December 7, 2011, 11:53 AM

J.C. Penney welcomes Martha Stewart

The retail chain will develop an e-commerce site with Martha Stewart Living.

Lead Photo

J.C. Penney Co. Inc. today revealed its first major merchandising move under the leadership of CEO Ron Johnson, who took over Nov.  1 and has said that he intends to transform J.C. Penney “into America’s favorite store.” Apparently, part of that effort involves Martha Stewart.

J.C. Penney, No. 20 in Internet Retailer’s Top 500 Guide announced today it has invested $38.5 million in Martha Stewart Living Omnimedia stock, giving it a 16.6% stake in the lifestyle content, media and merchandising company. The investment comes with a 10-year agreement between the companies that they will jointly develop an e-commerce site that will launch in 2013 and feature Stewart’s expertise as well as selling home and lifestyle products. The deal comes only weeks after J.C. Penney and another media outlet, Esquire magazine, announced the launch of Cladmen.com, an e-commerce site geared toward fashionable men who need style guidance when shopping for clothes.

J.C. Penney will also feature Martha Stewart-branded sections within the majority of its retail stores. Those sections will offer merchandise designed or selected by the Martha Stewart team. J.C. Penney says it will control marketing and product sourcing and expects to open the Martha Stewart store-within-a-stores in February 2013. J.C. Penney also hosts store-within-a-store concepts for clothing retailer Mango and makeup retailer Sephora.

Under the terms of the deal, J.C. Penney will pay Martha Stewart Living Omnimedia at least $200 million over the next 10 years in design fees, royalty payments and advertising commitments. J.C. Penney’s investment also comes with a seat on the board of Martha Stewart Living Omnimedia, said Lisa Gersh, president and chief operating officer of Martha Stewart Living Omnimedia, during an investors’ conference this morning.

“The Martha Stewart brand embodies quality, beauty, inspiration and possibility and we intend for Martha Stewart stores to be a key centerpiece of our new strategy to transform J.C. Penney into America’s favorite store,” Johnson says. “The objective of our partnership with Martha Stewart Living Omnimedia is to unlock the full potential of Martha Stewart’s extraordinary assets in new and exciting ways. Our investment in their company will allow J.C. Penney to share in the upside of the work we do together both as an investor and as a retail partner.”

It is unclear what impact J.C. Penney’s retail agreement and financial investment will have on licensing agreements Martha Stewart Living Omnimedia has with other retailers, including Macy’s Inc., The Home Depot and PetSmart, all of which carry Martha Stewart merchandise exclusive to them. Macy’s is No. 17 in the Top 500 Guide, The Home Depot No. 43 and PetSmart No. 294.

Martha Stewart Living Onmnimedia chief financial officer Ken West says he expects those relationships to continue. “We are happy with the current relationships with all of our license partners and expect each of them to continue strongly in the future,” he said at the investors’ conference. Gersh, in a statement, said the alliance with Penney’s will enhance the reach and media presence of the Martha Stewart brand, which will benefit all retail partners.

But Macy’s, a department store that sells products in the same categories as Penney’s, says it’s reviewing the Martha Stewart product line sold in its stores. “In light of the proliferation of Martha Stewart-branded product in the marketplace, Macy's is reviewing the Martha Stewart products sold at Macy's for potential changes in the future. No decisions have been made at this time,” a Macy’s spokesman told Internet Retailer this morning.

Gersh, during her presentation at the investors’ conference, also praised Johnson’s past success at developing Apple Inc.’s chain of retail stores and the development of the Genius Bar help desk, adding that she hopes consumers will respond to the Martha Stewart online and in-store presence with Penney’s in the same way.

Internet Retailer will update this story as more information becomes available.

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