|BUSINESSWEEK ONLINE : JANUARY 17, 2000 ISSUE|
Inside the growing empire of America's lifestyle queen
It's a taping day at Martha Stewart's Westport (Conn.) studio, and the spotless halls are humming with activity. Helen Murphy, the new chief financial officer at Martha Stewart Living Omnimedia Inc. (MSO), nervously gets ready to tape a presentation to investors. Crafts chief Hannah Milman fusses over terra-cotta-tinged roses for the new MarthasFlowers.com Web site, while Stewart's 85-year-old mother, Martha Kostyra, waits to make date squares with her daughter. The scene is festive, if slightly Orwellian. Permeating every part of the building is Stewart herself, chairman, CEO, and founder. Her husky voice rises from the speakers as dozens of screens show her juggling beanbags for her daily TV show.
It's a fitting image. Anyone who spends more than a few minutes with America's most famous homemaker learns that she is one heck of a juggler. On a recent day, Stewart, 58, rose at her usual 5:30 a.m. to work out in Westport before zipping into Manhattan to prepare Greek food with a guest chef, meet with her magazine staff, share dessert with restaurateur Warner LeRoy for the TV show, make a cookie tree on Letterman, and attend a party for her publisher--before jumping in her chauffeur-driven Chevy Suburban for the 90-minute drive back to Connecticut.
The dizzying routine seems to be working. Stewart's Web site racked up record Christmas sales, while her holiday TV special reached 7.8 million households. Recently, the former caterer pulled off her best party yet: a hot initial public offering on Oct. 19. Shares of Martha Stewart Living Omnimedia opened at $18 and quickly doubled, to about $36--as Stewart herself served brioches and freshly squeezed orange juice from a striped tent near the New York Stock Exchange. The stock price has since dropped to about $27, in part because of worries that the company relies too heavily on its driven founder. Even so, the offering made Stewart a billionaire on paper.
BLUE LIGHTS. Not bad, considering that Stewart's empire is still in its infancy. The domestic queen gained control of her crown jewel, Martha Stewart Living magazine, only in 1997. That's when she bought it for an estimated $75 million from Time Warner Inc. (TWX), which launched it in 1991. Since then, Stewart has served up impressive gains on her modest base. In 1998, the company made $24 million, on revenues of $180 million--a 71% jump over 1997 net income. Sales for 1999 should exceed $225 million, and analysts expect her to near the $400 million mark by 2003. Last year, Kmart Corp. (KM) sold more than $1 billion worth of Martha Stewart Everyday products. Kmart's new BlueLight.com e-commerce venture with Yahoo! Inc. (YHOO), in which Stewart's company has a minority stake, could make those numbers grow.
But Stewart isn't ready to rest on her carefully cultivated laurels. The workaholic homemaker wants nothing less than to teach the masses how to create the good life, then sell them all the gear they'll need to do so. ''Our market could be as big as everyone who has a house,'' Stewart asserts, knocking back a shot of vodka after taping a show at New York's Russian Tea Room.
While she is famed for esoteric tips such as how to make tinsel teardrops, Stewart's biggest lesson may be in how to build a true multimedia empire. Walk into any color-coordinated corner of Martha Inc., and it's clear that Stewart has turned the traditional business model on its head. She has created a brand that's equally at home--and equally recognizable--in a multitude of forms, from books to bedsheets. None of her rivals, from entrepreneur B. Smith to Meredith Corp.'s Better Homes and Gardens, has been able to match her reach.
So how has a woman who looks most at home wearing matching work gloves and galoshes pulled this off? For one thing, her view of her role is decidedly different from that of most media moguls. Stewart sees herself primarily as a purveyor of information rather than as a publisher or merchandiser. Her how-to advice, organized around a handful of core content areas, can show up as magazine articles, Web chat topics, or products on Kmart shelves--and preferably all three. Holding the enterprise together is a rising army of mini-Marthas, experts in their areas, who skate across different media and merchandising channels with the ease of their famous boss.
But now, Stewart is facing her toughest challenge since building her business. She must ensure that Martha Stewart the brand can outlive Martha Stewart the person. For a woman who has spent her life pursuing both fame and perfection, stepping back won't be easy. Stories of her obsession with details abound. At CBS, set builders still recall her wrath when she discovered that they failed to follow her specifications for cabinet hardware in her TV kitchen. But with the roaring growth of recent years, Stewart can no longer oversee every detail herself.
