Sean Dee, director of Levi's brand marketing, said through a Levi Strauss spokesman that "Route 66 is not going to be handled by [ TBWA/Chiat/Day] because of our exclusivity agreement."
A spokesman for TBWA/Chiat/Day's San Francisco office said only, "the issues have been resolved with both accounts." He would not discuss that resolution.
A Kmart spokeswoman, however, maintains there is no conflict.
She said the retailer hired TBWA/Chiat/Day "to help us build the Kmart brand and also to build our proprietary brands," including the $1 billion Route 66 line.
The spokeswoman added that the agency has already begun planning new strategies for the apparel business. "There is no conflict from our vantage point."
Earlier, Kmart VP-Advertising and Marketing Larry Davis said the retailer was comfortable coexisting with Levi's at the agency.
`IT DOESN'T BOTHER US'
"It doesn't bother us," he said, since the accounts are housed at different offices. TBWA/Chiat/Day's New York office won the $100 million Kmart account in late September. The shop's San Francisco office won Levi Strauss' $72 million jeans account in 1998.
Route 66 is a 3-year-old private-label Kmart brand that competes with J.C. Penney Co.'s Arizona jeans, as well as Levi's jeans. Kmart also sells VF Corp.'s Wrangler jeans, another Levi's competitor. Kmart spent $15 million this fall on a back-to-school campaign for Route 66 apparel, created by former shop Campbell Mithun, Minneapolis.
Levi Strauss has not been known for being easy on the conflict issue. The company even was reluctant to approve the participation by one of its agencies in a review by one of Levi Strauss' major retail partners, an executive familiar with the situation said.
The jeansmaker's CEO, Phil Marineau, on the job for a year, has told agencies he would give them at least a year before considering agency changes. Mr. Marineau has embarked on an ambitious three-year plan to turn the company's fortunes around. So far, he has made limited headway. Sales have continued to slide, down 8% to $1.13 billion for the quarter ended Aug. 27.
Profits have improved somewhat, and the company reduced its debt load. Kmart shares have been trading at about $5, down from their 52-week high of $12.25.
Even if it loses Route 66, TBWA/Chiat/Day has a chance to do some other new work related to the Kmart win, for the Martha Stewart line of home products. Since linking with the retailer, Ms. Stewart has produced ads for the Everyday line in-house. But Carl Johnson, president-CEO of TBWA/Chiat/Day, New York, said the agency will have more of a role in those campaigns going forward.
"The Martha Stewart advertising will more strategically link to the Kmart overall strategy," said Mr. Johnson. "Who actually executes the advertising is not clear yet."
Contributing: Jon Fine, Richard Linnett, Kate MacArthur