Back From The Brink

When Shona Seifert started as president of TBWA\Chiat\Day in February 2002, the Kmart bankruptcy filing was two weeks old. Seifert had never dealt with a client in Chapter 11 in her 19 years in the business. Nor had the agency. Everything about the Kmart account looked bleak. TBWA\C\D’s books showed $5.4 million in unpaid services it had provided on Kmart’s behalf. Even further tarnishing the client’s image, Martha Stewart—a signature Kmart brand—was under fire for a questionable stock sale. TBWA\C\D and Kmart didn’t know it at the time, but things were about to get much worse.

For Fallon, whose client United Airlines filed for Chapter 11 on Dec. 10, the real crisis leading up to the bankruptcy began Sept. 11, 2001, said David Lubars, the shop’s president and executive creative director. Two United planes were involved in attacks on America. The creative brief to respond to such a situation had never been written. If United was going to survive, Lubars and Jerry Dow, United’s worldwide director of marketing communications, knew they would have to stick together.

The math didn’t add up for Chris Colbert, and he knew it. His midsize Boston agency had already lost Citizens Bank and Radisson Hotels. When one of its largest clients, Polaroid, declared bankruptcy in July 2001, the $2.5 million the client owed was too much for the faltering agency to handle. By October 2001, Holland Mark, which had boasted $200 million in billings at the peak of its 15-year existence just a year before, closed.

Typically, when money gets tight, a company’s ad budget is one of the first things cut. But when a company falls into bankruptcy, experts say advertising becomes more critical to the company’s future. If customers don’t see a company’s ad, they might think that company has gone out of business.

“It is one of those very moments where the client most needs the agency,” says John Eighmey, a professor of journalism and communication at Iowa State University and a former senior vp and manager of creative services at Young & Rubicam, New York. “It is not a time to fall back on traditional patterns of doing business. It is a time to question them.”

But client bankruptcies can be hard on agencies. They can be left holding the bag for millions in fees, production costs and media buys they made on the client’s behalf. For small agencies, the unpaid debt can be enough to force them out of business. For large agencies, it means spending money on attorneys to try to recover what they can from bankruptcy court.

“It is called being between a rock and a hard place,” says Daniel Goodman, a partner with New York law firm Hall Dickler Kent Goldstein & Wood and author of an article on the risks of doing business with financially distressed clients. “You don’t want to walk away, because a lot of these companies emerge as strong clients.”

Kmart scores with Joe Boxer

When Kmart filed for bankruptcy protection Jan. 22, 2002, the company decided to keep its ad budget intact. According to bankruptcy court documents TBWA\C\D won $2.7 million of the $5.4 million in media payments and other fees the agency was owed. The agency continued a claim for $1.7 million for other expenses. TBWA\C\D and Kmart declined comment on the agreement.

Kmart spent $243 million on advertising from January to November 2002, according to CMR.

“We said we need to do this,” says Steven Feuling, Kmart’s svp of marketing. “Bankruptcy really forces the company to look at itself in a very different light. It gives the company more ammunition to reinvent itself in new ways. Clearly the old ways were not working.”

Prior to the bankruptcy, Kmart’s ad strategy under former CEO James Adamson was based on trying to compete with Wal-Mart on price. The “BlueLights” campaign focused on undercutting competitors, but the tactic wasn’t working for the Troy, Mich.-based client. “From a marketing perspective, we had been erratic,” Feuling says.

TBWA\C\D’s Seifert says her agency’s first challenge was to persuade loyal Kmart customers to stick with the brand. “The worst thing you can do in a Chapter 11 is to have multiple messages out there confusing customers,” she says.

The ads shifted from an emphasis on price to the diversity of products Kmart offers. Under creative director Patrick O’Neill, the “Stuff of Life” campaign, which launched in early 2002, highlighted everything from pants and socks to Disney items for kids. It was the first branding effort Kmart had broken in at least five years. Consumers knew that Wal-Mart stood for “always low prices.” If customers wanted cheap chic, they went to Target. Nobody knew what Kmart stood for, Feuling says.

But it was the unemployed actor Vaughn Lowery, shown bopping around in Kmart’s Joe Boxer underwear in commercials launched last July, who galvanized the company’s employees and had people talking about the brand. Suddenly, the campy Joe Boxer campaign star was dancing on Today with Katie Couric and swapping funny stories with Jay Leno on The Tonight Show.

“Who would have thought that Kmart would have been the buzz of the advertising community last year, with everything that was happening with the bankruptcy?” says Feuling.

