Sears, Roebuck & Co. has cut the fee it pays Ogilvy & Mather and Y&R, and its future marketing plans are hazy. JWT, which has watched a steady stream of clients leave in recent years, is now in danger of losing 60-year client Northwestern Mutual. The cumulative result is that even though they have won incremental work from existing clients in recent years, the shops need to focus more on new business, crucial for long-term growth and the ability to attract talent.
"You have to grow," said Barry Krause, who came in as president of JWT's Chicago office in February 2003. "Client preservation and new business is the lifeblood of an agency. It creates energy within the agency."
That's easier said than done. Chicago steadily has lost corporate headquarters to acquisitions over the past 10 years and local marketers increasingly are willing to work with out-of-town agencies. Branch offices of major agencies face additional challenges: Clients often want to work with the New York mother ships, and the headquarters office often wants dibs on new business.
"There are some clients who will always want to work with the headquarters office," said search consultant Joanne Davis, referring to satellite offices generally and not WPP specifically.
WPP's Chicago outposts all serve big clients and big brands. JWT handles brands for Kraft Foods and Nestle. Ogilvy handles Sears, BP, Unilever's Dove and Kimberly-Clark's Kotex. Y&R handles Sears and is one of the Miller Brewing Co. roster agencies for Miller Lite and Miller Genuine Draft. Those clients make them important to the networks. But it works both ways: Ties to a big client put them at risk when those clients go away or scale back.
That's the danger with Sears, which merged with Kmart Holdings Corp. earlier this year to create Sears Holdings Corp. Sears Holdings, Y&R's biggest client and one of Ogilvy's largest-saw its stock drop nearly 9% June 7 after the company reported a loss and tepid sales.
The retailer, which spent $600 million in measured media last year, has already inflicted pain on agencies, cutting the fee it pays Y&R and Ogilvy in April. In response, Y&R cut freelancers and laid off a few staff. Ogilvy laid off about 12 people, or 6% of its staff, last month but didn't specify what drove the cuts beyond "a general softness of the branding business of clients." Sears declined to comment.
The WPP agencies have taken a number of hard knocks in recent years. Over the past three years, JWT, Chicago, has lost its $25 million Miller Genuine Draft account, $50 million OfficeMax account and $15 million Western Union business. In that same span, Y&R lost its estimated $19 million Jim Beam account and estimated $20 million Nascar account. Ogilvy split with the $15 million Good Humor business.
To be sure, the Chicago shops have had some successes as well. Ogilvy has won plaudits for its work on Dove, which is growing, and picked up Pall Mall, Papermate and direct work for Allstate.
Y&R, Chicago, has maintained a strong creative reputation and in the past two years has won the $25 million Orbitz business and Discovery Channel's Travel Channel. And JWT has stabilized a shaky relationship with its biggest client, Kraft Foods, added the Ritz global business and picked up the $4 million Illinois Tourism Board account and Nestle's estimated $46 million red-box frozen-dinner account.
But the agencies need to do more to grow rather than hold steady. Satellite offices that try to win new business, rather than simply service existing clients, need to distinguish themselves from the New York headquarters.
Y&R is trying to do that with its well-regarded creative product, said Kary McIlwain, managing partner of the Chicago office. "New business is more than just revenue for us; it gives us new creative opportunities," she said.
Satellite offices trying to win new business while keeping existing clients happy have to distinguish themselves from headquarters