The challenge of building a billion dollar brand

Discount Store News, Dec 8, 1997 by Laura Liebeck

The making of the Martha Stewart home fashions program into a $1 billion Kmart brand was a lot like creating a souffle involving carefully measured ingredients in specific proportions.

The cooks worked hard, making sure the recipe was followed precisely. Anything less would destroy the creation.

So it has been with Kmart's turnaround, of which the Martha Stewart Everyday program continues to be a privotal element.

Martha Stewart Everyday, the broadbased home fashions program at Kmart, created and produced under the loving care of Martha Stewart herself and her Martha Stewart Living Omnimedia organization, in partnership with Kmart's own merchandising and executive team, plus home furnishings manufacturers, has, by most accounts, delivered on its promise of offering high-quality goods at a fair price.

The line will produce sales of $450 million this year, according to Kmart chairman, president and chief executive officer Floyd Hall. In 1998, Martha Stewart Everyday will approach $1 billion in sales from such products as towels, sheets, tablecloths and bathrobes.

Clearly, the MSE program is on a roll.

Accolades come from most quarters, including other retailers, manufacturers retail consultants and retail analysts.

"I envision the Martha Stewart line to be the next Laura Ashley," said Margaret Cannella, research director for Citicorp Securities, referring to the design panache of the label. "It's phenomenal. It has appealing, great colors, all coordinated for you so you don't have to think much."

That's the point.

Both Kmart and Martha Stewart Living Omnimedia are thinking big. The Martha Stewart Everyday line will grow from 30% of the retailer's domestics sales to 70% by yearend 1998. Making up the balance of Kmart's domestics program will be opening price point goods not appropriate for the MSE label, plus some licensed products, said Steve Ryman, divisional vice president, Martha Stewart Everyday brand director.

The success of the MSE program was carefully crafted.

"We designed the program from the core out," said Ryman, referring to product needs of Kmart's core customer. "We had a clear vision of what the customer wanted from Kmart," added Shawn Kahle, vice president of corporate communications. "We knew we wanted to hone in on what customers wanted and one of them was home. Martha Stewart Everyday is the result of creative forces coming together."

Already, MSE has become the No. 2 brand in America among discount store shoppers, according to results of this year's Discount Store News Consumer Brands report (Oct. 20).

During the original Kmart introduction of Martha Stewart-branded goods in 1987, the program was built for "the outer edges" of the retailer's market or "the fringe," Ryman said.

Things are different now.

"We started on the core, and we'll work out to find where the outer edge is. We'll build and build until the customer resists," Ryman said.

So far, that outer edge is not yet in sight, despite some low-level criticism that items within the MSE program are too high priced for conventional Kmart shoppers. One critic pointed to the bed sheet program where some sheets sell for about $40 each. Program supporters disregard that critism, saying the sheets are more cheaply priced than at department stores.

All of the ingredients for success in MSE have been built into the program: the design, the star power and the marketing muscle to keep the name out in front of consumers nearly every day in one form of media or another. By now, certainly most consumers know that Martha Stewart is more than just a home fashions and entertainment guru; she has become an icon of the '90's for tast and business savvy through her books, magazine, TV show and assorted guest appearances on TV and radio. Last month, she was on the cover of Business Week magazine and was at the COMDEX consumer electronics show representing IBM.

This kind of exposure has certainly pumped Stewart's "Q" score among consumers, and it is having a positive impact on Kmart. As a result, MSE sales are likely to advance quickly beyond the $1 billion sales mark for Kmart in the near future as the association builds momentum for the recovering retail chain. Its other in-store programs are likely to benefit, too, as the lessons learned from MSE are applied to other categories and product development efforts.

Activity within the store could further heat up for Kmart if Martha Stewart Living Omnimedia creates an uplscale line of Martha Stewart-brand prouducts for a department or specialty chain, further enchancing the cacher of the Martha Stewart name and association for Kmart.

The multi-year agreement betwen Martha Stewart Living Omnimedia -- a product development, design and marketing company -- and Kmart, is for everday basics, MSLO can, without violating its agreement with Kmart, develop a high-end line of goods for another retail channel. No program is currently in the works, however, said Sharon Patrick, president and ceo of MSLO.

For Kmart, MSLO set its sights on bringing its designs to the mass market.