It could fall even further. Since Stewart took her empire public in 1999, investors have worried whether the firm could survive if its namesake suffered, say, a disabling injury. In many ways her conviction is even more harmful: besides removing her from management, it taints an enterprise built on wholesomeness and good taste. Even before the verdict, ad pages at Martha Stewart Living were down 30 percent; last week the company announced its first annual loss. Now that defection is expected to become a stampede. “The verdict gave advertisers the answer they were looking for,” says Robin Steinberg, top print- media buyer for Carat U.S.A. “There is no gray area here.”
The company conceded that a guilty ruling would likely mean bigger ad problems–it could completely imperil its key TV franchise. Some broadcast advertisers negotiated “morality clauses’’ as a way out if Stewart goes to jail and can’t appear on the tube. The company hopes loyal customers will keep it alive. People buy Martha’s linens and tablewares because they love the quality and style, management says, and that will continue even without Martha. The company has also shown some success at uncoupling Martha from its wares. A new magazine, Everyday Food, is doing well, with very little Martha in its pages. Another non-Martha mag, Organizing Good Things, is in the works. Still, skepticism abounds. “The company is facing an uphill battle,” says analyst Laura Richardson of Adams, Harkness & Hill. Although the firm has a big cash reserve–$169 million–and little debt, “this really is a worst-case scenario,” she says.
Mafia bosses are sometimes able to run their empires from behind bars. Some observers say Martha’s best hope lies in the opposite strategy: cutting loose her progeny, recognizing that their odds of survival increase as she recedes from sight. “She has to step back, stop fighting and pass on a little of her magic to the people around her,” says James O’Rourke, a business professor at Notre Dame. The question now is whether that magic has turned into a curse.
