Home >  Business

Friday, February 01, 2002

By Anne D'Innocenzio, The Associated Press

NEW YORK -- The future of Kmart's crown jewel of brands, Martha Stewart, hinges on a decision by the bankruptcy judge overseeing the discount chain's reorganization.

	Kmart Corp. is counting on customers, such as the two headed into the Big Kmart in Moon on Jan. 22, to help put it back onto a sound financial footing. (Darrell Sapp/Post-Gazette)

The judge may be hard-pressed to set Stewart's company free from its lucrative contract with Kmart, given the importance of her line of home and garden products to any eventual turnaround by the company.

If a release is granted -- something Stewart herself says she isn't seeking -- the question remains: Which merchant would offer the best home for the 4,000 products carrying the Martha Stewart Everyday label?

Martha Stewart Living Omnimedia, where Stewart serves as president and chief executive, said in a statement last week that it will stick by its contract and continue to sell its products to Kmart for the "foreseeable future."

But the company left open the possibility that the label -- the top sales generator at Kmart, posting $1.5 billion in sales for fiscal 2001-- might have to eventually find a new home at other mass retail outlets.

Plenty of stores, such as J.C. Penney Co. Inc. and Sears, Roebuck and Co., would be interested, industry analysts believe. But the arrangement with Kmart cannot be easily ended, they said.

"The reality is they have a binding contract," said Douglas M. Arthur, an analyst at Morgan Stanley. "They're locked in."

Only if Kmart fails to make payments can Martha Stewart break its contract, something it might be tempted to envision.

"It's not a great thing when a big part of a company is dependent on a huge retailer which is downsizing," Arthur said.

A day after Kmart filed for bankruptcy protection Jan. 22, Arthur reduced Martha Stewart Omnimedia's earnings expectations for 2002 from 60 cents to 55 cents a share, based on anticipated closings of Kmart stores.

The restructuring is expected to include shutting down hundreds of stores and a radical change in the company's strategy, to distinguish Kmart from rivals Wal-Mart Stores Inc., the lowest-price operator, and chic purveyor Target. There is uncertainty about how Martha Stewart will fit in.

An emphasis last year on food sales had hurt not just Kmart, but put Martha Stewart "in the back seat. Martha clearly now needs to be in the front seat," said Burt Flickinger III, managing director of Reach Marketing, a Westport, Conn.-based retail consulting firm.