Wednesday, March 10, 2004

Kmart faces Stewart question

Retailer unlikely to sever ties with Martha Inc., analysts say

By Sarah Karush
The Associated Press

DETROIT - Kmart Holding Corp., on the mend after a trip to bankruptcy court and struggling to lure consumers back to its tidied-up stores, could see the shine on its marquee brand dim now that Martha Stewart faces prison for lying about a stock sale.

The brand is one of the few things the retailer has going for it as it struggles to compete with Wal-Mart Stores Inc. and Target Corp. Kmart touted its exclusive rights to Martha Stewart Everyday housewares and other products as key to its recovery since emerging from Chapter 11 last year.

"Other than Martha Stewart and her daughter, nobody was more upset Friday afternoon than executives at Kmart," said Seth Siegel, co-founder of The Beanstalk Group, a trademark licensing agency.

Kmart has been silent on the future of its relationship with Martha Stewart Living Omnimedia since the domestic style maven was found guilty Friday of lying to government investigators about her well-timed sale of stock in a biotechnology company before bad news sent the shares plummeting. The retailer said only that it was "saddened" by the conviction.

Stewart, who owns 61.2 percent of her multimedia company, resigned as chief executive after being indicted last summer but remained as chief creative officer and a director.

Still, analysts said Kmart is unlikely to abandon Stewart. Sales of her products at Kmart were $1.5 billion in 2002 - about 5 percent of Kmart's total sales.

The actual value of the brand could be even greater. Shoppers often are lured into Kmart by the Martha Stewart name and then make other purchases, analysts noted.

"The brand Martha Stewart was probably more favorably looked at than Kmart itself," said Gary Ruffing, a retail consultant with BBK Ltd. and a former Kmart executive.

Since emerging from bankruptcy, Kmart has whittled down its losses, after doing the same with its stores and work force, and the retailer reported a $250 million profit for November and December, the first two months of its fiscal fourth quarter. Kmart reports full-year earnings next week.

Kmart, which first teamed up with Stewart's company in 1987, signed a seven-year licensing agreement with it in June 2001. Unlike contracts companies typically made with celebrity promoters, the agreement contains no clause specifying that the relationship can be ended in case of a criminal conviction or other bad publicity. However, legal experts said Kmart could find a way out if it wanted to.

Martha Stewart Living is interested in preserving the relationship, which continued to pay off even after Kmart filed for bankruptcy in January 2002. Revenues from Kmart constituted about 17 percent of Stewart's company's total revenues that year.

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