NEW YORK It’s been a tough week to be Ron Johnson.
J.C. Penney’s CEO was in the hot seat again on Friday in the New York State Supreme Court after facing investors this week over a dismal quarterly earnings performance.
This time he was being scrutinized by Macy’s lawyers for a stack of emails that he wrote that they claim show he repeatedly pushed home diva Martha Stewart to try to break an exclusive deal with his rival so Penney could be the sole department store distributor of the domestic diva’s goods.
“I need to propose a deal so she can go to Terry Lundgren at Macy’s and break the agreement,” according to one email Johnson wrote to an executive at Penney in August 2011.
Lundgren is CEO of Macy’s.
Penney ended up signing a pact in December 2011 with Martha Stewart Living Omnimedia to open shops at most of its stores in spring 2013. But one month later, Macy’s renewed its long-standing exclusive deal to sell some of Martha Stewart’s products such as cookware and bedding. And then it immediately sued Martha Stewart Living and Penney.
The trial, which began Feb. 20, focuses on whether Macy’s has the exclusive right to sell some of Martha Stewart branded products such as cookware, bedding and bath items.
Macy’s is seeking to block Penney from opening Martha Stewart mini shops in its stores. The shops are part of Johnson’s big plan to reinvent the shopping experience at the beleaguered chain. The stakes are high for all three companies but particularly for Penney.
Penney’s shares have now lost nearly 60 percent of their value since early last year when Johnson revealed his plan to scale back most sales in favor of everyday low prices. The stock drop is the latest indictment that Johnson’s turnaround is failing Wall Street as much as on Main Street. Johnson is counting on the shops, particularly Martha Stewart’s, to bring back shoppers who have fled to rivals like Macy’s.
Johnson, who is expected to be questioned by Penney attorneys later Friday, acknowledged that getting a deal with Martha Stewart was critical and acknowledged that he knew the deal was exclusive with Macy’s but stopped short in saying he wanted to break the exclusive. “I knew there had to be an amendment” to a deal between Macy’s and Martha Stewart.
Johnson’s appearance comes four days after Lundgren testified in court that the company had built the Martha Stewart brand to be the biggest name in home items since it began to start carrying the products in 2007.
Martha Stewart, who founded Martha Stewart Living, is expected to testify Tuesday.
The stakes are high, particularly for Penney.
Investors were bracing for a bad fourth-quarter report from Penney, but the staggering losses and revenue drops were far worse than feared.
Penney reported on Wednesday after the markets closed that its quarterly loss widened to $552 million, or $2.51 per share. Revenue fell 24.8 percent to $12.98 billion.
Results for the full year were even more jaw-dropping. For the fiscal year, Penney lost $985 million, or $4.49 per share.
Macy’s, one of the best performing department stores, turned in a solid fourth quarter. Lundgren says home items are a key business. Having another major department store sell Martha Stewart towels, pots and other merchandise could hurt its sales in that area.
The stakes also are high for the personalities involved in the suit. Lundgren said that he hasn’t spoken with Stewart since Dec. 6, 2011, when she called him to inform him that she signed a deal with Penney. Lundgren testified Monday that he was so shocked when Stewart told him that she had signed a deal, he hung up on her.
“I was completely shocked and blown away,” he testified. “It was so far from anything I could imagine.”
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