Legal Issues

Martha Stewart's Starring Role in Court


Martha Stewart listens to a question while testifying at State Supreme court in New York on March 5

Photograph by David Handschuh/Bloomberg

Martha Stewart listens to a question while testifying at State Supreme court in New York on March 5

There have been some great performances in the retail world recently—especially at the New York state court in Manhattan. That’s where a judge has been hearing testimony in a contract dispute between Macy’s (M) and J.C. Penney (JCP) over the exclusive right to sell Martha Stewart (MSO) products. Macy’s Chief Executive Officer Terry Lundgren and J.C. Penney CEO Ron Johnson testified last week; Martha Stewart took the stand Tuesday. There have been very personal accusations of betrayal and deception; displays of ambition, greed, and denial; and some business talk, too. Here are some of the highlights:

Lundgren testified first on Monday, Feb. 25, describing in emotional detail how in December 2011 Stewart told him over the phone that she had made a deal with Macy’s rival. She would be opening Martha Stewart boutiques for J.C. Penney as part of its much-publicized (and still unrealized) transformation. Stewart has had a contract with Macy’s since 2007, when she had finished serving a sentence for insider trading and was trying to rebuild her brand. “I was completely shocked and blown away,” Lundgren said. “I was literally sick to my stomach. … She said this was going to be good for Macy’s. I think that’s when I hung up. I don’t remember hanging up on anyone in my life.”

Over the summer of 2011 the two had flown together to Haiti; they had attended a $10,000-a-plate fundraiser in October; Stewart had asked for and got exclusive tickets to the Macy’s Thanksgiving Day parade. Stewart was “always positive” about her relationship with Macy’s, and Lundgren “never heard any word of concern or disappointment” from his contacts at her company about their agreement, he said. Lundgren hasn’t spoken to Stewart since he hung up on her.

Stewart, who coolly argued that she was designing very different products for J.C. Penney than she was for Macy’s, said: “I didn’t even get through half my points before Terry Lundgren hung up on me. … I was quite taken back by his response and when he hung up on me I was quite flabbergasted.” She also said J.C. Penney customers have one-third less income than Macy’s customers—so naturally would want different kinds of items.

Stewart said she loved Macy’s. Then she complained that her company only made $300 million during its five years at Macy’s; she had hoped to make $400 million. She said she wanted to introduce a luxury bridal registry and bedding at Macy’s, but was turned down. Her role at Macy’s, she said, was “diminished.” At J.C. Penney, she would be in control. And Johnson wrote in an e-mail to her that if things went well, she might earn $500 million.

Johnson took the stand on Friday and Monday— after J.C. Penney reported that its sales had fallen by 25 percent in the year that he’s been in charge. Macy’s lawyers introduced e-mails from Johnson that cast him as a bit more cunning than he usually lets on. Following the announcement of the deal with Martha Stewart, Johnson wrote to one of his directors: “We put Terry in a corner. Normally when that happens and you get someone on the defensive they make bad decisions. This is good.”

The trial had been scheduled to end March 8, but is likely to be adjourned until April because of scheduling conflicts. When it resumes, the next witnesses will have a hard act to follow.

Susan-berfield-photo-200x200
Berfield is a writer for Bloomberg Businessweek in New York. Follow her on Twitter @susanberfield.

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Companies Mentioned

  • M
    (Macy's Inc)
    • $58.39 USD
    • 0.77
    • 1.32%
  • JCP
    (JC Penney Co Inc)
    • $7.73 USD
    • 0.24
    • 3.1%
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