The problem goes beyond the usual management challenges of a maturing business. Stewart's smiling image dominates her TV show, magazine, and product packaging. If Martha Stewart Living is to outlast her, that has to change. While the company is now playing up other talent--and taking out massive insurance policies on its ubiquitous chief--Stewart remains the walking, talking personification of her brand. No wonder investors are worried about the fate of their stock if Stewart should, say, choke on a bad batch of buttercream. ''That's a big risk,'' says Kevin R. Gruneich, an analyst at Bear Stearns & Co., who still likes the stock. Stewart herself is well aware of the problem and says the changes she's making will take her company to a new level. As she puts it: ''We're just getting started.''
LOYAL FANS. But my, what a start. Not counting the weekly ''askMartha'' newspaper column, her media properties reach 88 million people a month. Thanks to good demographics and extraordinary fan loyalty, they also command premium ad rates, according to the Publishers Information Bureau. Books and magazines still bring home the bacon, generating 65% of the company's sales, while TV and radio account for 12%. But merchandising royalties have risen to 10% of revenue, up from almost nothing a few years ago. The three-year-old Martha Stewart Everyday line of bedding, bath, paint, and garden supplies is also exploding as new items are introduced. Then there are the other retail deals, the catalog business, and a new kitchen-and-tableware line.
What really has investors salivating, though, is Stewart's fledgling Web business. Organized around the core content areas, the site, with more than 1 million registered users, offers traditional how-to advice, chat rooms, and related merchandise. Internet and direct sales accounted for roughly 13% of revenues in 1999. This year, online sales should surpass catalog sales. Still, the Net remains a money-loser because of heavy investment in staff and site development. Also, critics say it's thin on fresh content. But even detractors admit that MarthaStewart.com is a hit with advertisers and consumers.
It's a recipe that appeals to fund manager Zack Shafran of Waddell & Reed Financial Inc. in Overland Park, Kan. He savors the ''real dot.com flavor'' of her business, although he won't say how much he owns. Stewart is also getting key support from Silicon Valley venture capitalists Kleiner, Perkins, Caufield & Byers, which invested $25 million and holds a 5% stake. Partner L. John Doerr, who sits on Stewart's board, argues that the Web will finally let ''Martha create the perfect, personalized how-to experience in a direct way with her audience.'' Besides helping to lure fans to the Web, Doerr's company could be critical in finding West Coast talent--cyber-Stewarts who can translate her vision online.
Even those who scoff at Stewart's perfect-housewife image admit that she's a stunningly savvy entrepreneur. Her company, which raised $149 million in its IPO, posted record sales of $49.8 million in the third quarter, although the investment in e-commerce shrank profits to $1.9 million, down from $4.7 million a year earlier. Stewart controls 60% of the shares and 96% of the votes. Company President Sharon Patrick owns 5%, and a further 12% is in the hands of hundreds of employees or ''founders'' who have worked for the company at least a year. Rewarding staff was, Stewart says, a primary motive in going public.
Foremost among those founders is Patrick, who along with Stewart sets the strategy for the empire. The duo met while climbing Mt. Kilimanjaro in 1993 and quickly became inseparable, plotting Martha Inc. as they scaled the final peak. ''I admired her ability to put everything down in a clear business plan,'' says Stewart. While Stewart may have seen a synergistic domestic-arts empire as her destiny from the start, outsiders credit Patrick with helping to package the vision for investors and execute it. ''She complements Martha's strengths,'' says Don Logan, chairman and CEO of Time Warner's Time Inc., who dealt with Patrick in the protracted negotiations to sell Stewart majority ownership of her magazine. ''What Sharon does is chase the details and do the deals.'' Not that she's a Martha clone. One merchandising executive calls her ''a wild woman, this whirlwind who talks in sentence fragments and is hell-bent on getting product on the shelf.''
But Patrick, a former McKinsey & Co. consultant and Cablevision Systems Corp. executive, does share Stewart's vision for creating original, high-quality content that can cascade through various media, retail outlets, and cyberspace. They believe the result will be shared costs, cross-promotions, and ultimately higher revenues and earnings. ''If you're committed to content instead of the vehicle, you can do so much more,'' says Patrick, excitedly flipping through charts from the company's recent pre-IPO road show.
The trick is translating that rhetoric into an actual business. Each of the core content areas that make up the Martha Stewart brand is managed by its own team. Each leader must be equal parts writer, product designer, and--increasingly--TV personality. Margaret Roach, who joined as garden editor five years ago, points to a magazine article on Martha's rose garden. Roach used that as the basis for a TV segment, to help design garden tools for Kmart, and as how-to information on the Web. Like her boss, Roach thinks big, saying: ''We want to change the way America gardens.''
