Can J.C. Penney and Martha Stewart save each other?

The department store and the domestic doyenne, both in decline, join forces with a $38.5 million deal

Struggling department store chain J.C. Penney is hoping to revive its brand with mini Martha Stewart Living outlets within its sprawling stores.
(Image credit: REUTERS/Tim Shaffer)

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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