Macy's CEO testifies about Martha Stewart falling-out

Macy's Inc. chief executive Terry Lundgren testified Monday that he hung up on home diva Martha Stewart after she called to inform him on Dec. 6, 2011, that the company that bears her name had inked a deal with J.C. Penney Co. to open shops within most of the chain's stores.

He hasn't spoken to her since, even though the two used to be good friends.

"I was sick to my stomach," Lundgren testified Monday in New York Supreme Court. "I can't remember hanging up on anyone in my life."

The testimony comes as Macy's and J.C. Penney duke it out in court over the partnership with Martha Stewart Living Omnimedia. The trial, which began Wednesday, focuses on whether Macy's has exclusive right to sell Martha Stewart branded cookware, bedding and other products. Other key witnesses expected to take the stand this week include Penney's chief executive Ron Johnson and Martha Stewart, who founded Martha Steward Living.

Martha Stewart's brand has been important to Macy's. Under Lundgren's leadership, Macy's has focused on building exclusive brands like Martha Stewart that are not carried by rivals to get shoppers to the store.

In the home area, exclusivity is key. Lundgren testified Monday that Macy's had built the Martha Stewart brand to be the biggest in its home business. Sales last year were up 8 percent, double the rate for the entire company.

"I need the Martha Stewart business to be exclusive," Lundgren said. "I don't have a substitute."

His testimony is a culmination of the three companies' legal battle that started in 2011. Macy's sued Martha Stewart Living in January 2011, saying the company breached a long-standing contract when it penned the deal with Penney, which invested $38.5 million in a nearly 17 percent stake. In a separate lawsuit, Macy's sued Penney claiming it had no regard for the Macy's contract and that Johnson had set out to steal the business that it had worked hard to develop.