Martha will ratchet back catalog, Internet division

NEW YORK — Falling well short of forecasts for the fourth quarter and fiscal year, and despite initiatives incorporated last year — including a broad market assortment, a tighter focus on commerce and an increase in catalog circulation — Martha Stewart Living Omnimedia will significantly scale back its direct-to-consumer division. In addition to fewer drops and sharply edited catalog assortment, the company will cut back its Internet staff.

The move is necessary in order for the division to meet its goal of breaking even in 2004, and becoming profitable in 2005, executives said during the company's fourth quarter conference call with analysts.

The catalog will shrink in assortment and mailings, and products will focus more on brands. The company also looks to increase its on-line conversion rate through better product placement by leveraging the content of site and having more sophisticated e-mail campaigns to eliminate unprofitable circulation and significantly reduce fulfillment costs, Martha Stewart, chairman and ceo said.

The company added that in the third quarter it will offer a reduced circulation niche catalog that will mail four times a year to three million highly targeted customers, said Sharon Patrick, president and coo, offering "quintessential" Martha Stewart branded themed and seasonal merchandise. This will require fewer people, simplify business, and involve less financial risk.

Though the company pledged to keep its Web site running, it will scale back operations, resulting in layoffs.

The direct segment remains an important function of the business, Patrick stressed. The "direct business is our upscale product offering," and has loyal core base of hundreds of thousands of consumers. "Meeting that need will be important for the brand. Ultimately, we think it will grow into a business segment that has a full role in the retail pyramid."

Due to the investigations of its founder, as well as the difficult economy, Martha Stewart Living Omnimedia found its sales affected last quarter.

However, Kmart's Martha Stewart Everyday generated $1.5 billion in 2002, Stewart said, and the holiday collection made almost $100 million, beating initial expectations.

This summer in Canada, Martha Stewart Everyday will offered exclusively in Sears Canada, switching from its agreement with Zellers, and this will allow broader range of product and more accessibility, it said.