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The Comeback That Wasn’t

Stewart in June.  

There was unusually high executive churn, and according to many executives who worked there, it was an intensely frustrating environment in which to get things done. Robin Marino, the head of merchandising until this May, was responsible for 3,000 items at Macy’s alone, but Stewart insisted on personally approving every one. “At a board meeting,” recalls someone with knowledge of the episode, “Martha walked in with a pot, slammed it on the table, and goes, ‘This is crap. I don’t want my name on it.’ ” A series of highly capable executives came and went, worn down by Stewart and thwarted in their efforts to bring the company back to health. And yet, although Stewart’s reputation of being a difficult boss was widely known, she continued to attract talented executives. Explains one: “Before you go there, you can’t imagine how bad it is. You can’t imagine that a company with a brand that’s so big could keep functioning with so much dysfunction.”

As if the company didn’t have enough challenges, it was facing a massive threat to its bottom line. The Kmart deal Stewart had forged in the late nineties was singularly brilliant. At the time, Kmart was desperate, and she had exacted a lopsided contract that guaranteed an escalating minimum payment to MSLO every year, regardless of how many products Kmart was selling.

When Kmart went into bankruptcy in 2002 and began shutting down hundreds of stores, it became that much harder for the retailer to sell enough products to meet the minimums. After Sears and its hard-nosed chairman, Eddie Lampert, took over Kmart, and the deal came up for renewal, they were firm in demanding a more equitable agreement. Watching Stewart and Lampert negotiating, a former Kmart executive says, was “like a cockfight; both of them were arching their backs and making points that weren’t really relevant.”

The deal was not renewed. This became a huge problem for Stewart. By 2005, Martha Stewart Living Omni­media, despite its name, had morphed from a media company into a merchandising company. That year, the merchandising division was the only one that made money, and 89 percent of it came from the Kmart deal. In 2007, the company was profitable for the first time since 2002, but that performance was significantly helped by one of the largest payments in the Kmart contract. With the deal’s end approaching in January 2010, MSLO desperately needed something to replace it.

At times, the offices resembled a shelter for battered crafters.

The board had long been concerned by what even Stewart called the “getting hit by the bus” scenario. For all of the brand’s ubiquity, the business was strikingly undiversified beyond products that had Stewart’s name on them. One model the directors had looked to was the Estée Lauder Companies. As ­Estée approached 70, the company began to acquire other brands and also launch its own non-Lauder brands, such as ­Clinique. Smart acquisitions, theoretically, could help make up the revenue gap expected with the end of the Kmart deal.

Stewart proved resistant. There were a few small successes, like Everyday Food, and the purchase of Emeril Lagasse’s non-restaurant-business assets. But many more attempts to diversify went nowhere. The company pursued a series of potential acquisitions, including the Knot, Cynthia Rowley, and Jonathan Adler. A lot of the deals were far along, and then Stewart would find something wrong with them. In some cases, she’d nix the idea at the last minute, after sitting down with the prospective brand owner. As one former executive puts it, “She didn’t want anyone else in the kitchen.”

Instead, the company went into a merchandising frenzy. When Sharon Patrick was around, she had enforced a careful discipline on outside deals, making sure they were both true to the brand and significantly profitable. The new licensing relationship with Macy’s, which began in 2006, has since proved integral to ­MSLO’s merchandising business, as have partnerships with Home ­Depot, PetSmart, and the crafts retailer Michaels. The board, according to an ex-member, squelched many of Koppelman’s ideas, including attempts to do a deal for Martha-branded vitamin supplements and Martha-branded clothing. They were also opposed to a deal with TurboChef, which wanted to bring out a Stewart-branded $6,000 convection oven. “It was exactly the opposite of what we preached,” this person says, “which was that we didn’t just put our names on things—we create things.” But the deal, which included a multi-million-dollar first-year license fee, eventually went through. By last year, the company had done a hodgepodge of licensing deals, including video games, a wine with Gallo, branded weddings at Sandals Resorts, and frozen dinners at Costco.

The company’s looming revenue problems—and its sinking stock price—­affected Stewart’s mood, and the mood was infectious. The creative rank and file at Martha Stewart Living Omnimedia were a mix of proud elitists and wild enthusiasts, prone to almost ecstatic fervor about such matters as glitter and hole punches. They lived for Martha’s approval, and at her best, she could be inspiring. But Stewart was also famous for her drive-bys. A group of stylists and art directors might spend a week away on a shoot, only to have Stewart dismiss their labor with a belittling remark. “Martha would say, ‘Ugh, why are there bananas there? I hate ­bananas,’ ” says someone who edited food stories. “There’s a list of things she loathes.” At times, the offices resembled a shelter for battered crafters. “That women’s bathroom,” the editor adds, “there are women in there crying literally all day long.”