March 6, 2013 in Business

Stewart denies wrongdoing

J.C. Penney deal didn’t breach Macy’s contract, she says
Anne D’Innocenzio Associated Press
 
Associated Press photo

Martha Stewart testifies in court Tuesday in New York.
(Full-size photo)

Penney stock falls

 Shares of J.C. Penney fell 10.6 percent Tuesday to a four-year low after media reports said a large shareholder sold a chunk of the struggling retailer’s stock.

 The stock lost $1.78 to close at $14.96, its lowest price since March 2009.

 Vornado Realty Trust, once the company’s second largest shareholder, sold almost half its stake, or 10 million shares, at $16.40 per share through Deutsche Bank AG, according to a Bloomberg report on Tuesday that cited people familiar with the matter. That price would be a 2 percent discount to the stock’s closing price of $16.74 on Monday.

NEW YORK – Home decor and food guru Martha Stewart testified in court on Tuesday that she did nothing wrong when she signed an agreement to open shops within most J.C. Penney stores across the country.

Stewart testified in New York State Supreme Court in a trial over whether the company she founded breached its contract to sell cookware, bedding and other items exclusively at Macy’s when she inked the deal with J.C. Penney.

Stewart’s appearance, which followed a lineup of other top brass including the CEOs of both Macy’s Inc. and J.C. Penney Co., attracted a lot of media attention. So much so that the judge opened up the jury box to make room for the expanded audience, and spectators had to wait behind a roped line to enter the courtroom.

During four hours of testimony, Stewart, who founded Martha Stewart Living Omnimedia Inc., denied allegations by Macy’s that she did anything unethical and said she was only looking to expand her brand.

Stewart said it’s Macy’s that didn’t uphold its end of the agreement to try to maximize the potential of her business. She said her brand had grown to about $300 million at Macy’s, but the business was now “static” at the department store chain. She said she had hoped the business would exceed $400 million.

“We were disappointed,” testified Stewart, 71. “We got to a certain dollar amount and struggled and never got any further.”

The trial, which began Feb. 20, centers on whether Macy’s has the exclusive right to sell some Martha Stewart-branded home products.

Penney signed a pact in December 2011 with Martha Stewart Living to open shops at most of its 1,100 stores by this spring. A month later, Macy’s renewed its long-standing exclusive deal with Martha Stewart until 2018, then sued both Martha Stewart Living and Penney.

Macy’s is trying to block Penney from opening the Martha Stewart shops within its stores. The company also is seeking to stop Martha Stewart from providing any designs to Penney – whether or not they carry the Martha Stewart label.

Martha Stewart and Penney are using what they believe is a loophole in the agreement between Macy’s and Martha Stewart to move forward with their deal. It’s a provision that allows Martha Stewart to sell some of the products that it offers in Macy’s stores at Martha Stewart shops, too.

According to Martha Stewart lawyers, because the Macy’s agreement doesn’t specify that Martha Stewart stores have to be “standalone” locations, the minishops within Penney’s stores would not violate the contract. Stewart said in court Tuesday that even Amazon.com could be considered a store, given shoppers’ shift to online buying.

“I don’t think you need walls to be a store,” she said.

The trial has revealed some of the drama that took place behind-the-scenes as the Martha Stewart-Penney deal came to be. During his testimony on Friday, Penney CEO Ron Johnson rejected claims by Macy’s lawyers that he plotted to push Martha Stewart to breach her deal with Macy’s with the goal of eventually becoming the sole carrier of some of Stewart’s products.

Johnson testified that he just wanted to get a piece of the action while helping the Martha Stewart’s business grow. He also said that the expanded partnership could be good for all parties involved, including Macy’s.

Macy’s attorneys, meanwhile, have portrayed Stewart as someone who turned her back on a good friend, Macy’s CEO Terry Lundgren, to broker a deal with a rival company. During testimony earlier in the trial, Lundgren said he hung up on Stewart after she told him about the deal she’d reached with Penney. He said he hasn’t spoken to her since.

“I was quite taken back by his response and when he hung up on me I was quite flabbergasted,” Stewart testified.

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