''NOT ABOUT ATTITUDE.'' Team Stewart also relies on an army of marketers, designers, and other professionals who can carry their skills across the different media and merchandising outlets. ''The culture is pervasive,'' says Lauren Rich Fine, a media analyst at Merrill Lynch & Co., who sees Stewart's depth of talent as a key to her long-term success. Indeed, staffers are inculcated with a sense of both the brand and the customer. Stephen Drucker, editor-in-chief of Martha Stewart Living magazine, visualizes the typical reader as a supremely confident 40-year-old woman with a part-time job, a nice house, and a family in the suburbs. ''One of the things about Martha is self-reliance,'' says Drucker. He says that you'll never find articles in the magazine about getting a man, dieting, or fixing your hair. ''[Martha Stewart] doesn't remind you that you're 10 pounds overweight.'' And like a starched schoolmarm, she has no time for urban sophistication or overly clever prose. ''It's not about attitude,'' says Drucker. ''It's about information.''
Stewart believes the real key to capitalizing on that content, though, is to own it. She realized from the start that Martha Stewart could live up to its Omnimedia potential only if it controlled every piece of information passing through its universe. She had long produced and owned rights to her TV show, broadcast specials, books, syndicated column, and radio spots, but Time Warner controlled the flagship Martha Stewart Living magazine. As a mere editor--albeit a highly paid one--she couldn't mine the magazine for content to repackage or leverage for cross-marketing deals. ''They owned it, but they weren't interested in funding anything else,'' recalls Stewart, whose references to Time Warner seem tinged with ''I told you so'' bitterness. ''Our whole business plan started with how to buy the magazine back.''
Time insiders say that forays into merchandising and other areas simply weren't part of their plan for Martha Stewart. Logan says that the split was amicable and that he had long suspected Stewart might one day want control. ''When we were originally discussing the idea, we assumed that could be one of the outcomes,'' says Logan, noting that Time Inc. now has a 5% stake in Stewart's company.
FLOOD OF MAGIC. What gave Stewart the capital to buy her independence was a new arrangement with Kmart, which guaranteed millions in royalties. She had joined the discounter in 1987 as a consultant, but the deal spawned only a few sheet patterns and intense frustration. ''They were very Midwest,'' says Stewart, cringing at the memory. ''This was Kmart. This was maroon and black and dark green. It was bad.'' In 1995, just as Stewart was broaching the idea of a buyback with Time Warner, the retailer brought in Floyd Hall as chairman and CEO. Hall met with Stewart days after coming on board to try to forge a new relationship. ''The word for Martha is 'coordinate,' and a lot of our shoppers are looking for assistance in that area,'' says Hall.
Kmart wanted to flood key corners of its store with Martha Stewart magic, and it was willing to give her control over her product to do it. Instead of consulting on a few floral sheet patterns, Stewart's people could produce thousands of different products and get astounding play with Kmart shoppers. About 60% of the chain's bed and bath section, for example, is now devoted to the brand, with other parts of the store being converted as product comes out, according to Steve Ryman, vice-president for merchandise. He says Stewart's attention to details such as stitching and fabric weight have pushed up overall quality, but he notes that the chain still has final say over what hits its shelves. The store rejected sage green for the three-month-old Baby Baby line, preferring to stick with the standard pink, yellow, and blue. ''The typical American doesn't go to Kmart to find avant-garde baby colors,'' says Ryman.
Maybe not, but an awful lot of them go to find Martha Stewart-branded merchandise. On the strength of the Kmart deal, Stewart was able to buy control of her magazine--and to concentrate on expanding her empire's reach. To do so, she has had to give staff members, who number in excess of 400, more leeway to dream up and execute ideas on their own. After all, they quickly learn her color palette and style. The veterans know what Martha would say on most subjects, and how she would say it. Stewart splits her time between plotting strategy and keeping up her high-profile TV spots and guest appearances. She no longer reads every line of copy before it appears in the magazine, but she still keeps a close eye on her empire's operations through weekly staff meetings and doesn't hesitate to parachute in if necessary.
''If there's something really bad, I'll step in to fix it,'' says Stewart. Recently, she nixed a ''Peter Rabbit'' cake that was set to appear in the magazine as ''way too fancy'' and asked staffers to come up with something simpler.
Think picky rather than perfectionist. While Stewart may revel in her image as the ultimate homemaker, she doesn't always look like a finishing-school ideal. Standing on the set of The Early Show on CBS, she'll take a spoonful of pumpkin bread pudding, pour on some rum sauce, and pop it straight into her mouth. If her assistant drops a fork while serving up barbecued turkey, she'll hand a guest the serving utensil to use instead of demanding new cutlery. She worries about her waistline and frets to her mother about eating several pierogi one night after work. She doesn't even have a place to stay in Manhattan because daughter Alexis Stewart and son-in-law John Cuti have crashed at her one-bedroom Fifth Avenue apartment for the past year while they renovate their own place--although Stewart could certainly afford a hotel room.
