Life Without Wal-Mart

 

As the story goes, Sam Walton drove his pickup north on U.S. Highway 71 from Arkansas to Kansas City in 1974. He had plans to expand his new Wal-Mart chain into just about any town with a traffic light. What he needed was a pitchman.

Walton drove to the Plaza office of Bernstein-Rein, a small ad agency of about two dozen associates that had opened a decade earlier. Walton had chosen Bernstein-Rein for one reason: a simple ad he’d seen for the now-defunct Milgram Food Stores. It featured “Janie from Milgram’s,” who did nothing more in the commercial than list that week’s deals. Walton knew that as his company went national, he wanted commercials that looked as if they’d been produced by a local store owner. When Walton arrived at Bernstein-Rein, he had one request: “I want Janie.”

Agency co-founder Bob Bernstein wasn’t immediately impressed by Walton. Bernstein, who’s now 66, recalls telling Walton that actress Janie Fopeano wasn’t for hire. “You can’t have Janie. She’s under contract.”

After Walton got in his pickup and headed back to Bentonville, Arkansas, the first thing that Bernstein did was call his accountant. “Check this guy out,” he said. “Find out if he’s for real.”

Wal-Mart had been in business for just 12 years, but in 1974, the retailer already had 72 stores and that year would report $350 million in sales. The business model was something entirely new: Walton was opening stores in rural America, places like Claremore, Oklahoma, and Sikeston, Missouri.

Bernstein had reason to be skeptical. His own father had been an entrepreneur who was always opening some kind of new store — and the businesses always failed.

But Bernstein was curious about Wal-Mart’s operation, so he drove down to the headquarters in Bentonville. “I got there, and they had this office in a modular building,” Bernstein recalls. “The receptionist sat at a folding table. There was a coffeepot in the corner with a sign that said ‘five cents.’ I said, ‘This is a company with $350 million in sales?'”

It was clear early on that Bernstein-Rein and Wal-Mart had the same ideas about advertising. The agency specialized in the “real people genre” of commercials, perfect for the folksy ads that Walton wanted — ads that would help his chain appear smaller than it had become.

Bernstein found an actor named Dick Guthrie. Like Janie, Guthrie simply read that week’s specials. The spots often showed him standing in the aisles of a store, wearing clothes that seemed to have been pulled right off the nearby racks. Guthrie had bushy, curly hair and a mustache that hung over his mouth. He had no accent, so he could have lived in any town. While Janie from Milgram’s was under contract, the Wal-Mart ads sometimes featured her sister, Suzie Halgren of Des Moines. The ads concluded with an outside image of the warehouse-looking stores. The campaign ran for a decade.

Bernstein-Rein continued to oversee many of Wal-Mart’s major ad campaigns as the chain grew from 75 stores to 3,800 today. The agency developed “Buy American” in the 1980s, and 10 years later devised the smiley face for TV spots and just about every Wal-Mart rack. Last year, Bernstein-Rein handled half of Wal-Mart’s $578 million advertising account. That account helped Bernstein-Rein grow into the country’s 36th-largest ad agency.

Even as Wal-Mart went national, Bernstein-Rein helped the chain produce commercials that made it appear to be a local store, such as the commercials below.

But Wal-Mart’s global domination of the retail market has earned it widespread criticism. And Bernstein-Rein was implicated, accused of producing ads that lied for Wal-Mart. Throughout this 32-year partnership, Bernstein defended the honor of Sam Walton’s company.

That loyalty didn’t guarantee him Wal-Mart’s business. In August, Wal-Mart ended its relationship with Bernstein-Rein and gave its business to a Chicago firm called Draft FCB.

The stakes couldn’t have been higher for Bernstein. The Wal-Mart account made up half of the agency’s $553 million in billings last year. At the same time, Bernstein had begun building the new $116 million West Edge development near the Plaza to house his ad agency, a hotel and retail space.

Bernstein-Rein claims that about 50 of its employees worked directly on the Wal-Mart account. Several of the agency’s employees who spoke with the Pitch fear heavy layoffs.

This week, Bernstein-Rein is expected to announce a “rebranding” of the company, with a new logo and a new approach to advertising. The announcement is expected to include several new contracts, including video-game giant Ubisoft. More accounts are expected after the first of the year.

The new deals are major wins for Bernstein-Rein, but it’s unclear whether they’ll equal the Wal-Mart contract.

Still, several Bernstein-Rein employees who spoke to the Pitch were relieved to be finished representing one of the world’s most reviled companies.

Bernstein, however, has taken the loss personally.

