Setbacks Raise Questions About Lowe's Viability

In a London dinner with Lowe CEO Jerry Judge last Wednesday, IPG chief David Bell reassured the Irishman, thanking him for his passion in tackling the U.S. market. "What I said to Jerry was, 'Don't let the team get demoralized. You're definitely on the right track,' " Bell said. The support, capping a meeting of some 150 Interpublic Group agency executives, comes at a critical time. In just the past two weeks, Lowe has seen three major clients—worth $475 million in total billings—launch reviews: Braun, HSBC and Verizon Wireless. And while Lowe was cheered publicly, some insiders privately wonder if it's time for IPG to rethink its attempts to build a larger, global player.After all, Publicis CEO Maurice Lévy bit the bullet when he dismantled struggling midsize shop D'Arcy—to strengthen his other networks—after acquiring its parent, BCom3, in late 2002. Cordiant Communications Group, with its Bates flagship, also grappled with a lack of critical mass, falling victim to debt last summer. Within the IPG family, Lowe is still viewed as a problem child. To add scale and reach to its legacy as a creatively driven alternative to the big global networks, Lowe has undergone two mergers in the past five years, but it has lost several large U.S. accounts—Burger King and Verizon Communications, to name a few—and remains relatively small. Its global revenue is about $550-600 million—compared with, for example, sibling McCann-Erickson WorldGroup's $3 billion.Some insiders counter that in the past year, Lowe has raised profit margins and revenue. "They're not small," Bell insisted. "It's just that they don't choose to be measured by league tables." The CEO said he has no plans to merge Lowe with another IPG agency or break it up and redistribute its clients, as WPP Group did with Bates after acquiring CCG and Lévy did with D'Arcy. As for the client reviews, he said, "It's a time when, obviously, they have some pressure, but I think they're up to it." Last week, Verizon Wireless moved its estimated $300 million national creative account account to sister IPG shop McCann-Erickson, just days after launching its review and three months after reaching out to McCann and IPG's Hill, Holliday, Connors, Cosmopulos for ideas. (Lowe will not take part in the review.) "These are tough things to confront—and we recognize that in some ways, the PR is absolutely the worst side of it," acknowledged Judge of the loss, the first major fallout from the agency's merger with Bozell last February. Judge added, however, that Lowe is "financially healthy—it's profitable, and its efficiency is growing." U.S. CEO Tom Bernardin, the executive most closely associated with the account, asserted the effectiveness of the 2-year-old "Test Man" campaign. "It's frustrating to lose a piece of business when the advertising has developed results that other carriers only dream of—a 22 percent increase of their total customer base," he said. Gary Goldsmith, U.S. chairman and chief creative officer, noted that, "Agencies win and lose business every day." Goldsmith repeated what he had told staff in an e-mail: "We have to take our medicine, cringe, regroup and move on." Lowe will be an integral part of the IPG team vying with Omnicom, WPP and Publicis groups pitching HSBC's consolidated $600 million-plus global marketing-services business. And Lowe's London office is defending its estimated $50 million Braun account against BBDO and Ogilvy & Mather.

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Setbacks Raise Questions About Lowe's Viability

Andrew McMains

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