Ron Johnson’s arrival at JC Penney (JCP) was greeted with great enthusiasm. Johnson, who is now CEO of the retailer, had headed up Apple’s (AAPL) tremendously successful retail operations, and he was courted by hedge funds with big interests in JC Penney to come and save the moribund franchise. Well, for the first time, investors are getting a look inside Johnson’s brain as he works to remake JC Penney.
Today, JCP announced that it will take buy 16.6% stake in Martha Stewart Living Omnimedia (MSO) by paying $38.5 million for 11 million shares of newly issued stock, at $3.50 per share. Martha Stewart stock closed at $3.12 on Tuesday. Under a 10-year agreement, JCP will set up mini-Martha-stores within JC Penney outlets where consumers can get advice and tips from trained staff who have studied the famed decorator’s handbook. The new stores will start to launch in February 2013. The two companies will also set up an ecommerce site in 2013. Johnson clearly wants to associate JC Penney with a widely recognized brand, so shoppers don’t simply lump it in with the half-dozen other traditional department stores out there.
“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 jcpenney into America’s Favorite Store,” Johnson said in a statement.
Despite the myriad talents of its founder, Martha Stewart stock has mostly been a bust for the past five years. A series of partnerships with retailers has failed to jumpstart the brand, and at first glance the market clearly likes Martha’s side of the deal more than JC Penney’s — Martha stock is up 31%, JCP is down 0.8%. For Martha, the deal plays to the company’s strengths — its merchandising unit has outperformed its magazines and other divisions — and this deal could replace a previous deal with Sears Holdings (SHLD) that expired last year.
But of course, people have doubted Johnson before and have been forced to eat their words. One thing the partnership could address: with traditional retailers increasingly getting undercut by companies like Amazon.com (AMZN), the mini-stores could offer consumers an experience they can’t get online — you know, a chance to actually talk to a human being. Getting people out of their homes to go shopping is only going to get harder, so retailers will probably have to continue creating “experiences” worthy of a drive to the store.
Clearly the deal will depend on Martha Stewart’s staying power. Will her style still be relevant in five years?
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