J.C. Penney Company, Inc. (NYSE:JCP), the beleaguered century-old department store chain is seeking an amicable approach to cancel its merchandising agreement with Martha Stewart Living Omnimedia, Inc. (NYSE:MSO), according to report from The Wall Street Journal based on information obtained from sources knowledgeable about the issue.

J.C. Penney

Macy’s claiming the right to sell some of Stewart’s items

The merchandising agreement between J.C. Penney Company, Inc. (NYSE:JCP) and Martha Stewart Living Omnimedia, Inc. (NYSE:MSO) is the focus of the lawsuit filed by its competitor Macy’s, Inc. (NYSE:M) claiming that it had the exclusive right to sell some of Stewart’s items.

In December last year, Ron Johnson, former CEO of J.C. Penney Company, Inc. (NYSE:JCP) entered a 10-year $200 million agreement with Martha Stewart’s company to sell the home diva’s bedding and other items as part of his strategy in reinventing the home department of the retailer.

Macy’s, Inc. (NYSE:M) argued that the agreement between J.C. Penney Company, Inc. (NYSE:JCP) and Martha Stewart Living Omnimedia, Inc. (NYSE:MSO) violates its exclusive agreement with the home diva’s company because both retailers will be selling similar items.

During a trial early this year, Martha Stewart said, “We thought, and I hope rightly so, that we were allowed to do such a thing. It didn’t occur to me that there weren’t enough customers to go around.” According to her she was “flabbergasted” by the strong reaction of Terry Lundgren, CEO of Macy’s, Inc. (NYSE:M).

Earlier this month, the New York Post reported that Mike Ullman, CEO of J.C. Penney Company, Inc. (NYSE:JCP) decided to stop selling Martha Stewart’s home products because the sales of the brand is weak.  According to insiders, Ullman thought Stewart’s “designs aren’t that great” and he emphasized that “the items are not selling.” He also commented, “They’re nothing that your normal Joe Schmoe can’t come up with.”

Martha Stewart Living Omnimedia, Inc. (NYSE:MSO) denied the report and stated that its relationship with J.C. Penney Company, Inc. (NYSE:JCP) did not change, and it remains one of its retail partners.

J.C. Penney and Omimedia engaged in negotiation

According to sources, J.C. Penney Company, Inc. (NYSE:JCP) and Omimedia engaged in negotiation to modify their partnership. One scenario under consideration is to remove items in the merchandising agreement that have direct conflict with Macy’s, Inc (NYSE:M) such as bedding and house wares. One person familiar with the situation said there is no imminent deal between the companies.

Martha Stewart’s spokesperson, Claudia Shaum, reiterated that J.C. Penney remains one of Omnimedia’s retail partners. She added, “Our agreement with them is in force, and we have no intention of ending it.”

Stock price of J.C. Penney plunged by 15 percent to $10.12

Meanwhile, the stock price of J.C. Penney Company, Inc. (NYSE:JCP) plunged by 15 percent to $10.12 on Wednesday after an analyst from Goldman Sachs warned that the department store chain might encounter liquidity problem and it needs to borrow more cash to maintain its business operations. Hedge fund managers who made significant investments on the stock continue to lose money.