Is Martha Stewart underappreciated at Kmart Corp.?
Kmart's exclusive line of Martha Stewart home and garden products may represent the most successful marriage ever between a retailer and designer. In 1999, its third year, Kmart's Martha Stewart line hit $1 billion in sales, an amount that far exceeds industry estimates of the sale of Michael Graves goods at Target Corp. or of Kathie Lee Gifford apparel at Wal-Mart Stores Inc. Both Kmart and Stewart say the line's sales will double over the next two years.But the 58-year-old Stewart wants more than a share of fast-growing sales. She wants influence. "I'd like to be on the board someday," she says.
Dream on. Kmart says it avoids having individuals with any type of supplier relationship with Kmart sitting on its board and sees no pressing reason for enhancing Stewart's clout at the company.
"We're not leading the charge to profitability with Martha," says Chief Executive Floyd Hall, a veteran retailer recruited in 1995 to rescue the chain -- which he seems to be on his way to doing; Kmart's operating profit has increased every year since net losses in 1995 and 1996. "I feel just as proud of Route 66," he says. Route 66 apparel, an exclusive Kmart brand, is racking up sales of slightly more than $1 billion a year, about 3 percent of the chain's total sales and roughly equal to Martha Stewart-brand goods.
Hall's Route 66 comment prompts a chuckle from Stewart. "Floyd knows better than anybody else who comes in for Martha Stewart and who comes in for Route 66," she says.
When asked about her impact, Stewart notes that in the three years since her products entered Kmart, its annual sales have risen to $36 billion from $32 billion. Like Kmart executives, she attributes much of that to store remodeling. "But I think it also has something to do with the fact that the Martha Stewart brand is in every Kmart store. It's a big draw," she says.
Stewart says that Kmart conducted a survey six months ago that showed that customers who buy the Stewart brand boast higher incomes and spend two to three times more than those who don't. "The average Martha shopping basket is more expensive than the average Kmart basket," Stewart says.
In response, Kmart spokeswoman Laura Mahle says it wasn't a formal survey but rather a review of register data. The review did show that customers buying Martha Stewart products tended to spend twice as much as the average ticket of $25 to $30, Mahle concedes. But it isn't clear that these people came to the store expressly to buy Martha Stewart goods, she insists.
"You can look at it that way, or you can say that people who were shopping Kmart also bought Martha Stewart that day," says Mahle.
Ms. Stewart has some pretty potent ammo in any battle for clout at Kmart. The relentless spread of the Martha Stewart empire in recent years has made her one of the nation's most successful entrepreneurs. Her stake in Martha Stewart Living Omnimedia Inc., the company she took public last fall, is valued at more than $500 million, even though the stock has been roughed up lately by the market's contortions. Its revenue has surged 75 percent over the past two years. "Martha Stewart is the best thing that's happened to Kmart in the last three to four years," says Charles Chinni, a former Kmart merchandising chief who now heads Strouds Inc., a home fashions retailer.
For Kmart, the risk in not pleasing Stewart isn't that she will ditch the retailer. She says she just signed a contract extending the relationship to 2007 from 2003, and the number of Kmart departments featuring her products continues to grow. Last year, the Kmart deal contributed most of Martha Stewart Living's $20 million in merchandising revenue. (The bulk of her company's revenue, which totaled $232.3 million last year, comes from its publishing operations.)
Instead, Kmart's risk is that it won't exploit the relationship for all it is worth. Although her contract prohibits product deals with other mass merchants, Stewart, through Martha Stewart Living, already is showering her still-broadening array of products on smaller, specialty retailers. In one of several deals, last September she agreed to provide a line of fabrics to a 1,000-unit chain called Jo-Ann Fabrics & Crafts, part of Jo-Ann Stores Inc.
Stewart estimates that her company gets about five calls a day from retailers and other businesses seeking branding or licensing deals.
How much more might Kmart squeeze from the relationship if it encouraged Stewart to spend more time on Kmart? Clearly, she has that impulse. Two or three times a month, she makes surprise visits to Kmart and photographs problem areas and sends scrapbooks back to headquarters. She sometimes even critiques departments that don't include her goods. "I'm constantly offering my suggestions," she says. "They're not always acted upon."
Kmart spokeswoman Shawn Kahle says Kmart is glad to receive input from Stewart but feels no obligation to act on it. "Ultimately, Kmart must take the action that is best for its customers and shareholders," she says.
The two sides also differ in their vision of how far the Martha Stewart brand should extend across Kmart. At the moment, Kmart sells Martha Stewart bedding, bath towels, baby gifts and linen, patio furniture and lawn and garden tools. To come this autumn are bakeware and plateware.
To Stewart, this is just the beginning. "If we're going to stay in Kmart in a huge way, there's no reason we wouldn't go into more departments," she says. Among the possibilities, she notes, are holiday merchandise and basic clothing.
But Kmart pooh-poohs that kind of talk. "There are no plans to extend the brand beyond home and garden right now. It is not going to be an apparel-driven line," says Kmart's Mahle.
Why not? Considering that rival WalMart boasts lower prices than Kmart and that rival Target boasts a more upscale offering, Martha Stewart housewares, paint, baby and lawn-and-garden items are crucial to setting Kmart apart.
Except for the Martha Stewart brand and other, smaller exclusive deals (with brands such as Sesame Street, for instance), "I don't see any good reason to shop at Kmart," says Robert Buchanan, retail analyst for A.G. Edwards in St. Louis.
For all the insistence of Kmart executives that Martha Stewart is just one brand among many, their in-store treatment of her products suggests otherwise. The chain recently completed conversion of more than 80 percent of its 2,173 discount stores to a format that moved to the front Stewart's home-fashion goods -- a category that most general-merchandise stores place at the rear. That move put Stewart's goods alongside the high-traffic grocery section. Plans are now under way to put Stewart's brand up front in Kmart's 100 supercenters, which are combination grocery and general-merchandise stores.
Via Associated Press