Penney, Martha Stewart scale back partnership

NEW YORK — Ahead of a ruling in its fight with Macy’s over Martha Stewart products, J.C. Penney Co. is scaling back its partnership with the media and merchandising company.

The department store chain will no longer sell certain home and bath products designed by Martha Stewart Living Omnimedia Inc., the two companies said Monday. Penney will sell a smaller batch of Martha Stewart products, including window treatments and party supplies.

Plano, Texas-based Penney and Martha Stewart, which is based in New York, signed a merchandising deal in December 2011. That prompted Macy’s Inc. to sue both companies for violating its exclusive agreement with Martha Stewart.

New York State Supreme court judge Jeffrey Oing has been expected to rule this week in a court battle over whether Macy’s has an exclusive right to sell some Martha Stewart products.

Martha Stewart Living executives declined to comment on how the agreement would affect the judge’s ruling.

Penney will also will be selling the media and merchandising company back the 11 million shares it bought as part of the 2011 licensing deal and giving up two seats on Martha Stewart’s board.

The revised agreement is the latest way Penney’s CEO Mike Ullman is trying to unravel the botched bid by Penney’s former CEO, Ron Johnson, to transform the retailer. Johnson’s changes led to disastrous results and sent the company’s stock plummeting. Since Ullman retook the helm after Johnson was ousted in April, Ullman has been adding back some of the sales events and restoring basic merchandise that Johnson got rid of during his tenure.

Monday’s announcement confirms “Macy’s exclusivity in Martha Stewart housewares,” said Ted Grossman, partner at Jones Day, the law firm that represented Cincinnati-based Macy’s in the court case. “It was a total vindication of Macy’s rights going forward,” Grossman said in a statement. He said that reimbursement for fees and possible damages remain at issue.

Johnson, who became CEO in November 2011, signed a 10-year merchandising deal with Martha Stewart a month later and touted it as a key part of his plan to reinvent the chain. Penney also invested $38.5 million in Martha Stewart Living Omnimedia Inc.

A month later, Macy’s sued Martha Stewart and Penney to try to block the deal. Macy’s was seeking to stop Penney from selling Martha Stewart-branded goods in kitchenware, bath and bedding, in addition to designs created by Martha Stewart that do not carry her name in those areas. Macy’s is also seeking monetary damages.

Attorneys for Macy’s, Martha Stewart and Penney presented closing arguments on Aug. 1.

The outlook for Martha Stewart merchandise dimmed after Oing issued a preliminary injunction in the summer of 2012 that barred Penney from slapping the Martha Stewart moniker on the goods covered by Macy’s exclusive agreement until the final ruling was made.

Penney went ahead and ordered goods designed by Martha Stewart in the exclusive products but sidestepped the preliminary injunction by labeling them JCP Everyday. The goods were delivered in May and were part of an overhauled home area that was unveiled this summer. But the home area has not done well and Penney is now making changes.

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