Troy, MI, Mar. 10--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--which analysts call a key driver of store traffic--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.
Since Stewart's legal woes began, her company's branded merchandise, such as the Martha Stewart Everyday line of sheets, towels and other products, have continued to do well.
But Burt Flickinger, managing partner at consulting firm Strategic Resource Group in New York, expects as much as 60% of the brand's shopper base could be lost because of Stewart's conviction.
"They won't want to support what is perceived to be personal or profesional corporate crime," he said.
That defection will cost Kmart $1 billion in sales in one full year, including lost sales from other merchandise shoppers buy once lured to Kmart for Martha Stewart merchandise, Flickinger said.
Kmart has been silent on the future of its relationship with Martha Stewart Living Omnimedia since Stewart 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% of her multimedia company, resigned as chief executive after being indicted last summer but remained as chief creative officer and a director. Regulators could force her to resign her positions. But even if she severed ties to the company, her persona is tightly wound up with the brand.
Still, analysts said Kmart is unlikely to abandon Stewart. Sales of her products at Kmart were $1.5 billion in 2002--about 5% of Kmart's total sales.
"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. "It would be very tough for them to walk away."
Since emerging from bankruptcy, Kmart has whittled down its losses, after doing the same with its stores and workforce, 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, entered into a seven-year licensing agreement with it in June 2001. Unlike contracts companies typically sign 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.
"My guess is that they could find more than one or two ways of breaking the contract if they wanted to," Siegel said. "There's no possibility they want to."
Martha Stewart Living is also 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% of Stewart's company's total revenues that year.
And that business could become even more important as fallout from the scandal hurts other parts of Martha Stewart Living's enterprise.
Stewart's syndicated television show, "Martha Stewart Living," was taken off the air Monday on Viacom-owned CBS and UPN stations. And The New York Times said two columns its syndicate distributes would be renamed and written by people other than Stewart, starting immediately.
Rasheedah Norton, 26, of Newark, NJ said she would keep on buying the Martha Stewart brand "as long as they sell it."
"I like the way her products wash. I love the styling, and everything matches. I love Martha," she said as she left a Kmart with a cart full of Martha Stewart bedding, curtains and a rug.
"People who love Martha love Martha, no matter what," said Joan Nerbetski, a clerk at the store in Kearny, NJ.
Stewart will remain a standard-bearer of style, whether or not she goes to prison, said Kurt Barnard, president of Barnard's Retail Consulting Group in Upper Montclair, NJ. The charges Stewart was convicted of--conspiracy, obstructing justice and two counts of making false statements--carry a maximum prison term of 20 years, but most legal experts expect her to serve ten to 16 months.
"Picture yourself as a consumer. You go to Kmart, you see that pillowcase with a shade of pink to die for," Barnard said. "Do you really think that you are going to say to yourself, 'I wish I could buy this, but she might go to jail?'"
Still, over time, the Martha Stewart brand could be diminished as Stewart loses her ability to promote herself on television and if advertisers become more skittish, said Arun Jain, a marketing professor at the University at Buffalo, NY: Consumers "won't find the same cachet in Martha Stewart."
