April 22, 2013

By Michael Stone

Like an awkward Hollywood love triangle, the J.C. Penney, Martha Stewart and Macy’s saga continued last week as the three fought over Justice Jeffrey K. Oing’s April 5th decision to temporarily allow J.C. Penney to sell Martha Stewart-designed products under the JCP Everyday label.

Macy’s appealed the Justice’s decision, which temporarily blocked J.C. Penney until Thursday afternoon when the New York State Supreme Court Appellate Division ultimately denied the appeal, allowing J.C. Penney to move forward with selling Martha Stewart unbranded goods. (However, Macy’s already filed another appeal, so whether or not this sticks is to be determined.)

Appeal or not, a favorable ruling isn’t necessarily a victory in the overall scheme of things for J.C. Penney. This battle has cost the company dearly, and I suspect members of executive leadership and shareholders are also realizing that more harm than good has come to the company and its brand.

What is J.C. Penney Now?

After embroiling the company in controversy with seemingly no end in sight, there’s no question that J.C. Penney’s board was forced to remove Ron Johnson. Unfortunately, the timing couldn’t have been worse.

Johnson was in the process of a major brand transformation, turning J.C. Penney, which was arguably in its twilight years and keeping itself afloat with jaw dropping discounts into ‘JCP,’ an aspiring brand heavyweight. The jury is still out on Johnson’s strategy. However, with Mike Ullman in the executive chair and already back to his discounting ways, there’s confusion over what J.C. Penney is — a discounting mid-tier retailer or a quality brand establishment?

What Johnson did succeed in doing, at least in part, is identify the company’s true north. Successful retailers are home to successful brands. By eliminating discounts and creating a store-within-a-store model that could support new brands like Joe Fresh, Jonathan Adler and Liz Claiborne, Johnson was on track to make J.C. Penney a desirable destination for potential brand partners. For a company that desperately needs new brands, potential suitors will be less likely to sign on knowing their product will likely be severely discounted under what appears to be the newest strategy.

What’s Martha without Martha?

The home category has been a thorn in the side of J.C. Penney for years. It has made a few attempts to compete with Macy’s Martha Stewart Living, most notably with American Living. However, the brand was only in apparel and bedding and ultimately couldn’t become the cross-category brand needed to compete with Martha.

Now, J.C. Penney will attempt to capture some of that success by selling Martha Stewart product as permitted by the court, but they will have to do so largely without the help of the Martha Stewart name. Under the judge’s ruling, J.C. Penney is barred from using the Martha Stewart name on product, as well as across all forms of marketing.

To be clear, J.C. Penney is allowed to use Martha Stewart’s name on other products for which Macy’s does not have an exclusive agreement, such as window coverings and stationery, generally small categories. But everything else will have to fall under the JCP Everyday brand label and not be marketed close to the Martha branded products; a less than ideal scenario considering the most valuable part about the Martha Stewart brand is the name.

From the consumer’s perspective, there’s bound to be confusion. Again, is the store and the brand JCP or J.C. Penney? Is this product Martha Stewart or JCP Everyday? Consumers connect with brand names and when you disrupt their ability to identify and locate product, they will go to who they know consistently provides them what they need. For home products, in this case, that’s Macy’s. Further, consumers like going to stores that are consistent with their product, price and brand expectations. They don’t know what to expect anymore when they walk into a J.C. Penney. Or is it JCP?

I hope sales (and consumers) prove me wrong, because J.C. Penney (and all of us as consumers) needs this to work. Unfortunately for them, best-case scenario is also worst-case scenario because Macy’s is allowed to return and claim financial damages once sales numbers are in. And I bet they will.