Her remarks couldn’t have made Kmart execs feel very cozy. The company’s strategy to take on Wal-Mart by cutting prices was a “mistake,’’ she told NEWSWEEK. And she’s openly concerned about her future with Kmart, which has the exclusive rights to sell her Martha Stewart Everyday products until 2008. “We haven’t experienced any difficulties yet,” she said. “But a company in reorganization poses certain problems for us in terms of our brand and our growth rate.”
If Martha Stewart does defect, it would be a staggering blow for Kmart. Since she launched her Everyday line of sheets and towels five years ago, sales have grown to $1.5 billion annually. That’s only a fraction of Kmart’s $37 billion in annual revenues. But the line, which now includes bed, bath, kitchen, garden, baby and paint products, appeals to the more affluent shoppers Kmart desperately needs.
Stewart, in turn, needs a strong retail outlet–either Kmart or one of its competitors–to keep turning her aspirational housekeeping, cooking and decorating ideas into cash. Her empire, Martha Stewart Living Omnimedia, includes the 2.4 million-circulation Martha Stewart Living, spinoff magazines and books, a syndicated TV program and an Internet and catalog business. But the secret to her success, Wall Street analysts say, is her expanding line of Martha Stewart products, which will soon include flooring, fabrics and furniture. Merchandise makes up only 9 percent of her revenue. It accounts for about a third of her profits, however, and has buoyed the bottom line despite losses in the catalog and Internet divisions and a brutal advertising climate.
Last week other retailers began lining up to woo Stewart, hoping to bring her product line into their fold. Although Stewart wouldn’t say whom she favored, Wal-Mart, Target, Sears and up-and-coming Kohl’s are widely seen as Stewart’s strongest suitors.
But breaking up with Kmart might not be easy to do. Under the terms of the seven-year contract that Stewart signed last year, a Kmart bankruptcy filing wouldn’t automatically set her free. Kmart wouldn’t comment on its ties to Stewart’s company. Stewart said that as long as the retailer is able to meet an escalating series of guaranteed payments to her company, she can’t take her products anywhere else. “If they do declare bankruptcy, it’s up to them to tell us if they want us in the mix or not,” says Stewart. The specter of a declining Kmart dragging down her brand prompted Stewart to call Conaway last week to offer her “ideas and creativity” for reviving the chain. When asked if her good friend Conaway would be around long enough to take her advice, she would only say, “Who knows?” The tarnish on Kmart may be one that not even Martha Stewart can remove.
