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Martha Stewart has turned her vision of homemaking perfection into a sprawling media and merchandising empire. In recent months, the chairman and CEO of Martha Stewart Living Omnimedia Inc. has also battled a tough advertising downturn and the bankruptcy of key retail partner Kmart. BusinessWeek Editor-in-Chief Stephen B. Shepard spoke with Stewart on Mar. 7 as part of the magazine's Captains of Industry series at Manhattan's 92nd Street Y. Here are excerpts from their conversation:Q: I read somewhere that when you were 10 years old, you organized birthday parties for neighborhood kids. So there you were being Martha Stewart when you were 10 years old.A: I grew up the second of six children. It was an entrepreneurial household. We were expected to make our pin money. We were expected to save for our college educations and we were expected to do all the chores. So running the neighborhood birthday parties was just kind of a natural thing.Q: You modeled clothes as a teenager. You went to Barnard and majored in Art History. And then you went to Wall Street. How did that happen?A: I was married for the last three years of college and my father-in-law, George Stewart, was a stockbroker. As a wedding present, I think, we got some stock. It was something like Flying Tiger--I don't know if you remember that, Flying Tiger Cargo Airline. I got very interested in the business. So I went around and looked, interviewed a few different kinds of firms, and just found the best place. It was a place full of young entrepreneurs.Q: What was it like for a woman on Wall Street in those days? You were a rarity.A: Yes. I only knew two other women on Wall Street. One was a trader, and the other was Muriel Siebert, and she owned a seat on the Stock Exchange. I had a very, very interesting career. We did a lot of research on a few companies. Then we would take those investment ideas and sell the hell out of them. I learned really what made a good company, what made a good investment, and what made a lot of money.Q: Let's talk about your company. You have all these disparate things going on. What's the underlying philosophy, or in the current jargon, what's the business model?A: It is a company that is centered around eight core-content areas. And those core-content areas feed all the business segments of the company. It's really leveraging good ideas, using our research, which we spend a tremendous amount of time on, and spreading that knowledge across as many different platforms as possible. That's the business model. It's about--there's a word--synergy.Q: But the word synergy has become something of a clich?. There are lots of businesses that try to do things across many platforms and it doesn't work.A: Yes, but synergy, to me, is taking that information and then making a television program out of it after you do a magazine article, or taking it to CBS This Morning and showing something the same but not the same. The magazine article might show you how to plant a tree. But on TV, we might show you how to harvest the fruits from that tree, not necessarily the same thing, but using the same research.Q: Obviously there are some things you wouldn't put the Martha Stewart name on.A: I want the audience to really know, Steve, that we don't slap our name on things. We are not that kind of licensor. Whatever we have our name on we have really created, we have designed, we have marketed, we have promoted, we have done the advertising for. We do the whole thing at Martha Stewart Living.Q: The thing that amazes me about the brand is the way it goes across all price points. Isn't it hard to have it work for Kmart and still hold up as a more upscale brand?A: My feeling from Day One was: Why not make good products at a really good price for the broadest possible audience? I really think that everybody should have access to good things.Q: But often what happens is if a brand starts out at the low-end mass market, that people, particularly for lifestyle products like these, at the high end get a little snobby about it and say I don't want it. She's at Kmart, or whatever, I don't want it.A: Have you been at Kmart in Bridgehampton lately? On a Saturday? I mean, wow, you should see who's there shopping. It's really fun.Q: Does the brand work overseas?A: We have just started. It was kind of sad because it was on September 11 that we launched our Japanese business.Q: Were you in Japan?A: I was, yes. We were stuck there for five days, huddled in a room watching television. It was pretty gruesome. But we established our entire business in Japan, a magazine called Martha Stewart Martha, a television program that's dubbed in Japanese. Our same Everyday products are at Seiyu department stores. And we have a stand-alone store and a Muji store now. And I'm going back in two weeks to establish some more retail outlets there.Q: Do you think the brand transcends the person? If you were less visible, would that hurt the business?A: I don't know exactly. I'm still alive and well and vivacious and energetic. And I want to do what I do. I think that my role model is Walt Disney. There are very few brands that were really started by a person, with a person's name, that have survived as nicely as that. Est?e Lauder has certainly survived beautifully, despite Mrs. Lauder's absence from the business in the last, maybe, 15 years. I would like to engender that same kind of spirit and the same kind of high quality.Q: How is the Martha Stewart brand different from, say, the Oprah brand?A: I think we're real different. I call her a preacher and I call me a teacher. She can get out there and proselytize, and she can rah-rah-rah much more than I can. But I can teach.Q: How's business? What's happening with advertising? Is it coming back?A: Last year Martha Stewart Living was down 2%.Q: That's pretty good.A: Very good compared to our competitive set. And I can really attribute that success to our ability to cross-sell across all media. We can sell not only the magazine but we can sell the television, we can sell the radio, we can sell the Internet. So we have a very nice cross-selling platform all done by the same group of people.Q: What other revenue streams are you developing in order to offset the dependence on advertising?A: Well, one thing you can do is create new titles. We've done very successful single sponsored issues. We also do books. I'm working on a big book right now, which I hope will be published next spring. It's called The Manual for Homekeeping. It's for the kid going off to school, for the homemaker, for the housekeeper. It's for anybody interested in anything about homemaking.Q: Did September 11 have an effect on your business?A: People are staying home more, cooking more. The year before last we got 150,000 pieces of correspondence from our readers. Last year, 350,000 pieces of e-mail and letters, with requests for information, recipes. Many recipes for comfort foods.Q: Let's talk a little bit about Kmart. What do you think is going to happen now that they've filed for Chapter 11?A: Well, they have the opportunity to get rid of problems in the company. I think that it was obvious for a long time that they would have to do that. They had some stranglehold leases and all kinds of other stuff that was really a problem for them. But it's not good for a company to file Chapter 11, especially for a venerable company like Kmart.Q: What do you think they ought to do? What should their strategy be?A: Kmart had a good strategy. They had a strategy of building some strong brands in-house, matching that with good everyday things like groceries, like drugs, like Pampers. A good mix, a friendly atmosphere. And they somehow lost their way a little bit. I think that's where they ran into trouble, not really remembering what their strategy was. Wal-Mart Stores Inc. has everyday low prices. Target Corp. has chic stuff, chic ads, lively, cool. There's room for three. There's definitely room.Q: So then what would be the niche?A: Strong brands like Martha Stewart Every Day.Q: Would you like to stay with Kmart?A: Oh, definitely. We have a very nice relationship with them. We have a wonderful program going. I mean, this is an exciting bunch of stuff that we create for them. It's the nicest of its kind at mass market. The nicest. And they just need to get stuff on the shelves.Q: I noticed that your accounting firm is Arthur Andersen.A: Oh, yes. Kmart, Arthur Andersen. Put them all together.Q: How do you feel about Andersen?A: They've done a very good job for us. We have several partners there that work very hard on our account. We have not used them traditionally for a lot of consulting work, so we've kept those things apart.Q: So you'll stick with them?A: Right now we have no plans to do otherwise.Q: What is the No. 1 attribute that put you in this chair? The thing about you that has made you so successful?A: Well, maybe it's my curiosity. I would like to think it's that. I would like to think it's curiosity, it's energy, it's wanting to learn something new every day.