Kmart wants to mark down Martha.
In yet another blow to the domestic diva, Kmart sued Martha Stewart Living Omnimedia this week, saying the company double-billed the retailer.
Kmart wants to slash its payments to Stewart’s company by at least $4.5 million this year, and pull another $1 million to $2 million in advertising from her magazines.
MSO overcharged for royalties on the Martha Stewart Everday line of products, Kmart claimed.
The two companies had negotiated privately over the contract dispute for months, but when those talks failed, Kmart said it was “left with no choice.”
But a public spat between two struggling brands could be disasterous for both, Jim Sachs, a licensing consultant with Harris Sachs LLC, warned.
“Kmart is already in bad shape,” Sachs said, referring to the retailer’s emergence from bankruptcy last year. “If it loses Martha Stewart, that could be the nail in the coffin.”
Kmart is one of the few companies to stand by Stewart during her high-profile trial for securities fraud and lying to investigators. She still appears in the retailer’s television commercials.
Much of the dispute centers around royalty payments collected by MSO. Kmart pays MSO licensing fees directly, but also contracts vendors, who also pay royalties to the company, Sachs said.
“What you have, in effect, is double royalties,” he added. “That’s not normal practice.”
MSO, however, said its contract specifically provides for both royalties from “aggregate sales” at Kmart stores and in “individual product categories,” or vendors. It claimed that Kmart hopes to cut its total guarantees to $47.5 million from $52 million this year.
Kmart disputed MSO’s interpretation of the contract for royalties and advertising, saying that its requirements for supporting Martha Stewart Living and other magazines are much lower.
MSO is loath to lose any more revenue. Advertising pages in the company’s flagship magazine title dropped by 34.6 percent in 2003. Stewart’s television shows have been shifted to off-hours or, in the case of Canada, dropped completely.
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A bad thing
Martha Stewart is getting slammed again – this time by Kmart execs, who say Martha Stewart Living Omnimedia acted in bad faith. Kmart claims:
* Martha’s company “double-counted” royalties her company owed
* She claimed $4.5M too much for royalty payments for the year ending Jan. 31, 2004 and Kmart owes her only $47.5M
* Martha is overcharging $1 to $2M annually in advertising