Here is the press release. I have bold-faced the important section:
J. C. Penney Company, Inc. (NYSE: JCP) (“J. C. Penney”) and Martha Stewart Living Omnimedia, Inc. (NYSE: MSO) (“MSLO”) today announced they have entered into a strategic alliance and will join forces to create a unique and comprehensive retail experience featuring Martha Stewart products, know-how and advice.
Beginning in February 2013, customers will be able to visit distinct Martha Stewart retail stores inside the majority of jcpenney department stores. These Martha Stewart stores are intended to be destinations where consumers can experience an engaging and inspiring environment and buy a variety of affordable, high-quality home and lifestyle merchandise designed and curated by Martha Stewart and her team. Staffed by trained associates, the Martha Stewart stores will also give consumers direct access to the products and educational tips that have made Martha Stewart America’s leading lifestyle expert. J. C. Penney will market and source the products.
Under the terms of this 10-year commercial agreement, the two companies will also jointly develop an e-commerce site, expected to launch in 2013. The site will offer Martha Stewart expertise and enable consumers to purchase a wide range of home and lifestyle products, including those sold in the Martha Stewart stores inside jcpenney, and other merchandise designed or selected by Martha Stewart. MSLO is expected to receive in excess of $200 million from J. C. Penney over the initial 10-year contract period.
- J. C. Penney has invested $38.5 million for 11 million newly issued shares of Class A common stock at $3.50 a share, for a 16.6 percent stake in MSLO. In addition, J. C. Penney will have representation on MSLO’s Board of Directors.
- MSLO also announced today that it will pay a special dividend of $0.25 per share on Dec. 30 to shareholders of record as of Dec. 19.
Ron Johnson, chief executive officer of J. C. Penney Company, Inc., said, “I have long admired Martha Stewart’s extraordinary influence on the way American families live and enjoy their lives. For nearly two decades she has been the primary person we turn to for advice regarding food, entertaining, decorating, and celebrating life’s memorable moments. The opportunity to work with Martha and create an entirely new shopping experience, both in-store and online, is a once in a lifetime opportunity. 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.”
Martha Stewart, founder and director of MSLO, said, “Ron Johnson is a true innovator and someone who has been fundamentally redefining the retail experience. I am greatly impressed with his plans for changing an American classic, J. C. Penney, to make it a very new and different shopping experience. To partner with J. C. Penney, Ron and his extraordinary team is a big and important step in realizing my dream of putting our Martha Stewart designed products within easy reach of an even broader consumer audience. I’m also very excited to work with J. C. Penney to create an online shopping experience, which will offer a broad range of Martha Stewart products. I cannot wait to get started on this new venture.”
Mr. Johnson added, “The objective of our partnership with MSLO is to unlock the full potential of Martha Stewart’s extraordinary assets in new and exciting ways. Our investment in their company will allow J. C. Penney to share in the upside of the work we do together both as an investor and as a retail partner. We look forward to working with the entire MSLO leadership team through our representation on the MSLO Board of Directors to create long-term economic value for shareholders.”
Lisa Gersh, president and chief operating officer of MSLO, said “The strategic alliance we’ve announced today with J. C. Penney strengthens our balance sheet, will enhance the reach of our brands and expand our vibrant merchandising and media presence for the benefit of all of our partners. We believe this alliance is an important step in positioning our company for the future. J. C. Penney also recognizes the powerful cross-promotional value and reach this alliance represents in light of our magazine, digital and broadcast properties. We are excited to work closely with the J. C. Penney team to help drive the success of our respective businesses.”
We already know the JCP Sephora locations do ~$600 sq ft in sales vs ~$200 for JCP. That is the reason I have been groveling for a year now for the Sephora roll out to be expedited/rushed/hurried up/WTF are they waiting for?/etc… It works and is massively profitable (308 now and 75 more coming next year). $JCP’s “home section” has lagged peers for years even before the housing collapse and subsequent recession. It makes logical sense to focus there first. Why Martha?
It is about the “assets” above. Print, TV, Radio and web. Martha Stewart has a huge presence and still has a large following. That will be leveraged to drive customers to $JCP to purchase merchandise & to see how it works. Think of a “genius bar” for kitchen gadgets to increase sales. “We can sell you a cookbook with you favorite recipe and oh, here, these are the kitchen tools you’ll need to make it perfect”. I am more than a little sure there will be a slew of premium products “only at $JCP” that will be advertised on all of Martha’s medium’s.
Martha’s current deal with $M runs out in Jan. 2013. Do not look for that to be extended. If the $TGT $AAPL models are going to apply here also, look for $MSO brands to become exclusive to $JCP. The exception would probably be paints and those products currently best suited for $HD where they are now sold.
Paying $38M for this is a pittance of what $JCP will eventually generate from this. Remember, after the holiday season $JCP will be sitting on ~$2B in cash, $38M is couch cushion money. We can’t underestimate the importance of this driving more foot traffic to the store. While there why not pick up some Sephora?
All of this ignores the web potential…..I would say based on what $JCP paid, we get that as a freebie
This isn’t the end game. But it is a sign of how Johnson will transform $JCP.