A Critical Part Of JCPenney's Turnaround Plan Could Fall Apart This Week

JCPenney CEO Ron Johnson was counting on a home goods line with Martha Stewart to save his brand.

But that gamble could result in an even worse situation at JCPenney: empty shelves.

When JCPenney entered into a contract with Stewart, she already had a longtime deal with Macy's, and now Macy's is suing to stop JCPenney's line from ever hitting shelves in May.

That scenario seems likely at this point, reports Anne D'Innocenzio at the Associated Press:

New York State Supreme Court Judge Jeffrey Oing told Penney's attorneys on Monday that the chain took a risk by ordering towels, cookware and other products from the company that home diva Martha Stewart founded. In fact, Oing said he could force Penney to stop the products from heading to the shelves even as they come off the docks.

"That's the risk your client took," Oing said, according to the AP. "Ultimately, you guys played it out."

Johnson said in court last week that he was given a "mandate to transform" JCPenney when he took over as CEO last year, and he saw the home section as a way to bring customers in.

"Martha could be the foundation of a reinvented home," Johnson wrote in an email unveiled in court last week. "Macy's deal is key. We need to find a way to break the renewal right. Martha Stewart is Macy's top brand of home goods, CEO Terry Lundgren testified, according to Reuters. Sales increased 8 percent last year, double the rate of Macy's.

He had admired Stewart for years, and knew no one else had her power, WWD reported.

But Macy's has a strong argument that Stewart violated her contract, meaning that the line that's currently in production for JCPenney might never hit shelves.

And JCPenney ending up with empty shelves in its home goods section would be another catastrophe.

Last week, the company reported what was arguably the worst quarter in retail quarter in history, with sales down 32 percent.