Ad-agency flap won't hurt Wal-Mart's holidays

NEW YORK (CNNMoney.com) -- Wal-Mart's done it again. The world's largest retailer successfully raked up fresh controversy this week with its abrupt decision to fire its new ad agency, DraftFCB, just a month after awarding it a $580 million contract.

The timing seems terrible, given that December is a crucial month for Wal-Mart, which is struggling to boost slowing sales during the critical holiday shopping season - which typically accounts for almost 50 percent of the merchant's annual profits and sales.

But the retailer should be able to survive this flap mostly unscathed, say advertising and retail industry experts interviewed by CNNMoney.com. Although many retailers depend on smart, consistent advertising to get customers into stores during the holiday season, fortunately for Wal-Mart, its contract with Draft hadn't yet taken effect.

"The biggest objective for retailers is to ensure that they have a spectacular holiday campaign. Had Wal-Mart started that campaign with Draft and then fired them, it would've been a bigger problem," said one ad-industry insider who spoke on condition of anonymity.

"This is a good move by Wal-Mart," said Adam Hanft, CEO of Hanft Unlimited, a branding and advertising consulting firm. "I believe that FCB was a pretty mundane choice to start with given the enormous marketing challenges that Wal-Mart already faces."

Nor does he think that Wal-Mart's move will sour the company's overall relationship with the advertising industry.

"Given the greed and narcissism of Madison Avenue, this will be quickly forgotten," Hanft said. "Everybody's still hungry to do business with Wal-Mart."

Bill Nicholson, managing principal with A-Team Advertising Advisors, an advertising and media consulting firm, agreed. "This certainly isn't a happy situation for DraftFCB but they'll get past it," Nicholson said. "As for Wal-Mart, it's embarrassing but not catastrophic. I don't think Wal-Mart's business or reputation will be damaged by it. Wal-Mart saw a problem and responded quickly to put it behind them."

Wal-Mart (Charts) said Thursday it was reopening bidding for its multi-million dollar advertising account just days after the firing of Julie Roehm, head of marketing communications, who led the retailer's agency review process.

Roehm reportedly was forced out because she was having a personal relationship with another marketing employee that violated the company's ethics policy, and for allegedly accepting gifts like meals from companies bidding for the contract.

Hanft and others believe that there's probably a lot more that's still unknown about Roehm's ouster and Wal-Mart subsequently pulling the plug on Draft.

"I think Roehm's firing is a window into the internal strife at Wal-Mart," Hanft said. "It could be that Wal-Mart wasn't particularly impressed with Draft in the first place. But Roehm was a leading advocate for Draft. So with her departure it became easier for Wal-Mart to lose Draft."

While the agency vacuum won't disrupt Wal-Mart's advertising and marketing initiatives that were set in motion in 2006, analysts said the company should quickly resolve the review process and pick an agency soon in order to plan its 2007 strategy.

Given some recent missteps Wal-Mart has had with its high-profile PR agency Edelman, which it hired last year, Hanft suggested the retailer carefully pick what he termed a more "superior" ad agency.

Edelman's blunders consisted of creating a pro-Wal-Mart blog that didn't accurately disclose the source of the content or its funding.

Last December, the agency created an advocacy group called Working Families for Wal-Mart, paid for by Wal-Mart, to counter criticism from the union-funded groups Wal-Mart Watch and WakeUpWalMart.com. Civil rights leader Andrew Young was hired to head the group.

Young resigned a few months later after he made offensive remarks about Jewish, Korean, and Arab store owners publicly in a news interview.

"Wal-Mart realizes that its image is less relevant with today's sophisticated consumers," Hanft said. "Its brand lacks definition beyond the low-price attribute. The company's reputation is tarnished because of its labor, wage policies and its image as a small-business killer."

To offset these challenges, Wal-Mart has to improve its image up the chain of consumers. "I think Lee Scott is doing a commendable job in the area of sustainability," said Hanft. "Wal-Mart is getting into organics but they still don't have a strong merchandising strategy. Whatever new agency they hire has to address these issues. But this isn't only about hiring a new agency. Wal-Mart has to learn how to manage and direct the process."

Wal-Mart and DraftFCB's parent group Interpublic were not immediately available for comment.

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