Martha Stewart the marketer is still a force
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Empire's stock, revenue and earnings have fallen, but her brand stands
By Michael Oneal and Melita Marie Garza
Chicago Tribune staff reporters
Published June 4, 2003
It may have been the worst kept secret on Wall Street. But when news broke Tuesday morning that the Justice Department is expected to indict Martha Stewart on insider-trading charges, shares in Martha Stewart Omnimedia Inc. got clobbered anyway.
The stock finished the day 15 percent lower at $9.52 a share and now sits 50 percent below where it was about a year ago when allegations surfaced that the home-improvement icon had sold nearly 4,000shares of ImClone stock, worth about $228,000, based on a tip from an insider.
More than $500 million in Omnimedia's market value has vanished over that period--$309 million of it Martha's.
Still, Martha Inc. appears to have plenty of devoted fans. Say what you will about the ethics or image of Martha herself, consumers still clamor for her colors and furniture patterns and her ideas about entertaining. They still feel inspired by her TV shows and magazines and her Kmart ads.
Listen to Mary Glitzer, 58, an interior designer in San Antonio. She said the indictment didn't change her view of what Stewart has to offer.
"The biggest thing I've learned from her over the years is, don't be afraid to try anything," Glitzer said. "You can do it if you have a positive attitude, if you approach it in a methodical way and do your research.
"She covers everything from gardening and yardwork to putting on a beautiful elegant dinner and making candles. There's such a wide gamut of what she talks about and teaches that you can always learn things," Glitzer said.
The trials of Martha clearly have taken a big chunk out of her company's results. In conference calls with analysts, the company has made it clear that the bad publicity has hurt--especially since the crisis has hit in the middle of what amounts to a depression for media and publishing companies.
Revenues for the first quarter of this year dropped 15 percent to $58 million from the same period a year ago. Operating earnings fell from $5.8 million to a loss of $7.5 million.
Advertising pages for the flagship Martha Stewart Living magazine fell 28 percent in the quarter, while newsstand sales also tumbled. Television revenues were flat, merchandise sales fell 7 percent and the company's long-standing relationship with Kmart is troubled.
For all of these reasons, Laura A. Richardson, who follows the stock for Adams Harkness & Hill in Boston, is advising clients to reduce their exposure to Martha Stewart Omnimedia.
"Regardless of the legal outcome with Martha, we think the company needs to articulate a turnaround plan that addresses how it plans to improve its business," Richardson said.
What gets lost in all of this, however, is the remarkable marketing power that Martha still possesses. In the teeth of this storm, she has managed to launch a new magazine called Everyday Food that analysts think is highly promising.
The company has also rolled out a line of furniture called Martha Stewart Signature that is drawing raves.
In recent weeks, crowds of admirers flocked to see her promoting the line. The Houston Chronicle reported that a crowd of 300 pushed their way into the Star Furniture Store in Sugar Land, Texas, on a recent Friday night to hear Martha dispense tips and wisdom on how to make their homes more beautiful.
"I loved being organized," Stewart said, showing pictures of her closet converted into an efficient office.
Jackie Hirschhaut, vice president of the American Furniture Manufacturers Association, thinks consumers respond to Stewart's taste whether she is guilty of insider trading or not.
"The response on this road show has been phenomenal," Hirschhaut said. "Martha has a tremendous following of consumers. They may not necessarily be a fan of her personally. But they admire her sense of decorating style."
Glitzer, the designer, agrees: "I personally don't know whether she did anything wrong."
Even if Stewart did, she said, "I would still watch her show."
Some marketing executives warn that even a brand as strong as Martha's cannot withstand endless bad publicity.
Fred Wray, executive vice president and managing director, central region, of media buying firm Initiative Media, thinks it may already have been harmed irreparably.
"No one wants to be associated with a negative situation like this, especially since there are so many other women's publications to fill the bill and provide advertisers with a safe haven," Wray said.
Just how much damage the brand can afford is a question mark. But already, Wray says, the negative publicity is hurting Stewart's chances to win back consumers and advertisers long- term.
"It depends on what happens in this indictment," he said. "If she's found guilty, it's going to be a real problem."
Especially for the board of Martha Stewart Omnimedia.
The one thing that is clear: The Martha brand isn't much without her. Her company released a statement Tuesday saying executives and the board "have been planning for a number of possible contingencies, are evaluating the current situation and will take action as appropriate."
But there aren't a lot of options.
"Unfortunately, Martha's product is really Martha," says Barbara Provus, a partner in Shepherd Bueschel & Provus Inc., a Chicago-based executive search firm. "If she is out of the picture, I don't think she can keep the franchise going."
Reporter Jim Kirk contributed to this story.
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