Martha Stewart mix-up puts home in the gray - Home Goods & Housewares - Kmart Corp. ponders a possible future with Martha Stewart Living Omnimedia without Martha Stewart

DSN Retailing Today, March 10, 2003 by Mike Duff

The entire home goods business at Kmart revolves around one question these days: What's Martha without Martha?

While this may sound like a Zen riddle to some, it certainly doesn't to the people at Kmart. Instead, it's a serious question about the future of a home goods business that's dependent on the outcome of an insider trading investigation that's clouding Martha Stewart's future, and in turn her namesake company, Martha Stewart Living Omnimedia (MSO), and namesake brands, including the Martha Stewart Everyday (MSE) label.

The fear among Martha watchers is that government action could eventually remove Stewart from her business. Published reports have the U.S. attorney's office deciding by spring whether or not to file insider trading charges against Stewart related to the ImClone scandal. A spokesman for the U.S. attorney's office in Manhattan said he couldn't comment on the ongoing investigation.

Martha Stewart has been largely silent about the investigation into her stock trading except for an interview with The New Yorker magazine, in which she says she won't leave the company she founded. Stewart did, however, reduce her ownership stake from 69.1% to 61.4%.

Analysts have been divided about whether MSO can survive without Martha. At least one analyst, Kathleen Heaney, who follows Martha Stewart Living for the New York securities firm Brean Murray, said the company established by Stewart is strong enough to survive her departure, particularly on the consumer product side where good price/value outweighs the impact of Stewart's personal travails. From the standpoint of consumer goods, Martha is going to be a factor no matter how any investigation turns, Heaney asserted. "Even if nor necessarily ceo, she is still largest shareholder, so her influence is going to be felt," she said.

Others worry that Stewart is the brand, and while her traditional tastes are well established, the company would lose its identity without her.

Certainly, names and styles can go together in fashion businesses. In domestics, Waverly is not only a brand but an established look, too. And brands can survive their creators and maintain a distinction, as was the case with Perry Ellis in apparel. The man died some years ago and at a point when he was less well known than Stewart, but the brand continued based on certain characteristics he established.

On the other hand, the Kathy Lee brand at Wal-Mart pretty much tracked her fortunes as a celebrity.

Another point revolves back to Waverly. Target now offers Waverly Garden Room in its stores, the introduction of which might be regarded as counterprogramming to Kmart's MSE. Target previously had been known for more contemporary looks in its domestics pro ram. Even at Target, however, a lot of shoppers still favor traditional styles. Target responded with Waverly.

In the current retail environment, Kmart faces more of a challenge to its Martha Stewart Everyday business, and not just from Target. Other channel competitors, including Bed, Bath & Beyond, Linens 'N Things and Sears, have expanded their assortments and p rice ranges to compete more effectively or the shoppers who might be attracted to MSE. Thus, the effects of Martha's troubles are the more worrisome.

Not only that, but some indications exist that the above-market growth of home furnishings has fallen behind the pace. "Today's consumer is less interested in buying more things for their home, resulting in diminished spending for home products," said Pam Danziger, president of Unity Marketing. "In 2001, the typical American family spent $1,458 on home furnishings, according to the Bureau of Labor Statistics' Consumer Expenditure Survey. That is less than in any year since 1997 in real dollars. In percentage terms, the share of all housing spending on home furnishings in 2001 was lower than in any year since 1985. The simple fact is that cocooning, which has dominated our thinking a out the consumer market for the past 20 years, is over."

Demographics are to blame, Danziger said, as Baby Boomers depart the years when they purchase their initial homes and have their children--the prime cocooning years. Generation X, which has entered that lifesrage, is a much smaller demographic cohort, she noted, and, thus, doesn't provide as ample an opportunity as the Baby Boomers.

Whether for reasons related to demographics or not, consumers are changing their purchasing focus as they try to reconnect" with the larger world and shift discretionary purchasing to jewelry, cars and travel, Danziger said.

The market may be changing, but Kmart isn't sitting idly by. Despite bankruptcy, the retailer is updating the home category and its initiatives have the potential to boost MSE. In its latest prototype, pioneered in White Lake, Mich., the company has retooled merchandising to concentrate more heavily on key products in vignette and segment displays. Vignettes may include products from one area or more. In the latter instance, a RTA table may be set with Martha Stewart tableware. MSE also will get some displays devoted to the label, said Dave Karraker, a Kmart spokesman. Product-centered displays may include several picture frames with a couple of other home decorative pieces, such as lamps, thrown in.