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Posted on: Sunday, March 14, 2004

Stewart team weighs dropping name

By Anne D'Innocenzio
Associated Press

With so much of the company built around Martha Stewart's name and face, Martha Stewart Living Omnimedia Inc. must decide if it wants to keep the name. Stewart is seen here with actress Jennifer Garner.

Associated Press file photo

NEW YORK — Martha Stewart assembled a pool of talent that understands her tastes so well that the company could probably keep on creating recipes, crafts projects and linen designs to her high standards without her.

But the question is: Should the company continue to use her name and image following her felony conviction?

The issue is of top concern as the board of Martha Stewart Living Omnimedia Inc. hashes out what type of role Stewart will play, if any, in the company's future.

Stewart resigned from her chief executive and chairman role last June, after she was indicted on charges related to her sale of stock in a biotechnology company in 2001. But she remains as chief creative officer and has a seat on the board. During her trial, Stewart was "communicating with her staff on a regular basis," said Elizabeth Estroff, a company spokeswoman.

Stewart, who is the company's largest shareholder, was expected to relinquish her board seat but possibly keep some creative, non-officer role. An announcement could come soon, according to a source close to the company.

The decision certainly is not an easy one. Retail analysts differ markedly on whether the company would be better off without the Martha Stewart name on its magazine titles and bath-towel labels.

"I think they have to get as far away from her as they possibly can," said Robert Passikoff, president of Brand Keys Inc., a marketing research company. "They have to drop her name from all the products," he said. "The more they wait, the more they will get hurt."

Martha Stewart has dropped from a high of 120 before her legal woes began 22 months ago, to the low 60s after the verdict on Brand Keys' consumer loyalty index

A level below 80 means a brand is in distress, Passikoff said. Consumers still perceive the quality of the products as high, he said, but their trust in the brand has eroded.

"The Martha Stewart brand, coupled with her face and her image, as we know it is dead," said Morris L. Reid, managing partner at brand-consulting company Westin Rinehart. "Before, customers bought the products, the magazine because it was about Martha."

But the name has too much capital to let it go, others said. Without the name it would be difficult to differentiate the merchandise from other brands.

"I think changing the name will do more damage than leaving it," said Tray Reynolds, managing director of consulting company The Directorship Search Group Inc.

Since Stewart's legal troubles began, analysts and business partners have applauded how well the the company's 550 employees have continued to keep up its high quality of merchandise and magazines even as it faced defecting advertisers, declining sales, financial losses and a 40 percent drop in its stock.

Her syndicated television show, "Martha Stewart Living," was dropped from the airways following the verdict, and The New York Times said two columns its syndicate distributes would be renamed, dropping any reference to Stewart, and would be written by people other than the homemaking queen.

The multimedia company began moving away from Stewart's name a year ago with the launch of Everyday Food and is preparing for life without its namesake. It is now testing another publication called "Organizing Good Things."

Calling her staff "team tough" in a conference call a day before the verdict, president and CEO Sharon Patrick assured investors that there were contingency plans in place, though she did not elaborate.

Meanwhile, the company is moving forward with new projects.

A new furniture collection under the Martha Stewart Signature brand by Bernhardt Furniture Co., was the most successful in the company's 114-year-history, said CEO G. Alex Bernhardt Sr. And he doesn't expect that to change.

Bernhardt and others note that many of the company executives have been with Stewart since before the company went public in 1999, and therefore understand her design philosophy.

"While she may have set the tone and pulled all the pieces together, she was surrounded by a large team of talented designers, product developers and business partners," said Seth Siegel, co-founder of The Beanstalk Group, a trademark licensing agency. "There is little doubt that they will be able to continue to keep this appealing product flow coming at least until Martha gets out of prison and probably longer than that."

Officials at Kmart, which has exclusive rights to sell the Martha Stewart Everyday line, have remained silent, except to say it was "deeply saddened" by the verdict.

Reshaping Stewart's role in the company is very tricky, considering she owns about 61 percent of the company's shares and, through supervoting shares, controls more than 90 percent of the voting power, according to regulatory filings.

If the company fails to take action, the SEC will likely force Stewart from the board and limit her role for some time when she is sentenced in June, securities lawyers said. Stewart is expected to get 10- to 16-months in prison, and for practical reasons it would be difficult for her to continue to be involved during that time.