Judge to Hear Final Arguments on Martha Stewart

By: Associated Press Email
By: Associated Press Email

NEW YORK (AP) — An attorney for J.C. Penney said Macy's should have written a better deal with Martha Stewart if it wanted to keep other stores from selling the home maven's merchandise.

Lawyers for the three retail powerhouses are offering closing arguments in a New York court today.

"It's been a long trial. But what it comes down to is a poorly written contract," argued Mark Epstein, an attorney for Penney. "Time has come to put an end to this case."

After a three-month hiatus, lawyers for Penney, Martha Stewart and Macy's were back in front of New York State Supreme Court Judge Oing. He is expected to make his decision on whether Macy's has exclusive rights to sell certain merchandise including bed, bath and kitchenware items as early as Friday.

The decision would cap a closely watched trial that began in February but continued in fits and starts because of vacation schedules and other interruptions. At one point, Oing even ordered the parties into mediation in March but that went nowhere.

The case centers on whether Macy's Inc. has exclusive rights to sell certain merchandise, including bath items and kitchenware. The trial featured testimony from Macy's CEO Terry Lundgren, former Penney CEO Ron Johnson, and Martha Stewart herself. Johnson appeared on the stand just a month before he was fired as Penney CEO, 17 months into his tenure.

Cincinnati-based Macy's Inc. sued Penney and Martha Stewart Living Omnimedia Inc. for violating an exclusive deal between the home maven and Macy's when Penney signed its own merchandising pact with Martha Stewart in December 2011.

Macy's is suing Penney for what it believes was intentional interference with Macy's contract with Martha Stewart. It is seeking not only to block Penney from opening mini boutiques filled with Martha Stewart branded goods in certain categories, but also to prevent it from selling designs created by Martha Stewart that do not carry her name. The company also seeks monetary damages.

One of the loopholes Martha Stewart and Penney have focused on is a provision in the contract that allows Martha Stewart to sell goods covered by the exclusive pact in Martha Stewart Living's own stores. Penney and Martha Stewart have argued that since the Macy's contract does not specify that the stores have to be standalone, the mini shops within Penney aren't barred by the exclusivity agreement.

"That definition that Macy's wrote just stinks," Epstein argued.

The stakes are high for all three players, but particularly for Penney, which has been counting on a revamped home area launched this spring to help it rebound from a disastrous year. The company amassed nearly a billion dollars in losses and its revenue dropped 25 percent for the fiscal year that ended Feb. 2 as a transformation plan spearheaded by Johnson built around a new pricing and merchandising strategy failed. Losses and sales drops continued into the first quarter, as the shadow of Johnson's legacy remained.

Penney's board brought back its CEO Mike Ullman who has reintroduced frequent sales events and basic merchandise that Johnson eliminated in a failed bid to attract trendier, wealthier customers. But while traffic is improving, analysts believe business is still slow. Even the home area, which was Johnson's project and features a slew of trendy new names like Jonathan Adler and Michael Graves, has failed to resonate with shoppers, analysts say.

A new round of worries about Penney's financial situation cropped up Wednesday after a report that CIT Group Inc., the largest lender in the clothing industry, has stopped providing financial support to small and large suppliers selling to Penney stores for now. Penney said that the report was untrue and that CIT backed shipments for less than 4 percent of its merchandise anyway.

In July 2012, Macy's won a preliminary injunction against Martha Stewart Living that would prevent it from selling Martha Stewart branded housewares and other exclusive products at Penney. A month later, the judge granted permission for Penney to open Martha Stewart shops as long as the items under exclusive contract with Macy's are not sold.

Penney went ahead and ordered goods designed by Martha Stewart in the exclusive categories but sidestepped the preliminary ruling by labeling them JCP Everyday. Macy's tried to get the judge to halt the sale of the JCP Everyday goods until he made his final ruling, but he declined and allowed Penney to sell the goods that were already made.

The JCP Everyday collection hit the stores in May. As part of the final ruling, Oing will decide whether Macy's contract does cover exclusivity in designs even if the items don't carry the Martha Stewart name.

Penney is carrying Martha Stewart branded items in party supplies and window treatments, areas not covered by Macy's contract.

Anthony Michael Sabino, a professor at St. John's University's Peter J. Tobin College of Business, said he can't predict how the judge will rule, but he said that his bet is that Oing is "85 percent sure where he is going." He says he believes the judge will issue his decision in the next few days.Macy's attorneys are expected to present their closing arguments later Thursday.


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