On Wednesday, J.C. Penney announced it was paying $38.5 million for a 16.6 percent stake in Martha Stewart Living Omnimedia. Soon, you'll see Martha Stewart mini-stores popping up in most J.C. Penneys, and a joint website. The deal with the homemaking goddess marks one of the first big moves by Penney's new CEO, Ron Johnson, who joined the department store in November, after leaving Apple in a much-publicized move. Penney has struggled in recent years to compete with Macy's and Kohl's, while Martha's stock price has also plummeted in the wake of declining TV ratings and magazine circulation. The two troubled companies joining forces is being called "corporate America's answer to a shotgun wedding" and a "risky gamble." Will it pay off?
It's certainly a bold move for J.C. Penney: This deal is "definitely outside the box of what [Penney has] historically done," Liz Dunn, an analyst at Macquarie Group, tells Bloomberg Businessweek. It's now clear that Johnson has plans to dramatically reshape the down-on-its-luck department store by offering nicer products and building new partnerships with more upscale brands.
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But it doesn't make much sense: Johnson wants to "reinvent" J.C. Penney, "but is Martha Stewart really the way to go?" ask David Moin and Alexandra Steigrad at Women's Wear Daily. Her company has struggled for nearly a year to find a willing buyer, and her brand, "bounced around from retailer to retailer, has lost some cachet." These days, Martha is all about being "tasteful, safe, and not particularly compelling." That's hardly a recipe for "groundbreaking" change.
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And it could hurt Martha's deal with Macy's: The Penney partnership will annoy Macy's, which has sold an exclusive Martha Stewart product line for the past four years, says Jeanine Poggi at The Street. If Macy's decides "to pull some or all of its Martha-Stewart-branded products" because the homemaking queen has a deal with Penney, it "would be a huge pang to Martha Stewart Living." When Martha's company announced its results for the third quarter, it "called out its relationship with Macy's as one of the biggest boosts to its revenue."
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But Penney is a better fit for Martha: I'm sure Martha doesn't want to lose Macy's, says Paul Swinand at Morningstar. But in the end, Penney is a better fit with her brand. Martha is getting older, and Macy's "has noticeably connected with younger customers lately." J.C. Penney, on the other hand, could use the in-store upgrade Martha will provide, and it "has a customer base that includes some older and more middle-income customers who might still aspire to connect with the Martha brand."
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