Quotes of the Day
Near the peak of her company's success, Martha Stewart inadvertently summed up both the strength and the vulnerability of the empire she had built. At an advertising-industry conference in Detroit in 2001, she was speaking to a crowd of starstruck ad executives when somewhere in the crowd, a voice piped up with a fawning question. "Someone asked her, 'You dispense all this advice. Who taught you all these things? Who's your mentor?'" recalls Samir Husni, a magazine consultant who also spoke at the meeting. "She said, 'Me. Me. I did it all by myself.'"
That unyielding self-reliance helped build Martha Stewart the millionaire, but the future of Martha Stewart Living Omnimedia, the company, will depend on a very different kind of corporate chemistry now that its founder has been sentenced to serve time in prison for conspiracy, obstruction of justice and making false statements to federal investigators. It took 26 months and a bruising federal trial to break, if just for a moment, Stewart's stony resolve. She stood before Judge Miriam Cedarbaum last week in a lower-Manhattan courtroom, her voice faltering as she begged for leniency. "My hopes that my life will not be completely destroyed lie entirely in your competent and experienced and merciful hands," she said. Stewart asked the judge to consider her decades as an icon to women, the suffering she had already endured, and the fate of her employees--200 of whom have lost their jobs.
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The judge must have been listening. Cedarbaum gave her the most lenient sentence possible under federal guidelines — five months in a minimum-security federal prison and five months of house arrest. Was Stewart surprised? "Not at all," she said defiantly as she left the courtroom. But Wall Street was impressed, sending the stock surging 37%, closing at $11.81, on news of the light sentence.
Yet, while Stewart plans to appeal her conviction and remains free on bail until the appeal is exhausted, the likelihood that she will play only a peripheral role in the company means that it must now figure out how to move forward without its most important product. Stewart owns about 61% of the company's stock, and its business is indelibly marked with her name. While brand experts have criticized the new CEO, Sharon Patrick, for moving too slowly to separate the company from the convicted felon, the seeds of that transformation are already in place.
They begin with Patrick, a longtime confidant of Stewart's. A former McKinsey consultant, she helped Stewart craft a multimedia lifestyle conglomerate out of her cookbooks, television specials and endorsement deals. Patrick stood by her side when Stewart rang the opening bell at the New York Stock Exchange on Oct. 19, 1999, the day the company went public. At its peak, the stock reached nearly $40 a share, but it has dipped close to $5 since news of Stewart's sale of ImClone, a biotech-company stock, surfaced in June 2002. That sale triggered a federal investigation and her subsequent conviction last March.
Patrick's challenge is to find a way to regain the confidence of advertisers, many of whom have abandoned Martha Stewart Living, the company's flagship magazine. Ad revenue dropped 54% in the first quarter, and over the past 18 months the magazine has lost about 500,000, or 22%, of its subscribers. In an impassioned statement delivered outside the New York City courthouse where she heard her sentence, Stewart made a sales pitch on behalf of her "beloved company." Standing in a sober black suit with her daughter Alexis behind her, she thanked fans for sending thousands of letters and e-mail messages and asked them to show their support by "subscribing to our magazine, by buying our products, by encouraging our advertisers to come back in full force to our magazines."
The plunge in advertising revenue has dragged Martha Stewart Living into the red for the first time in its five years as a public company. In the first quarter, sales dropped 23%, to $44.5 million, and the company lost $20 million. Winning back advertisers will take more than heartfelt pleas from loyal readers. Advertisers are looking for a reinvention of the brand, says Robert Passikoff, president of the consulting-and-research firm Brand Keys. Inside the pages of the company's magazines, that is already happening. With the September issue, Martha Stewart Living will be redesigned to reduce the emphasis on Stewart's name in the title. The back-page spot once occupied by her essay is now home to the "Cookie of the Month." Patrick has also quietly launched a new magazine, Everyday Food, a digest-size title filled with pared-down recipes. The magazine, which has shed almost all references to Stewart, was the one bright spot in the company's publishing segment, and now has a circulation of 750,000, a 50% jump from a year ago.
Consumers, however, seem to have stood by Stewart. Passikoff explains that, while Stewart's image may have been important in marketing the magazine, it isn't essential to sell a rug or a pie plate. In fact, sales of Martha Stewart — brand sheets, towels and dishes through K Mart have risen 6.5% since Stewart's conviction, according to a report by Bear Stearns.
But whatever changes Patrick makes, the results may not surface for a while. Analysts expect 2004 to be another unprofitable year for the company as it slowly rebuilds itself in a new image. It had a perfect one, but she proved to be all too human.
- Jyoti Thottam