Bob Bernstein settles into a small booth at Winstead’s on the Plaza. Bernstein spent weekends here when he went to Paseo High School, and now it’s one of his lunchtime staples (along with Oklahoma Joe’s and McCormick & Schmick’s). He’s wearing a red silk shirt, tan slacks and frameless glasses; his gray hair is combed back. Bernstein doesn’t pick up a menu; he always orders the same thing.

He starts talking about his father. Lou Bernstein was the son of a mule skinner in Natchez, Mississippi. He joined the Navy at 15 and, afterward, ended up in Kansas City, where he opened a string of unsuccessful businesses.

Lou Bernstein called himself “Joe” in his business life. He had a car battery shop at Woodland and Truman. He sold Christmas trees and Louisiana pecans from the corner. He opened a Dairy Zip right before Dairy Queen came in. He opened a Whopper Burger just as Burger King got big. “My dad was never very terribly successful,” Bernstein recalls. “He paid the bills — barely.”

Bernstein orders a single with everything, and the “special” chocolate milkshake. He takes out a few bills and puts them under his left elbow. He spots somebody coming in the back door. “You know Henry Bloch? He just walked in,” he says. “I’m going to go say hello.”

Bernstein returns and resumes his story. He was 13 when he got his first job at the Kansas City Zoo. He sold peanuts on Monkey Island for 10 cents a bag, three for a quarter. He sold shoes when he was 14. In college at the University of Oklahoma, where he earned a degree in broadcast journalism, Bernstein started his first business, an audio promotions company. It quickly went bust.

After school, he sold cars. “I was terrible,” he says. He even tried a stint as a broadcaster for pro wrestling, which he calls his biggest failure.

Finally, he landed at Potts-Woodbury, a now-defunct advertising agency. He did everything, selling ads and working in the creative department. Something about the business clicked with him. When he got on the same elevator with the agency’s owner one day, Bernstein asked what kind of future he might have in the company. Bernstein’s uninterested boss told him: “Keep doing what you’re doing.”

So at 25, with $100 in the bank and a $2,500 loan, Bernstein and his friend Skip Rein opened their own agency in 1964. Their first office was in a windowless building at 809 West 39th Street. After a year, they moved to 800 West 47th Street, where they remained for 20 years before moving into a 16-floor office tower at 4600 Madison.

Ten days after he started the agency, Bernstein married his high school sweetheart, Phyliss. (They’ve been married for 42 years; Phyliss raised their three children and earned a Ph.D. in psychology.) Bernstein says that while he was on his honeymoon in Las Vegas, Rein called him with a question. “He said, ‘An invoice — is that a payable or a receivable?’ I said, ‘I’ll be right there.’ We drove back right then.”

Rein is still listed among the agency’s senior management team, but he hasn’t been credited with a major project for years. In fact, many of Bernstein’s successes have come from companies that Bernstein started on the side.

One such company was Specialty Premiums, a promotions firm. In 1969, Bernstein was looking for a promotional item that his offshoot company could sell to McDonald’s. He came up with the Sippy Dipper Straw, which was shaped like the restaurant’s golden arches. He pitched it to McDonald’s, and the restaurant chain ordered 33 million in the first year alone.

Bernstein remembers wondering how he would be able to produce 33 million straws. The prototype had been made at a machine shop in Kansas City that heated a straw and bent it around a wooden mold. It was labor-intensive, so Bernstein hired out hundreds of machine shops across the country. That one deal for straws turned Bernstein into an overnight millionaire.

In 1976, McDonald’s asked Bernstein to help the company attract kids. Bernstein came up with the plan over breakfast, while he watched his 10-year-old son, Steve, read the back of the same cereal box that he’d read for several days. Bernstein figured that kids liked to be entertained while they ate. He came to work that day with plans for a box containing a burger and fries, with cartoons and games on the sides.

The Happy Meal became his most recognizable ad campaign.

As Bernstein built his ad agency, he also diversified. He bought a Las Vegas radio station. He opened 98 Blockbuster stores across the Southwest (and came up with the memorable slogan “Make It a Blockbuster Night”). He started a chain of Beauty Brands Salon and Spa stores.

And he got his kids involved. Steve, his elder son, is now chief operating officer of the ad agency; daughter Susan works as vice president of business development; and his son David is chief operating officer for Beauty Brands. (None of Bernstein’s three children returned phone calls for this story.) Bernstein is still the official head of the agency, but Steve has slowly begun to take responsibility for major decisions and is the official contact on Bernstein-Rein promotional materials.

Bob Bernstein, meanwhile, has been the decision maker for his West Edge project at the corner of Roanoke Parkway and 48th Street. He has paid close attention to the progress of the 10-story complex. He can recite facts and figures about the excavation for the 1,000-car underground parking garage.

“You know how many dump trucks of rock have come out of there?” Bernstein asks. “Would you believe more than 15,000 of them?”

