Penney's Johnson says knew Martha Stewart deal was controversial

Fri Mar 1, 2013 4:42pm EST
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By Karen Freifeld

NEW YORK (Reuters) - J.C. Penney Co Inc (JCP.N: Quote) chief Ron Johnson knew before doing a deal with Martha Stewart that it would create a conflict with rival Macy's Inc (M.N: Quote), which already had a relationship with her.

Johnson was testifying in New York state court on Friday in proceedings brought by Macy's against his company and Martha Stewart Living Omnimedia Inc MSO.N over their proposed deal.

The chief executive wrung his hands as a lawyer for Macy's grilled him over an email he wrote to a board member saying Martha Stewart would have to "break" her agreement with Macy's if he was going to "pull off" a deal with her.

Macy's sued Martha Stewart Living and J.C. Penney after the they announced plans in December 2011 to launch Martha Stewart boutiques in about 700 J.C. Penney department stores. The boutiques are part of Johnson's strategy to re-invent the 102-year-old retailer, which released dismal holiday shopping season results on Thursday.

Macy's claims that, by signing a deal with J.C. Penney, MSLO breached its contract to sell products in certain categories such as cookware, bedding and bath items, exclusively at Macy's.

A non-jury trial is underway before Justice Jeffrey Oing in New York state court in Manhattan.

Johnson testified he got the idea for putting Martha Stewart in J.C. Penney stores when he read in the spring of 2011 that her company had hired the Blackstone Group to evaluate opportunities. He believed Martha Stewart's influence on home goods was greater than the influence of any designer on the apparel industry.

Theodore Grossman, representing Macy's, asked Johnson about an August 14, 2011, email he sent to J.C. Penney board member Steven Roth, whose Vornado Realty is Penney's second-largest shareholder. Roth had said in an earlier email that Martha Stewart's exclusive deal with Macy's would be a "major impediment."   Continued...

Ron Johnson, CEO of J.C. Penney, leaves the New York State Supreme Court in New York, March 1, 2013. REUTERS/Andrew Burton