Bernstein Puts Smiley Face on a Life Without Wal-Mart

Agency Insists End of Era Opens Doors -- at Least 12

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Bernstein-Rein's relationship with Wal-Mart began in 1974 with a handshake from Sam Walton on his now-famous trip to the shop's Kansas City, Mo., headquarters. It ended with less ceremony Aug. 7, when a phone rang at the agency.

Wal-Mart Stores' decision to cut the incumbent from its $580 million ad review guts a venerable regional ad agency of its biggest client and the one on which it's based its reputation-not to mention a business the independent shop helped grow from a rural retailer into a global behemoth.

Last week, Chief Operating Officer Steve Bernstein talked like a man routed by a tornado who, after surveying the scene, sees not wreckage but the chance to build a new home. "We can now get out of neutral," he said. "To the extent that we have a national reputation, it's as the Wal-Mart agency, and now we have the chance to relaunch Bernstein-Rein."

Part of his hopes are in the fact that a sprawling retail account like Wal-Mart conflicted the agency out of as many as a dozen categories that it can now pursue. Despite that, rebuilding won't be easy.

"It's devastating," said one agency-search consultant. "They've used Wal-Mart as a credential to get a number of regional and b-to-b clients. In one sense, they don't have that credential anymore. In another sense, they do retain all that retail experience."

Bernstein-Rein is the sixth-largest independent agency in the U.S., with 350 employees and revenue of $59 million, up about 9% in 2005, according to an Advertising Age analysis. The agency won't disclose how much of that revenue came from Wal-Mart, its largest client, but estimates range as high as 30%. It claims about $550 million in billings, of which Wal-Mart could be as much as half.

Wal-Mart at the end of January departs a client list that included regional work for McDonald's, USAA and Interstate Bakeries; Bernstein is currently handling campaigns for the launches of the retailer's pharmacy and organic foods and its holiday campaign. Mr. Bernstein said he's not planning any layoffs and is still hiring for five or six positions.

This week, he said, the agency plans to announce the hire of an executive to run a direct-marketing offering, and the agency's plans to build new offices remain unaffected.

iconic relationship

The relationship between Wal-Mart and Bernstein-Rein, thanks in part to that handshake from Sam, has been an iconic one in the ad industry. It was forged when Wal-Mart consisted of a few dozen stores and endured a period of tremendous growth for the retailer, whose marketing leadership retained the regional shop even as the retailer became a global juggernaut. That kind of bond isn't typical in a business where marketer-agency relationships seem to have the lifespans of fruit flies and where regional agencies struggle to make it with big marketers.

Things changed as Wal-Mart, forced to find growth in the sales of higher-margin products, backed away from the discount-price messaging it pushed for so long. Recently, in the face of increasing pressure from more innovative marketers such as Target, Wal-Mart changed its marketing leadership, naming Target veteran John Fleming as CMO. One key sign of the times was the new leadership's decision to largely chuck the feel-good, price-slashing ads featuring the much-derided smiley face crafted by Bernstein-Rein.

In April, it called a review of its agencies.

"The handwriting was on the wall when Fleming was named," said Jennifer Mann, a business reporter for The Kansas City Star. "What was surprising was that Bernstein-Rein didn't keep at least some of the business. It's pretty clear they want to go with a mega-agency."

Five shops, including incumbent GSD&M, are vying for the Wal-Mart business. The challengers are Ogilvy & Mather, Draft FCB Group, Saatchi & Saatchi, and Martin Agency. A decision is expected next month. Wal-Mart declined to comment on the review.
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