Martha Stewart Living Omnimedia
may have little choice but to stick with its namesake, despite the likelihood that civil and criminal charges will be filed against her.
The company's brand is so wrapped up in Martha Stewart's identity that it can't really distance itself from her, marketing experts say. A court trial may hurt the company and a conviction could kill it, but the company may be just as bad off without Stewart, they say.
"You don't really have a choice; she is the franchise," said Chris Atkins, a partner in Ketchum, a public relations firm. "There're still a lot of people that are Martha fans. If the company walks away from that, they risk more by alienating their customer base than they would gain by distancing themselves."
Federal prosecutors are planning to seek a criminal indictment against Stewart, the company announced on Tuesday. The
Securities and Exchange Commission
plans to file a civil complaint against her as well, the company said.
The potential charges relate to Stewart's sale of stock in
in December 2001, immediately before the pharmaceutical company reported bad news on one of its leading drugs. Stewart, who was friends with ImClone's then-CEO Sam Waksal, is likely to face charges of insider trading or obstruction of justice.
For now, the company's management appears to be standing behind Stewart. At a shareholder meeting and in a statement issued on Tuesday, company directors defended Stewart and denied rumors that she would step down as chairman and CEO.
Of course, any talk of Stewart exiting the company may be academic. Stewart owns 61.2% of the company's Class A shares and controls nearly 94% of Martha Stewart Living's voting shares, meaning there's little chance that the board or shareholders can force her out. Meanwhile, she has no legal obligation to leave the company if she's indicted, said Stephen Hibbard, chairman of securities and corporate governance litigation at law firm Bingham McCutchen.
But even if shareholders could force her out, they might not want to.
Probably 80% of the brand equity in Martha Stewart Living is wrapped up in Martha Stewart the person, estimates Lynn Parker, principal of marketing firm Parker LePla in Seattle. Not only is her name on most of her magazines, but she's the public face of the company, the one who is front and center on its television specials.
"If she's not there, then what do you have? Probably not a lot," Parker said. "It's been her vision through the whole thing."
That's not to say that the company doesn't have options. It could force Stewart out as a manager, while retaining her name. Alternatively, she could go on an indefinite leave while she tends to her legal problems. Most drastically of all, the company could attempt to cut all ties to Stewart by not only forcing her out, but by trying to establish a separate identity.
Martha Stewart Living already has taken some steps to distance itself from Stewart.
, launched by the company in January, is one of the company's first magazines to not include Stewart's name in its title.
The company should take further steps along that path, Parker said. But she acknowledged that could prove difficult.
"Brand equity transfer takes time and it doesn't look like she has a lot of time right now," Parker said.
But even if the company had the time to do it, distancing itself from Stewart partially or completely might not be the best thing. First of all, the company could come across as being disloyal, noted Atkins. Despite her legal problems, Stewart remains popular with many of her readers and viewers.
"There's a lot of people in this country that would be in favor of having the company stand by her," Atkins said.
Pay Now and Later
The company is unlikely to avoid Stewart's legal troubles even if it does distance itself from her, said Steve Yastow, owner of Deerfield, Ill.-based Yastow Marketing. Martha Stewart Living's brand is so identified with Stewart that negative things that come out at trial are likely to reflect poorly on the company regardless of whether she's still running it, Yastow said.
"Just having her step down will not necessarily make everything with the brand right again," he said.
The company could attempt to avoid that association by changing its name, but there's a big downside to that: the daunting task of creating a new brand from scratch.
"Building a brand with the recognition and equity that Martha Stewart's company has is a near-impossible feat in the American marketplace," Yastow said.
Meanwhile, dumping Stewart in one form or another could look like a big mistake if she's exonerated.
"Who knows? She could come out of this smelling like a rose," said Parker. "If that happens, you wouldn't have wanted to throw away the
brand equity you have in her."
That's not to say that the company won't face problems if it sticks with her. Stewart's legal troubles already have battered the company's stock, which closed down $1.68, or 15%, to $9.52 Tuesday on news of the potential indictments.
Meanwhile, Martha Stewart Living has seen its legal fees go up and its advertising revenues go down as a consequence of the continuing investigation into Stewart's trades. The combination of those two factors has helped lead to red ink in the last two quarters, including a worse-than-expected
loss in the first quarter.
Those problems may continue if, leading up to and during a potential trial, customers are subjected to a continuous drumbeat of negative news concerning Stewart.
"Customers won't distinguish between the beautiful messages you've had for years and the news they're hearing today," said Yastow. "Customers will inevitably connect the news they hear to the brand."
And the company risks losing everything in the case of a conviction. While it might have time today to distance itself from Stewart, it likely won't have that time or ability once she's found guilty, Parker said.
"You risk losing 80% of your value today or 100% tomorrow," she said. "It's a gamble. It really is a calculus."
No matter which option Martha Stewart Living takes, it's going to be hurt, Yastow said. The challenge for the company is to figure out which option will hurt it the least.
"It just points to some interesting vulnerabilities when you associate your brand so clearly with one person," he said.