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The reinvention of Martha Stewart

Martha Stewart is deeply immersed in what she calls "this era of me." Since completing her 10-month sentence in August, 2005, for lying to government officials about a stock sale, the lifestyle guru has spent most of her waking moments trying to bring the world back to Martha.
Martha Stewart
"In the creative area, I'm very, very involved," Martha Stewart says of her role in her namesake company. "I don't have time to be CEO."Ric Feld / AP file
/ Source: Business Week

Martha Stewart is deeply immersed in what she calls "this era of me." Since completing her 10-month sentence in August, 2005, for lying to government officials about a stock sale, the lifestyle guru has spent most of her waking moments trying to bring the world back to Martha. She has helped design new homes, forged a slew of merchandise deals, completed a 750-page book, and launched her 24-hour radio channel. She hosts a daily live TV show. She's helping to create a search engine of Martha-approved sites, and even is developing a line of food.

Stewart feels vindicated — and tired.

"I don't go out as much at night as I used to," she says, noting that she can't get her mind off work long enough to enjoy a Broadway show. "And I don't have enough time to travel. I just don't. There's too much to do."

To all the naysayers who said her 15 minutes were finally up, the implicit message is: Take that. Securities regulators may have stripped her of the chairman and CEO title and denied her a seat on her own board — something that pains her to this day — but Stewart is dreaming big again.

Something fundamental has changed, though: Stewart no longer has total control over the brand she built. She still owns the bulk of the company's stock and holds 92 percent of the voting power — prompting speculation that she may one day take it private — but she can't dictate the agenda. She has a strong and media-savvy CEO in ­Susan Lyne, whom Stewart says "is extremely fair in letting me know almost everything that's going on." Stewart also answers to an independent board, led by cigar-chomping entertainment veteran Charles A. Koppelman — a man so un-Martha-like that he refers to flowers as "some pink things" and thought nothing of putting up in his office a massive poster of his grandchildren, visible from the otherwise austere halls of headquarters.

Moreover, what was once an army of mini-Marthas with careers largely tied to their famous boss has morphed into a more eclectic and professional management team. Sally Preston of Rodale has come in as senior vice-president of publishing; Yahoo! veteran Holly Brown manages the Internet business; and former Kate Spade president Robin Marino has taken over merchandising. As Lyne puts it: "We've got people running segments who can do a lot of their work and planning independently. They don't need to be babysat in any shape or form."

Is Martha Stewart Living Omnimedia Inc. now at the point where it may not need Martha Stewart to survive?

Lyne, who became CEO in late 2004, certainly thinks so, noting that "we have a depth and breadth that wasn't there a year ago." While the former ABC Entertainment president and Premiere magazine founder isn't about to back away from the woman who defines the brand, she treads carefully: "We are embracing it, but trying not to overuse Martha, the personality." Even perennial pessimists such as Dennis B. McAlpine of McAlpine Associates says he's "very impressed with Susan's ability to get things done. There's a move to make Martha Stewart more like Betty Crocker, more ephemeral."

Stewart, naturally, prefers not to talk about what the company would be like without her. At first, she will only express the hope that her name will have the longevity of Coco Chanel's or Walt Disney's. When pressed, she does say that "if I played a lesser role, the company could still do extremely well."

At 65, though, she considers that prospect to be far off. She has no intention of pulling back her looming presence over the brand. She saw the damage that downplaying the Martha Stewart name caused for her company during "the legal problems," and she won't let that happen again. "I never agreed with that strategy because I believed in myself," says Stewart. The goal now is to take her brand as far as it will go and return her company to profitability (it hasn't made money since 2002 and in 2005 lost $76 million). "It's not like I'm an absentee founder, holed up in my château in France," she laughs. "I'm working every day."

And sometimes it really can feel like hard work. In some ways, Stewart acts more like the talent than the top boss, stoically doing what's needed to pump the brand. Take her daily live television show. "It's, um, challenging," admits Stewart, who prefers the leisurely pace and "wonderful flow" of an edited show. "A live show really curtails your ability to get in as much serious content as the other show. You also can't put in as many field trips and experts as you want to have. You have three minutes to do everything." Working in front of an audience is nice, she adds, "but it feels a little rushed sometimes."

As strong as Stewart's comeback has been, she faces intense competition from new personalities. Rachael Ray, for one, hosts a show that now averages 2.3 million viewers, 46 percent more than Stewart's, according to Nielsen Media Research Inc. Starcom USA President Chris Boothe argues that Stewart is "pretty much holding her own at a difficult time of day," while Ray benefits from being positioned between Live with Regis and Kelly and The View in some key markets. But Ray is getting a lot of buzz. Stewart insists she isn't concerned: "Her daily show is much less appealing than her Food Network show. It's very disjointed and loud, and I don't learn anything."

Stewart also admits to mixed feelings about her partnership with Kmart Corp., which she fashioned more than a decade ago. It made her a force in merchandising. But since merging with Sears Holdings two years ago, the retailer is still, as she puts it, "struggling to get all the stores in the shape that they ought to be." Her company gets minimum guaranteed payments of $60 million annually — about double what it would otherwise earn from current sales — but those guarantees shrink to $20 million in a few years. "It's a monstrous consolidation of two monstrous retailers, and the jury is still out," she says.

The deals that are really propelling the company these days owe as much to Lyne's deputies as Stewart herself. Merchandising chief Marino was key in working out an agreement with Macy's to develop a line of Martha Stewart products that will launch next year. As Janet E. Grove, CEO of Macy's Merchandising Group, says: "Robin and I have known each other for a long time. She really understands how customers shop and why they shop." Stewart is important, but Grove believes the Martha Stewart aura transcends the person. "The brand will prosper in any situation," she says.

Koppelman, ever the dealmaker, forged what looked like a kooky scheme with KB Home to build Martha Stewart-designed houses in the $400,000 range around the country. While some might question launching "themed" communities amid a housing downturn, "they're incredibly well-built and selling like hotcakes," says analyst Robert Routh of Jefferies & Co. Stewart's team helped design the prototypes, asking architects to put in Martha touches like mud rooms and cabinets that stretch to the ceiling (fewer dust bunnies!). The company gets royalties and, soon, a chance to sell buyers exclusive Martha products. KB Home CEO Bruce Karatz notes that buyers have snapped up the initial 300 homes in two communities.

Amid it all stands Stewart, eager to make up for lost time.

She has developed a strong interest in the "prolongation of life" — recently giving a $5 million donation to New York's Mt. Sinai Hospital to set up the Martha Stewart Center for Living, which will promote healthy aging. She thinks it's a concept that could go national. Despite the apparent frenzy in her life, Stewart goes on early morning hikes, practices yoga, and has started horseback riding. She is building barns from scratch. She has a "man friend," former Microsoft Corp. executive Charles Simonyi. She has "no comment on poor Peter" Bacanovic, the former broker who was involved in the ImClone stock scandal and served time in jail. Stewart has moved on. "In the creative area, I'm very, very involved," she says. "I don't have time to be CEO."