Feuling says Kmart knew it had to take some risks when it decided to dedicate an ad exclusively to Lowery’s funky style. “It fit the brand beautifully,” he says.

Things were beginning to look up with Joe Boxer—the brand is well on its way to becoming a billion-dollar category for Kmart, says Feuling. But then Kmart faced a new round of business challenges just as it was trying to reorganize.

In November, Kmart was forced to delay announcing a new Hispanic clothing line named for the actress and singer Thalia when her two sisters were kidnapped in Mexico. Even worse, the principal financial investor to help Kmart out of bankruptcy—Greenwich, Conn., millionaire Edward Lampert of ESL Investments—was kidnapped in January (and later released unharmed). The negative publicity continued on Feb. 3 when consumers remembered that actress Lana Clarkson, found murdered in Phil Spector’s home, had starred in a Kmart ad from the “BlueLights” campaign. “I’ve lost all my hair in this job,” Feuling says.

Despite the challenges, the company says it will emerge from bankruptcy protection in April. As for future advertising, Feuling says Joe Boxer represents the type of ads consumers will see. A new Joe Boxer campaign with the same actor, music and style will break in the spring, with a few twists the company declined to discuss. A campaign that features Thalia pitching a back-to-school clothing line for juniors is scheduled for the fall.

The end of United, or a fresh start?

United’s Dow and Fallon’s Lubars both agree that advertising was a key ingredient in helping United Airlines stay aloft, although its financial future is still uncertain. They say United’s bankruptcy filing on Dec. 9 was just a symptom of the bigger crisis for the airline industry that began on Sept. 11. Up to the terrorist attacks, United was running lighthearted and humorous spots that said flying was good. Naturally, humor was the first thing to go, Lubars says.

After scrambling to pull all United ads in the days immediately following the crisis, Dow remembers Rono Dutta, then president of United, turning to him to say: “OK, now what are we going to do?” A sense of panic set in. “I thought, who can I call?” Dow says. “There are case studies for a crisis, but nothing like this.”

United turned to Fallon. “I don’t think we could have done it without Fallon,” Dow says. “They acted almost as the customer voice for us. We were so close to the tragedy that it was hard for us to step back and think about it from the customer’s perspective.”

In 10 days, Fallon cranked out a print ad that carried a message of reassurance and condolence. “On Monday, we passed strangers without much regard,” the execution read. “On Tuesday, September 11, all that changed.”

As the company struggled to cut costs, the marketing strategy immediately changed to focus on what makes United different from other airlines. Employees appeared in TV ads talking about their commitment to the company, its services and how United has one of the youngest fleets in the country. “We had to move very quickly to rational, tangible, differentiating messages,” Dow says.

When Chapter 11 hit, Lubars says the company was already following the marketing plan put in place in the wake of Sept. 11. United had dropped television ads three months before. When United failed to secure a federal government loan, Fallon’s strategy emphasized that bankruptcy was not an ending, but rather a new beginning. The agency unveiled a print ad called “Chapter 11,” with one of the numbers scratched out to read “Chapter 1.”

“Sure, it’s been a hard time for us, and we’d rather not have been in the position of having to file for bankruptcy protection,” the ad said. “But that doesn’t mean we have any less conviction in our ability to successfully overcome our current situation and emerge a stronger company.”

Sources say United will spend less this month than it did at this time last year. In March 2002, United spent $13.9 million, according to CMR.

Dow says that in the end, Sept. 11 forced the company to change its business practices, and he sees some hopeful signs of recovery. The U.S. Department of Transportation announced last month that United was the No. 1 American airline in domestic on-time performance for 2002.

United and Fallon declined comment on how much money the client owes the agency. Sources say Fallon is likely due approximately $1.5 million from media buys and other production costs dating to the three months before United’s bankruptcy filing.

Lessons in adversity

The lesson Chris Colbert says he learned when Holland Mark shut down was that agencies need to pay as much attention to managing the dollars as they do to their creative work.

“The day-to-day is all about creativity, and there is a dynamism that makes the financial management certainly boring and almost distasteful,” says Colbert, now a Boston-based brand consultant. “I’m trying to figure out the client’s overall branding strategy, and I don’t want to have a conversation about how your bill is 30 days overdue.”

Colbert still remembers the pit that developed in his stomach when it became clear his agency would not make it. “Your palms get sweaty and your mouth gets dry,” he says. “And you realize that after 15 years of blood, sweat, tears and a lot of good times, the ride is about to come to an end.”