Can JC Penney and Ron Johnson Afford Martha Stewart?

Martha Stewart must be loving this. The non-executive chairman of Martha Stewart Living Omnimedia MSO is the center of attention in a contract dispute courtroom battle between retailing giants, Macy’s M and J.C. Penney JCP. Not a bad place for the 71-year-old home diva.

The question, for JCP and CEO Ron Johnson is simple: Is it worth it?

In an attempt to woo Stewart into allowing her products into JCP stores, Johnson and JCP have bet big, investing $38.5 million in a nearly 17 percent stake in Martha Stewart Living. If things don’t go well, Johnson could be left with empty shelves where Martha Stewart products would have gone.

According to The Associated Press, New York State Supreme Court Judge Jeffrey Oing told Penney's attorneys Monday that he could force the company to stop towels, cookware, and other products with the MSO brand from heading to the shelves this spring even as they come off the docks.

The chain, Oing said, knew they had taken this risk when they signed the deal with the company that Stewart founded.

That’s not all. Even if the retailer prevails in court and is permitted to carry the products, there is serious question about whether or not J.C. Penney can turn a profit. According to the New York Post, Stewart is insisting on high-end materials for her line of home products, a move that has resulted in a jump of as much as 30 percent in costs for the new items.

Although J.C. Penney CEO Ron Johnson is standing behind Stewart’s demands, executives at J.C. Penney are concerned the retailer will lose money on the goods. If so, this will not bode well for Johnson, already on shaky grounds with JCP due to questionable marketing moves.

Among Stewart’s demands, an insistence that her cutlery include high-grade stainless steel, and that glassware come from Europe instead of China. J.C. Penney did win one battle, when executives said no to Egyptian cotton bed sheet sets that could have cost over $1,000.

J.C. Penney customers have already balked at Johnson’s move to eliminate sales (which he later reinstated) and investors might wonder whether consumers struggling to make ends meet will be willing to pay up for the quality Martha Stewart has demanded.

As the battle rages on, Stewart returned to New York State Supreme Court Tuesday to testify. Meanwhile, Macy’s stock is trading at midday at $41.81, up less than 1 percent. JCP is down almost 10 percent at $15.14. Martha Stewart Living Omnimedia is down a little over 1 percent at $2.47.