In many ways, the country-club image is undeserved. Stewart grew up one of six children in a Catholic family in New Jersey, modeling to pay her way through Barnard College before marrying, becoming a stockbroker at Monness, Williams & Sidel, and then a caterer. ''What bothered Martha about the stock market was that there was an aspect she couldn't control, and that was stock prices,'' says former boss Andrew Monness. ''She was a terrific businesswoman.''
But the business of being Martha really began when Alan Mirken, former president of Crown Publishing Group, was so impressed by one of Stewart's catered parties in 1979 that he persuaded her to let his company publish her landmark Entertaining book three years later. The elaborate guide to good hostessing has since sold more than 500,000 copies and is now in its 30th printing. After attending her parties, Mirken is not surprised. ''She created the most amazing ambience and food I'd ever seen,'' he says.
In 1989, he helped Stewart arrange a meeting with magazine titan S.I. Newhouse Jr., who helped her develop the prototype for an upscale how-to magazine but later abandoned the project because it didn't fit his group. Time Warner bought into the idea--but not without resistance. During one meeting, an executive leaned across the table to ask: ''What if I find out on Page Six that you've run away with a rock star with a bone through his nose?'' The curt response from Stewart, then fresh from a bitter divorce from book publisher Andy Stewart: ''I don't have time for such silliness.''
FAMILY AFFAIR. She has rarely had time or interest in anything but the company, and indeed it's hard to tell where the person ends and the brand begins. She stages photo shoots at her homes and claims actually to cut trees, repair deer fencing, and do the other heavy chores listed in her monthly calendar. Her idea of relaxing is to come home and tackle a project like taking the Chippendale legs off an antique stool to make a new base for her 18th century Japanese lacquer trays. On vacation in Egypt, she took time out to visit factories that made fabric for her line. Her only child, Alexis, 34, who has started helping out informally on the product side of MarthaStewart.com, admits to having been ''vaguely irritated'' when her mother devoted a Martha Stewart Weddings magazine column to her 1997 nuptials. Having grown up steeped in silk flowers and three-tiered gateaux a l'orange, the younger Stewart kept the affair to a distinctly un-Martha-like five-person lunch. ''I can't remember 10 seconds where Mom wasn't immersed in the business,'' says Alexis. Mom doesn't see the problem and has a look of wistful excitement when her daughter's name comes up. ''I think she's getting warmer about coming to work with me full-time,'' says Stewart, who brushes off the notion that she's made any personal sacrifices for the sake of her business.
Stewart has already brought in plenty of other family members. Her mother cooks for the show, nephew Christopher sings on holiday specials, and sister Laura writes radio scripts. But outsiders form the heart of her enterprise. She wooed Marc Morrone to be her expert on pet-keeping after seeing him work with animals on late-night cable TV. She worked long and hard to bring in the widely admired Helen Murphy, who had helped build the Polygram label and then take it public, as her new CFO. ''I expected to walk in, roll up my sleeves, and dig for figures and facts,'' says Murphy. But, in true Martha Stewart style, even the balance sheet was crisp and clean.
The next step is to give the company a life of its own. Stewart rarely appears on magazine covers anymore and is trying to groom some of her lieutenants as media personalities. She is even negotiating two TV shows this year that will not be hosted by her. But Stewart remains the lifeblood--the magic touch that forced Josefina Howard of New York's Rosa Mexicano restaurant to put marinated lamb shank in parchment paper on her menu because so many customers ordered it after seeing her prepare it on Stewart's show.
Despite her close identity with the brand, Stewart argues that her business can live on without her. ''I have imbued this company with a tremendous amount of my spirit and my artistic philosophy,'' she says. ''So much that emerges here now is a combination of that and other people's creativity.'' Not everyone agrees. Clay S. Timon, chairman and CEO of brand consultancy Landor Associates, says that Martha Stewart Living has already become a truly mass-market brand. He describes it as ''very middle-American, with a slight aspiration--not to reach Rodeo Drive, but to live life a little better.'' Can it survive without her? ''Maybe,'' he says, ''but not yet.''
In any case, Stewart certainly has the means to start living life a little better herself. She earned about $5 million in pay and bonuses from her company in 1998 and is guaranteed at least $1.2 million this year. With stock that's now worth almost $1 billion, she can also afford a place in Manhattan that's big enough to house her cherished cats and dogs--and even her daughter, if need be. She'll still have five other houses: two in Westport, two in East Hampton, N.Y., and her favorite retreat--in Seal Harbor, Me. With all this activity in the home office, though, the windswept icon of country chic is planning to move to New York City full-time. Despite her massive net worth and a booming business, she'll no doubt arrive with her garnishing kit and glue gun in tow.
By DIANE BRADY
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TABLE: Martha's World
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