Macy's Sues J.C. Penney Over Martha Stewart Deal

Macy's sues JCPenney
Macy's Inc (M) took its legal battle over its agreement to exclusively sell certain Martha Stewart items directly to J.C. Penney Co Inc (JCP) on Thursday, accusing the rival department store chain of interfering with its contract with the home goods designer.

Macy's already successfully persuaded a New York state judge to temporarily block plans for Martha Stewart Living Omnimedia Inc to sell its products at J.C. Penney stores in a lawsuit against Martha Stewart.

The lawsuit filed on Thursday against J.C. Penney seeks to stop Penney from taking any actions that violate Macy's agreement with Martha Stewart and to stop J.C. Penney from using product designs that Macy's argued were illegally obtained from Martha Stewart.

J.C. Penney did not immediately respond to a request for a comment on the lawsuit.

Sponsored Links
J.C. Penney in December announced plans to open shops within its stores to sell Martha Stewart-branded goods, starting in 2013. Macy's sued Martha Stewart Living, accusing it of breach of contract by entering into the agreement with J.C. Penney.

The Martha Stewart deal is a centerpiece of J.C. Penney's plan to carve its 1,100 department stores into separate boutiques, each housing a distinct brand, by 2015. The concept is a key component of Chief Executive Ron Johnson's strategy for J.C. Penney, which has lost market share in recent years. Earlier this week, Penney and Martha Stewart agreed to broaden the array of merchandise the stores would sell.

Macy's claims Martha Stewart Living granted it the exclusive right to manufacture and sell the Martha Stewart-branded goods in Macy's lines under a 2006 agreement that, with a renewal, runs until 2018.

In the lawsuit, Macy's contends that the agreement with Martha Stewart includes language that says that monetary damages would not be able to remedy any breach of the contract.

"The fact that J.C. Penney is a less upscale retailer compared to Macy's compounds the injury," the lawsuit said.

The 10 Oddball Quotes From JC Penney's Fired CEO
See Gallery
Macy's Sues J.C. Penney Over Martha Stewart Deal

"The first and most encouraging thing to me is I am completely convinced that our transformation is on track. We are making extraordinary progress in everything we're doing."

"In haircuts, it's pretty incredible. Today we will cut on our tenth day of this effort to help Americans look better, help the kids look better. We'll do our 500,000th haircut, free haircut. And today customers will book their millionth appointment during the month of August to get a haircut.

"We're reducing the money on television. We'll still run television and we're investing heavily in the traditional traffic driving median, so be in the newspaper and we think that's going to be good."

"We're going to go paperless. ... Imagine a retail store without any paper except the signs, because everything will be done digitally through iPods and iPads and those are our priorities and those are all priorities within the next 12 to 18 months."

"Well, for the first 10 days with our new marketing, our traffic is down 7% to last year, which is a dramatic improvement."

"We're inspired by Selfridges. Selfridges is the leading department store in the world. You ask any retailer what's the number one department store? They will all say Selfridges."

"It's a place to refresh and we're going to have coffee bars and juice bars and place to get food, that's 25-square feet of space, but by putting out a few tables that have no cost, where we used to have cash wraps, no one has to leave the store if they want to refresh, they can grab a cup of coffee while someone shops and continue to stay in the store and continue to shop."

"We've rolled out Wi-Fi, but we really don't have a lot of use for it."

"What happens in a big mall of a 1 million square feet, about 600,000 square feet goes to the anchors and the common area which leaves about 400,000 square feet for the stores and the stores average 3,000 to 4,000 square feet. So, you run the math, you have about 100 to 120 stores in a typical mall we're in. We'll have just as many shops with inside JCPenney and that's what we call it a specialty department store. It's like a mall within a mall.

"Yeah, we're very anxious to communicate our pricing to our customer and we have failed at that, right? They were confused. Now, we have a pricing strategy that they understand. We have done focused groups around the country over the last 30 days with our new pricing strategy and they all say, we get it, whereas before, they were confused."

"At Apple our stores were busy when we only had Macs. Then we added the iPod; they got busier. We added the iPhone; they got busier yet. We added the iPad, and they got busier. The same thing will happen here. Next spring it's Joe Fresh, Martha Stewart, all our new partners. It will be just like Apple: boom, boom, boom."

As analyst Bill Dreher of Newedge USA told Johnson on the call, "I want to applaud you for creating one of the most exciting stories in retail write-down."

Macy's contends that J.C. Penney intentionally caused Martha Stewart to breach its agreement with Macy's, offering to make a $38.5 million investment in the designer conditioned on the merchandising deal.

Martha Stewart has countered that the items to be sold at J.C. Penney do not fall under the exclusive categories granted to Macy's. It has also said Macy's used the Martha Stewart brand to lure customers into its stores, then made little effort to actually sell Martha Stewart products

Macy's also said that J.C. Penney offered terms to Martha Stewart that were more lucrative than Macy's had agreed to.

In July, J.C. Penney and Martha Stewart expanded the agreement to more categories, which Macy's says fall into its exclusive agreement with Martha Stewart.

The case is Macy's Inc v. J.C Penney Corp Inc. 652861/2012, New York state Supreme Court, New York County.
Read Full Story