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The Honolulu Advertiser
Posted on: Saturday, April 8, 2006

Macy's lands Stewart's 'upscale' line

By Laura Petrecca
USA Today

NEW YORK Attention Kmart shoppers: Martha Stewart has gone upscale on you at the mall.

The doyenne of domesticity just signed a deal to sell a higher-end line of her home goods the Martha Stewart Collection at Macy's department stores in the fall of 2007.

Higher quality along with higher prices will differentiate the bed and bath items, dishes, glasses and cookware from the Martha Stewart Everyday line sold at Kmart, says Martha Stewart Living Omnimedia CEO Susan Lyne. Stewart calls the new collection "upscale affordable," though no prices were announced.

In 2005, sales at Kmart were 89 percent of MSLO's $56 million in merchandising revenue and 25 percent of its $209 million in total revenue. "One of our strategic goals was to diversify," says Lyne. Macy's "will be a significant new revenue stream."

Currently, Macy's has about $4 billion in annual home goods sales. Its deal with MSLO runs five years. No financial details were disclosed.

MSLO's agreement with Kmart, a unit of Sears Holdings, runs through 2009 and an extension "is yet to be determined," says Stewart.

"Kmart looks forward to continuing to work with Martha Stewart Living Omnimedia," says Chris Braithwaite, spokesman for Sears Holdings.

Lyne says she didn't expect any hard feelings from Kmart: "We've always retained the right to do product at a higher-quality level."

Independent media analyst Dennis McAlpine says Kmart sales may suffer.

"I'm surprised Kmart didn't have (their deal) locked up a lot better than they did," he says.

Even if Kmart sales lag, MSLO is covered. It gets a guaranteed minimum royalty $59 million this year.

But NPD Group retail analyst Marshal Cohen says, however, the new deal could be good for all involved.

"Multi-tier branding is really the future," he says.

As an example of it done well, he cites sales of Polo Ralph Lauren's lower-end Chaps brand at Kohl's and sales of its luxury Purple label in upscale stores. "People will say this is going to kill Kmart, but it'll actually be a shot in the arm. It's an opportunity for them to have a brand that has higher perceived value."

For the Macy's line to succeed, "they have to make sure the consumer sees the difference," he says.

Lyne says, "It'll be very clear where the different lines will fit. The product we sell for Kmart wouldn't be appropriate for a Macy's."

MSLO investors bought in to the deal. Its stock rose 14 percent to $19.45. Federated stock closed at $77.36 up 1 percent. Sears stock closed at $137.59, down less than 1 percent.