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An integrated media and merchandising company devoted to enriching the changing lives of today's women.
The arrangement between Kmart and MSLO -- which goes back to 1997 -- has largely been a one-way street. Kmart signed the contract when it was in bankruptcy and, to put it charitably, the retailer was not in a strong position to dictate terms. So Kmart agreed to pay a minimum amount in royalties to MSLO: $40.4 million in the year ending Jan. 31, 2003, and a whopping $65 million in the year that ended this January. During that time, Kmart's situation has not improved: It merged in 2005 with Sears Holdings after closing stores and watching sales decline. For every year between 2003 and 2007, Kmart didn't sell enough Martha Stewart Everyday products to meet the minimum royalty promised to MSLO. And so those payments are about to plummet: Unless Kmart has the turnaround year of the century and Martha's products fly off the shelf, it won't be required to pay MSLO more than $20 million in 2009. That's $45 million less than this year, a drop that will all but eviscerate profits in the company's merchandising division.
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