But the implication of an ethical breach by top Wal-Mart marketing executive Julie Roehm now leaves DraftFCB and its brash chief Howard Draft twisting in the wind, industry sources say.
No matter what played out between Roehm and the agency she picked two months ago to create Wal-Mart's newest ad campaign, DraftFCB needs to act quickly to restore its reputation, say public relations experts who specialize in crisis communications.
If Draft and his team determine the agency did nothing wrong, they should write a strongly worded letter to Wal-Mart and make it public, sending copies to their clients, prospective clients and employees, advised Robert Dilenschneider, head of the Dilenschneider Group in New York.
"They've been fired. They have nothing to lose," he said in an interview Friday.
If Draft concludes the agency did cross a line somewhere, he should express outrage and remove the people involved, Dilenschneider said. Draft also should ask Wal-Mart to reconsider its stand that DraftFCB won't be allowed to bid in the new competition for the giant discount chain's account.
"They shouldn't wait until Monday. They should do it today," Dilenschneider said.
On Thursday, Wal-Mart fired DraftFCB and said it would hold a new shootout among ad agencies because of "new information we have obtained over the past few weeks." Wal-Mart did not expand on the nature of the information.
But published reports suggested Roehm's exit early in the week was related to violations of Wal-Mart's strict ethics policies, which prohibit employees from accepting anything of value--a Christmas gift, a meal or a cup of coffee--from vendors.
In September, Roehm was invited by DraftFCB to an AdForum dinner at Nobu, an expensive Japanese restaurant in New York City. The agency made its presentation to a group of consultants who help clients conduct ad agency reviews. Afterwards, Roehm made her own speech, praising DraftFCB's integration of direct-mail and advertising expertise as a new model for the industry.
Normally, advertisers, such as Wal-Mart, are not invited to attend these presentations, which provide an opportunity for ad agencies to tout their capabilities to the consultants, who are supposed to act as impartial facilitators for their clients, industry players say.
Roehm's enthusiastic endorsement of DraftFCB raised eyebrows, they said, because it occurred several weeks before Wal-Mart announced its choice of an agency. Roehm, who had been at Wal-Mart less than a year, came out of the auto industry, where wining and dining of customers is a common practice, as it is in many others.
Wal-Mart not talking
Wally Petersen, DraftFCB spokesman, said the agency is unaware of what information Wal-Mart has and suggested those questions are best put to the Bentonville, Ark.-based retailer. However, Petersen said the agency has learned something from the experience.
"Would we invite a client to another AdForum presentation? The answer is no," he said.
DraftFCB isn't worried that its reputation has been damaged, Petersen said.
"We're still disappointed, but we're focused on the future. We have a very good, strong reputation for delivering results for clients and for being a good partner," he said.
Howard Draft was traveling Friday and could not be reached for comment.
In a memo Thursday, Draft told employees they "should all remain incredibly proud of the fact that after a grueling five-month review, we won this business against dozens of worthy competitors." He urged them not to let "this situation shake our confidence. Our best days are ahead. We can feel it."
A Wal-Mart spokeswoman said the company does not intend to expand on its reasons for pulling its business from DraftFCB.
"We are not going to disclose any details," said Wal-Mart spokeswoman Mona Williams.
DraftFCB was formed in June by the merger of direct-marketing agency Draft with ad agency Foote Cone & Belding. The combined firm is part of the Interpublic Group of Cos., a company whose stock trades on the New York Stock Exchange. Interpublic's stock closed up 6 cents, to $11.60 per share, Friday.
DraftFCB's ouster may be related more to Wal-Mart's failed strategy of reaching out to higher-income customers than it is to violations of Wal-Mart's employee policies, several retail experts and analysts said.
"Wal-Mart's lifestyle advertising is all wrong. It shows in the sales," said Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment banking firm based in New York City. "If the strategy was right, clearly they would have overlooked Nobu. It's just not that serious."
Retail consultant George Whalin agreed there must be more to the story.
"You don't go out and search for an ad agency, voice your confidence in them and then throw the person and the agency out for a couple of lunches. It's not credible," Whalin said.
Changing strategies
Roehm, 35, was in the process of a radical makeover of Wal-Mart's long-standing tradition of using low prices to bring customers to its doors rather than relying on expensive advertising campaigns.
Wal-Mart also was changing direction in another way. It was attempting to broaden its already huge base of customers by attracting more middle-class shoppers by offering trendier, more fashionable apparel. But many loyal Wal-Mart customers disliked the new clothes and skinny jeans, and said so.
"They just don't attract 25-year-old trendy women. Their customers are older women. They're not skinny-jeans buyers," Whalin said.
Under Roehm's direction, Wal-Mart went even further in the direction of high fashion, staging a fashion show in New York this fall and buying an eight-page ad insert in Vogue magazine. There was talk that Wal-Mart was in talks to acquire department store brand Tommy Hilfiger.
Of course, the new strategy preceded Roehm and was much broader than just apparel. A handful of Wal-Mart stores feature sushi bars, designer coffee and bottles of wine costing hundreds of dollars.
"They lost their minds," Whalin said.
In November, Wal-Mart announced its same-store sales fell 0.1 percent, its first down month in a decade. The disappointing results have shaken Wal-Mart's increasingly tenuous confidence in its fashion-forward direction, retail experts said. Wal-Mart is known for conducting lots of experiments and quickly pulling the plug on those it concludes aren't working.
As Roehm was leading the search for a new ad agency, she planned to continue Wal-Mart's move upscale, and she wanted proposals that would accomplish that without alienating the chain's core customers, industry players say.
Deutsche Bank Securities media analyst Paul Ginocchio told clients Friday that he believes Draft's proposals to reposition Wal-Mart may have been "too much of a break" from Wal-Mart's past.
He also said he believes DraftFCB will be able to survive the loss of the account. The agency was set to take over Wal-Mart's business in 2007 and was planning to add 150 to 180 positions in Chicago to handle it, but those hires were not complete.
But Wal-Mart said people are overinterpreting its moves, and that it never really tried to attract more upscale shoppers.
"We have found the thing that appeals to everyone is price," said Wal-Mart's Williams. "We will continue to emphasize price leadership on the hottest holiday items around."
