The retail giant has dropped Draft FCB as its ad agency of record, just six weeks after handing it a $580 million account
A month ago, Howard Draft was the unexpected toast of Madison Avenue and a hero within struggling ad agency holding company Interpublic Group (IPG). He was riding high, having snared the $580 million Wal-Mart Stores (WMT) account just months after winning an internal power play that made the direct-marketing executive CEO of the recently merged Draft Worldwide and ad agency FCB.
Now, just six weeks after announcing its choice, Wal-Mart has cut Chicago-based Draft FCB as its advertising agency of record. The news follows the abrupt departure of two Wal-Mart executives, Senior Vice-President of Marketing Communication Julie Roehm and Vice-President of Communications Architecture Sean Womack. Roehm had been in charge of leading Wal-Mart's agency selection process earlier in the summer, and Womack had helped guide the project. Interpublic's stock closed 6.4% lower on the news, at $11.54, on Dec. 7, with more than 16 million shares changing hands. Wal-Mart closed down 0.4%, at $46.37.
"Earlier today we notified Draft FCB that we decided to reopen the bid process for our advertising account and that it will not be eligible to participate," Wal-Mart spokesperson Mona Williams told BusinessWeek.com. "It is the result of new information we've obtained over the past few weeks." Williams declined to elaborate further on the nature of that new information.
Violating Industry Practices
The dismissal, at least in part, was likely due to Roehm's presence at a Draft/FCB presentation and a lavish dinner with consultants who handle agency reviews for advertisers, BusinessWeek.com has learned. Roehm attended the event, held in mid-September in New York City, as well as a dinner at tony Manhattan restaurant Nobu that followed, while she was still in the middle of the agency review (see BusinessWeek.com, 11/13/06, "Mad Ave's Man of the Hour"). Roehm's attendance, first reported on BusinessWeek.com, was a breach of accepted industry practices since the agency was competing for Wal-Mart's business, as well as being an apparent violation of the retailer's official policies. Roehm declined to comment.
"I think most of the attendees at the event were flabbergasted that she [Roehm] was practically a guest of honor and took part in Draft/FCB's actual presentation at a time when she was still reviewing other contenders for a very large account," says Linda Fidelman of consultancy Advice and Advisors, who was at both the presentation and dinner. Attending the Nobu dinner was likely a violation of Wal-Mart's strict entertainment policy, which bans employees from accepting any food, gifts, or alcohol from potential vendors.
"Howard [Draft] feels very bad about all this," says IPG spokesman Philippe Krakowsky. "But it doesn't detract from what he is doing as leader of the agency."
Attention New Shoppers
The backflip on the ad agency comes in the midst of a major brand overhaul for Wal-Mart. The world's largest retailer has long relied solely on low prices to sell its goods, but lately has been trying to change its image in the eyes of consumers, and encourage shoppers to turn to it for more than just low-margin basics like office supplies and hardware. The retailer wants to attract shoppers looking for big-ticket items like electronics (see BusinessWeek.com, 9/19/06, "Wanna Be Wal-Mart's Ad Man"). In the past year, Wal-Mart has launched six different types of customized stores to attract different demographics, from inner-city residents, to affluent suburbanites, to rural shoppers, long its mainstay.
Roehm and Womack were both only recently hired by Wal-Mart. Over the past year, the company has assembled a new marketing team in charge of revamping the brand, including Roehm, Womack, and former Frito-Lay (PEP) Chief Marketing Officer Stephen Quinn. The team worked under Wal-Mart Chief Marketing Officer John Fleming, who was himself appointed in April, 2005. Roehm's departure came just over 10 months after she joined from DaimlerChrysler (DCX).
Wal-Mart will now re-open its review to other agencies. Wal-Mart spokesperson Williams says the company expects to make a decision on a new ad agency in January. "Because of the work done during the original selection process, this new review should move quickly, and we are open to including another Interpublic group agency in the selection process," she said. Williams says that Carat, the agency selected to perform media buying for Wal-Mart, has been cut as well, but will have the opportunity to re-apply for the business.
The candidates most likely to duke it out for Wal-Mart's business are the three agencies that made it to the final round of Wal-Mart's agency pitch: WPP-owned Ogilvy&Mather (WPP), the Martin Agency (another Interpublic unit), and Omnicom-owned GSD&M (OMC), which had been Wal-Mart's agency of record for the past 19 years (see BusinessWeek.com, 10/9/06, "Wal-Mart, Please Don't Leave Me"). Wal-Mart's Williams says the company is "working through the details," and had not determined whether it would accept pitches from additional agencies or require new material from those that previously took took part in the pitch process.
Wal-Mart says any costs incurred from terminating the relationship with Draft FCB will be minimal. But the dismissal clearly means further delays for the giant retailer's marketing arm at a time when it can't afford to lose momentum. "They'd likely just be in the concept testing stage, getting focus groups together and so forth," says Marek Lis, North America partner for Aprais, a consultancy that analyzes relationships between advertising agencies and clients. But Wal-Mart, according to Draft sources, was counting on getting a new campaign launched by February. By changing lanes, Wal-Mart will have to wait.