Macy’s CEO testifies in fight with J.C. Penney over Martha Stewart

NEW YORK (AP) — Macy's CEO Terry Lundgren testified on Monday that he hung up on home diva Martha Stewart after she called to inform him on Dec. 6, 2011, that the company that bears her name had inked a deal with J.C. Penney to open shops within most of the chain’s stores.

He hasn’t spoken to her since, even though the two used to be good friends.

“I was sick to my stomach,” Mr. Lundgren testified on Monday in New York Supreme Court. “I can’t remember hanging up on anyone in my life.”

The testimony comes as Macy's Inc. and J.C. Penney Co. duke it out over the partnership with Martha Stewart Living Omnimedia (MSLO). The trial, which began Wednesday, focuses on whether Macy's has the exclusive right to sell Martha Stewart-branded cookware, bedding and other products. Other key witnesses expected to take the stand this week include Penney’s CEO Ron Johnson and Ms. Stewart herself.

Mr. Lundgren testified on Monday that Macy's had built the Martha Stewart brand to be the biggest in its home business. Under Mr. Lundgren’s leadership, Macy's has focused on building exclusive brands that are not carried by rivals to get shoppers into the store. In the home area, exclusivity is key: Sales last year were up 8 percent, double the rate for the entire company.

Mr. Lundgren said Macy's has spent 40 percent of its overall marketing on the Martha Stewart brand, even though the home category represents 17 percent of sales. He says that having Penney have access to the brand will not be good for the business and will confuse shoppers.

“I need the Martha Stewart business to be exclusive,” Mr. Lundgren said. “I don’t have a substitute.”

The testimony is a culmination of a legal battle between the three companies that started in 2011. Macy's sued MSLO in January 2011, saying the company breached a long-standing contract when it penned the deal with Penney, which invested $38.5 million in a nearly 17 percent stake. In a separate lawsuit, Macy's sued Penney, claiming it had no regard for the Macy's contract and that Mr. Johnson had set out to steal the business that Macy's had worked hard to develop.

The two suits were consolidated for the bench trial, over which Supreme State Court Judge Jeffrey Oing is presiding. The trial is expected to last three weeks.

At issue seems to be a loophole in the agreement with Macy's. It’s a provision that allows MSLO to sell goods in categories such as bedding in Martha Stewart Living’s own stores.

According to MSLO, because the Macy's agreement doesn’t say the goods under dispute can be sold only in “stand-alone” stores, the minishops within J.C. Penney stores do not fall under the exclusive agreement.

Macy's, based in Cincinnati, disagrees. Mr.  Lundgren argues that a typical definition of a store is that it has a parking lot or is part of a mall. Macy's lawyers outlined in documents that it later found that Penney “knowingly and purposely demanded and received confidential information” from Martha Stewart Living Omnimedia about the contract with Macy's and crafted a deal that was more lucrative than the Macy's agreement.

Macy's claims in court documents substantial damages and said the maneuver by Penney “threatens to inflict incalculable further harm on Macy's. Billions of dollars of sales are involved.” Macy's is also trying to stop MSLO from providing designs to J.C. Penney even if it gets rid of the Martha Stewart moniker.

Last summer, Macy's won a preliminary injunction against MSLO that would prevent it from selling housewares and other exclusive products at J.C. Penney. Judge Oing did grant Penney permission to open Martha Stewart shops, as long as the items under the exclusive contract with Macy's are not sold in them.

Penney, which is based in Plano, Texas, plans to open shops featuring designs from Martha Stewart Living on May 1, but Daphne Avila, a Penney spokeswoman, said the products, which include bedding and cookware, have been stripped out of the home maven’s moniker and instead feature the label “JCP Everyday.”

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