In regards to the possibility that the unbranded goods could be pulled from the shelves in the next few weeks should Macy’s prove it was harmed, Epstein said that scenario could be avoided so long as Penney’s pays Macy’s for any profits lost.
“The silver lining here is that Macy’s has not demonstrated irreparable harm. The building is not coming down,” Epstein concluded.
Oing’s mind was made up and he returned ten minutes later with the verdict and some strong words for the lawyers.
“I’m really disappointed that we’ve got to this point,” he said. “I’m still of the belief that business decisions are best made by business people.”
Oing managed to get in a jab at former Penney’s ceo Johnson, whose “conduct” he called “less than admirable.”
Even though Penney’s won this round, Oing had stern words for the department store.“I want to be absolutely clear: I do not want to hear any utterance of Martha Stewart [branded goods] in J.C. Penney stores,” he said. “I don’t want to see any advertisements or any brochures or promotions. J.C. Penney is to stay away from the Martha Stewart brand at all costs. This is for the exclusive [branded] product categories, but be even more sure, I think you may want to stay away from the Martha Stewart name altogether. I’m letting you put the stuff on the shelves. You sell the Martha unbranded products, but I don’t want to get into that gray area.”
Macy’s indicated its intent to appeal Oing’s decision. The court of appeals could move for an immediate reversal of the decision, or it could take weeks, if not longer. Until then, Penney’s can sell the unbranded goods. The trial continues next week with MSLO and Penney’s trying its side of the case.