Is Scandal Soiling Martha Stewart's Image?

June 17 -- Martha Stewart has built a $295 million empire selling a lifestyle of casual elegance on her television show, her monthly magazine, in books on entertaining, and as Kmart's most visible brand.

But now all that has given way to negative headlines from the insider trading investigation of the biotech company ImClone. Stewart is a good friend of ImClone's former CEO, and she sold $228,000 worth of ImClone stock the day before the Food and Drug Administration rejected the company's promising new cancer drug.

Now Stewart's company, Martha Stewart Living Omnimedia, is getting a battering. Its stock is down 19 percent for the week. Wall Street seems to be assuming the worst.

The question is, What will consumers and advertisers do? Will consumers still crave Martha's sheets and towels and recipes on blueberry cobbler? Stewart has not been charged with any crime, and as long as her legal problems don't get a lot worse, advertising critic Bob Garfield thinks they will.

"The dinner parties, the summer place in the Hamptons, insider trading — it's all part of the same package," said Garfield, of magazine Advertising Age. "I think at least if there's no photograph of her being taken away in leg irons, for the moment it's not going to do that much harm."

Revelations of labor abuses in Third World countries didn't stop Nike from being the No. 1 maker of athletic shoes. And sales of Steve Madden shoes went up, even after designer Madden pleaded guilty to embezzlement.

When the Personal Is Professional

But some argue Stewart's company is different, because its products and its CEO are so intimately entwined.

"She is not only the CEO of the company, but her public image is the principal product that her company is selling," says Christopher Byron, author of the book Martha Inc.

Kmart's CEO offered lukewarm support for Stewart today, calling her "a valued brand." Clearly for a retailer trying to get out of bankruptcy, having a cloud over your best-selling line is not a good thing.