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Kmart, TBWA\C\D: How a Bright Union Faded to Black

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As divorces often do, Kmart and TBWA\Chiat\Day's split came down to money—specifically, $2.4 million the New York shop claimed it was owed. But court papers reveal that distrust had also crept into the nearly three-year marriage, triggering accusations of blackmail, bad faith and breach of contract.

Caught in the middle were TV spots for Kmart's Joe Boxer line. Citing three months of unpaid bills, the Omnicom shop last month refused to release the work. The Troy, Mich., retailer got a state-court judge in Michigan to force the release, but TBWA\C\D then got a federal court to set aside the order. The two sides then reached an undisclosed settlement out of court, and the work broke, as scheduled, July 27 [Adweek, July 28].

Since then, Kmart has moved forward with a review of its $270 million account. It heard presentations last week from at least five agencies: WPP Group's J. Walter Thompson in New York, Interpublic's Campbell-Ewald in Warren, Mich., Grey in New York, Doner in Southfield, Mich.; and Havas' Euro RSCG MVBMS Partners in New York, sources said. The pitches took place at the Hotel Jerome in Aspen, Colo., where Kmart's primary investor, ESL Investments, was already meeting. The client could decide as early as this week (see page 4).

In its court action, Kmart cited the review as TBWA\C\D's motivation for holding up shipment of the spots. As evidence, it pointed to a July 17 letter from TBWA\C\D New York president Shona Seifert to Kmart CEO Julian Day urging the client to stick with the agency. Seifert made the 11th-hour plea after the retailer began calling other agencies.

"We have validated six alternative brand positionings on Kmart's behalf and worked night and day to be ready to launch the new positioning in time to impact the critical holiday season," Seifert wrote. "Julian, please don't risk the holiday season in order to see if there are a few more positioning ideas that might be interesting."

Seifert added that her agency had created "enormous value" for Kmart, citing its "Joe Boxer Guy" campaign, 17 percent savings in the cost of media buying and a 40 percent reduction in the agency's monthly fee. She also noted that TBWA\C\D had been working without a contract since April.

Seifert also mentioned the "outstanding" fees. More blunt, however, was a July 21 letter from TBWA\C\D outside counsel Ron Urbach to ESL president William Crowley, which said, in part, "Disgorgement of amount paid is not supported by the law or evidenced by the facts."

Kmart cited the letters in its brief, claiming TBWA\C\D was "attempting to blackmail plaintiff Kmart into paying $2.4 million that Kmart does not owe" and "knowingly jeopardizing Kmart's ability to communicate with its customer base at a critical juncture two and a half months after emerging from bankruptcy." Kmart characterized Urbach's letter as "an effort to place a gun to Kmart's head."

TBWA\C\D dismissed that notion. A voicemail from Crowley to Seifert, not calls to other shops, sparked its insistence on being paid for past services, the shop said in federal court. According to the brief, Crowley said in the July 18 voicemail, "The unpaid billings that you have with respect to Kmart, we don't recognize those. ... That expense will not be paid."

The troubles stood in stark contrast to the feeling just two weeks before the split, when TBWA\C\D made a presentation to Kmart outlining how it could handle all of its marketing needs, including more than $600 million worth of unglamorous but profitable print-ad duties (mainly newspaper ads and sales circulars) now at Meridian Advertising in Troy, said sources. Then Kmart started flirting with other shops, and money became the issue.