J.C. Penney Hopes to Find New Life; Acquires Stake in Martha Stewart

J.C. Penney

announced today that it agreed to take a 16.6% stake in Martha Stewart

, paying $38.5 million or $3.50 per share for the acquisition. The move is one of many strategic moves that the company plans to make after its CEO Ron Johnson arrived from Apple. The company has struggled to generate enthusiasm among its customers over the past decade, as it has become known for reasonably priced clothing, but failed to produce fashionable collections to rival more youth oriented Express

or designer lines at Target

. As a result of the agreement, Martha Stewart will build small retail locations in many J.C. Penney retail stores, which give the company greater visibility. The 10-year agreement gives J.C. Penney the right to source and market Martha Stewart products. The two companies plan on developing an e-commerce site which will debut in 2013. In addition to the 16.6% stake, J.C. Penney will pay nearly $200 million to MSLO over the life of the contract. J.C. Penney had hired Ron Johnson to be its CEO in an effort to shake up its conservative retail stores and product offerings. Johnson had previously been Senior VP of Retail Operations at Apple, where he pioneered the Genius Bar and open air layout that the stores are famous for. J.C. Penney has seen very little change in their store layouts and product offerings over the past decade and is long overdue for a refresh. The acquisition of Martha Stewart and her "lifestyle" philosophy could bring needed energy to the retailer. Johnson is enthusiastic about the partnership, as he commented after the acquisition. "I have long admired Martha Stewart's extraordinary influence on the way American families live and enjoy their lives. The opportunity to work with Martha and create an entirely new shopping experience is a once in a lifetime opportunity. We intend for Martha Stewart stores to be a key centerpiece of our new strategy to transform J.C. Penney into America's favorite store." In response to the announcement, Macy's

stated that it would begin to review its product line due to market proliferation. The retailer had previously relied on MSLO for a large portion of its home furnishing offerings, and featured the brand prominently in its print advertising. If Martha Stewart were to pull its products from Macy's stores, the retailer would be left with a huge gap given how much retail space it devotes to the brand. Given the runup that took place this morning, it's difficult to recommend Martha Stewart as a trade. The stock has fallen significantly over the past few years as consumer enthusiasm has waned over the company's product offerings. The Martha Stewart name also has not carried the same cache after her prison sentence. While this partnership does not carry any guarantees of success, it does signal Ron Johnson's willingness to explore new avenues to make J.C. Penney a more modern, fashionable retailer. Given the CEO's record of innovation with Apple stores, the prospects of a J.C. Penney revitalization appear to be good.