Kmart, Martha ring in contract extension - Kmart Corp. and Martha Stewart contract - Brief Article

DSN Retailing Today, July 9, 2001 by Mike Duff

NEW YORK -- Kmart and Martha Stewart renewed their "vows" at a ceremony that included ringing the bell on the New York Stock Exchange on the heals of the discounter's debut of the latest MSE brand extension.

Called Keeping, the new line of kitchen storage products is the latest rollout for MSE, which next will introduce home decor for the fall/holiday selling season. The agreement renewal between Kmart and Martha Stewart Living Omnimedia extends the partnership between the two companies through 2008 with conditional renewal in effect until 2018.

The agreement calls for the continued expansion of the MSE line in Kmart's 2,100 stores and on BlueLight.com. Products also are available on Marthastewart.com. The brand will continue to expand within existing segments--including. domestics, house-wares and storage--and into new categories such as craft and holiday, which will debut in 2002. This spring, Kmart rolled out its first seasonal MSE line under the title picnicware.

According to a Kmart source, the rollout was something of a test with the intent of determining the effectiveness of the MSE banner on seasonal goods. While Kmart will continue to carry seasonal picnic goods with or without the MSE label, the announcement of the additional seasonal lines seems a good indication the retailer is satisfied with its initial experiment. Currently, about 4,500 Kmart skus carry the MSE label, as does an assortment of live plants.

Kmart will continue expanding the physical space occupied by MSE in store, chairman and ceo Chuck Conaway told DSN Retailing Today at the MSE Keeping launch, and more closely link merchandising to other growth categories such as pantry as it remerchandises them under existing programs. "We'll cross-promote expanding categories. New stores will have alook and feel to facilitate that," he said.

Kmart estimates MSE products have generated about $5.5 billion in revenues at its stores since it was launched. The company expects sales of about $1.6 billion in this fiscal year with about $100 million coming from the 314 Keeping skus.

The Keeping line is divided into three product groups, closet organization and "clotheskeeping," laundry room, and kitchen and pantry organization. It will be merchandised in the updated fixturing package introduced last year.

Martha Stewart Living Omnimedia's retail division has been active in expanding its presence, and not only with Kmart.

In Canada, Zellers has an agreement with Martha Stew-art that includes the product categories Kmart sells in the United States. Paint is available at retailers on both sides of the border, including Canadian Tire and Sears, where the Martha Stewart paints were originally introduced prior to MSLO's agreement with Kmart.

In addition to Kmart's seasonal line, Martha Stewart has fabric items available at Jo-Ann Stores and Calico Corners. Martha Stewart Living Omnimedia is negotiating with other specialty outlets about introducing new product lines. Specialty store items and upscale products on Marthastewart.com are positioned to be non-competitive with the goods available at Kmart and Zellers.

In June, Sharon Patrick, president of Martha Stewart Living Omnimedia, told an analyst's conference in New York that the company has identified specialty store retailers as a significant growth opportunity. Patrick told DSN Retailing Today that MSLO's merchandising division intends to sign at least one new pact with a specialty store before yearend.

However, it's unlikely that Martha and Kmart will part company in the near future. According to Stewart, who said the challenge of developing quality product for the mass-market shoppers is one she finds satisfying, "When we work so hard on a product, we want that customer base."

Eric Beder, an analyst with Ladenburg Thalmann, said the renewal of the agreement was a coup for Kmart in that, at its end, Martha will be 71. At that point, he said, the product line would have transcended her or peaked. Either way, Kmart has the brand when it will have strong customer acceptance and a strong personality in the form of a credible and celebrated developer.

Beder added the expansion of MSE brands in the specialty channel shouldn't create substantial problems for Kmart. "They have to be non-competitive. Kmart has Martha Stewart Everyday exclusively. It may have some effect, but Kmart still will remain the primary, overwhelming source for Martha Stewart products," he said.