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Pillow Fight

It’s a breach of contract lawsuit, but branded concept shops may hang in the balance



Terry Lundgren vs. Martha Stewart. Macy’s vs. J.C. Penney. Lundgren vs. Ron Johnson. By retail standards, pretty high-wattage stuff. On the surface, of course, it appears to be your normal, open-and-shut breach of contract lawsuit.

Back when Stewart was one of the most powerful brands in the world, she had an exclusive contract with Kmart to develop and sell her named line of home goods. I don’t think it was doing either party much good. It certainly wasn’t saving Kmart, then in the downward spiral that led to its artificial respiration deal with Sears.

In 2007, Stewart signed a similar exclusive with Macy’s and became part of that stable of celebrity brands – along with Tommy Hilfiger, Sean Combs, Jessica Simpson, Usher, Emeril Lagasse and others – that at least produced entertaining Macy’s ads.

When Stewart signed another “exclusive” deal with Penney’s in 2011, its brand new ceo, Ron Johnson, is said to have chortled (according to Johnson emails or letters and The New York Times), “Terry might have a headache tonight,” and “We just put Terry in a corner,” and “He now has to work again.”

Whether Lundgren had to work again or not, Macy’s lawyers certainly did. After all, how many exclusives can someone have before they’re no longer, uh, exclusive?

Is this a fight mostly over principle? After all, home is not the most profitable department in the store, by far. Sheets and towels, pots and pans have plummeted during the recessionary years, and now account for about $80 a square foot in Penney’s (less than half of what they did five years ago). At Macy’s, Lundgren once said (according to The New York Times), home is “generally the least profitable part of the store.”


But there’s another issue that might have far bigger implications. While Stewart is forbidden to sell her merchandise to a Macy’s competitor, an exclusion in the Stewart-Macy’s contract allows her to sell her products in her own Martha Stewart stores. Penney’s has plans for Martha Stewart concept shops – Johnson’s vision of a 19,000-square-foot home emporium that also features Michael Graves and Jonathan Adler shops – which, Stewart argues, should count as distinct branded stores. And, as Martha Stewart “stores,” they’d be exempt from her Macy’s deal.

I’m not sure anyone bothered to sort that one out back in the 1980s and 90s, when Ralph Lauren was building hard-walled shops inside Bloomingdale’s and Macy’s stores with his own fixtures, signage, colors and even staff. Tommy Hilfiger, Donna Karan and nearly every other designer of note followed.

Department stores have gone back and forth on that for years. Do all those shops add to the brand, or distract from the brand? But now there may be a bigger question: Does shop-in-shop legally equal freestanding store?



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