At Winstead’s, when the food arrives, Bernstein grabs his burger in one hand and the pepper shaker in the other. He peppers every bite separately.

Bernstein’s employees weren’t excited when their boss landed the Wal-Mart account, according to several agency employees who spoke to the Pitch. Wal-Mart wanted rudimentary ads with no flashy technology — nothing that would make the company look big. The campaign worked, and even after Wal-Mart surpassed $1 billion in sales in 1979, Wal-Mart still used the low-budget Guthrie commercials.

Bernstein says Walton began calling Bernstein-Rein the “keeper of the Wal-Mart culture.”

But it wasn’t enough to guarantee that the agency would continue working for Wal-Mart. Every couple of years, Walton put the deal up for review. Bernstein recalls a meeting in the mid-1980s with Walton and his No. 2 executive, David Glass. Bernstein asked if Bernstein-Rein could finally become the company’s agency of record. Walton turned to Glass and said, “David, you think we should make this permanent?” Bernstein says he was asked to step out of the room so they could discuss it. When he came back in, Walton said: “Let’s just leave it in test.”

Bernstein finishes his milkshake about the time he has peppered his last bite of burger. He gives the waitress a generous tip. He stops just outside the restaurant’s front door to finish his story.

In 1985, Walton called Bernstein to request a new direction for his ads. Walton had been getting pressure to replace the foreign goods in his stores with American products. The demands came from inside: Hillary Rodham Clinton was a member of the Wal-Mart board of directors. She and Bill Clinton, then governor of Arkansas, helped convince Walton to buy American products.

The first company that Walton found was Farris Fashions in Brinkley, Arkansas. Walton had Glass negotiate the deal with Farris. Glass agreed to buy 50,000 flannel shirts that year. Afterward, Walton told Bernstein that he wanted to promote the new campaign in every commercial. “What can we do with this?” Walton asked. “I want to make this big.”

Bernstein-Rein’s new Wal-Mart ads featured American factories making products for Wal-Mart. The retailer was, according to the commercials, saving small towns from ruin. Eighty such television ads eventually ran, and Wal-Mart would claim that it kept $6 billion worth of American business from going overseas. The campaign became so big that Wal-Mart decided to hire a second ad agency in 1987. From then on, GSD&M of Austin, Texas, split the contract with Bernstein-Rein.

The “Buy American” slogan quickly became Wal-Mart’s most famous ad campaign and earned it widespread praise for attempting to promote American manufacturers.

It also became the biggest mistake in Wal-Mart’s history.

When Walton died on April 6, 1992, David Glass became the new face of Wal-Mart.

Glass had joined the company in 1976 as vice president of finance. He rose through the ranks until he took over in 1988 from Walton, who was slowly retiring from the business. More than anything, Glass is credited with modernizing Wal-Mart. He streamlined inventory by putting computers in the stores for the first time. He also had a vision to bring Wal-Mart into the largest market on the planet. By this time, China supplied much of what Wal-Mart sold, and Glass wanted the billion underserved Chinese consumers to shop there, too. (Wal-Mart now has 67 stores and 30,000 employees in China.)

Glass retired in 2000 and bought the Kansas City Royals. But during the Glass era, Wal-Mart sales grew tenfold.

Glass was also behind Wal-Mart’s worst public-relations disaster.

On December 22, 1992, NBC’s Dateline ran a segment that attacked the “Buy American” campaign. It began with footage shot at factories in Southeast Asia where children as young as 10 were sewing clothes for Wal-Mart.

Dateline then took hidden cameras into a dozen Wal-Mart stores, where foreign-made clothes hung on racks under “Made in the U.S.A.” signs — the concept dreamed up by Bernstein-Rein.

Although Dateline didn’t mention the agency by name, the show attacked TV spots made by Bernstein-Rein. The ads showed a sweater factory that benefited from Wal-Mart’s business, but Dateline found that the factory had closed just a year after the ads ran, when Wal-Mart found a cheaper distributor overseas and put 400 factory employees out of work.

Looking for a response from Wal-Mart, reporter Brian Ross sat down with Glass and asked him about the “Made in the U.S.A.” signs over foreign goods. Glass explained that it was a store-level mistake.

Ross asked him about child labor and a fire that killed 25 workers in a Bangladesh factory where the doors were locked.

“There are tragic things that happen all over the world,” Glass responded in his slow drawl.

“That’s all you have to say about it?”

“I don’t know what else I would say about it,” Glass said. A Wal-Mart spokesman ended the interview, and Glass walked off.

Two weeks later, Glass invited Dateline back, saying he had been unprepared. Glass said he had sent a Wal-Mart employee to Bangladesh and had found no evidence at the factory of child labor.

“Children,” Glass explained, “you and I might perhaps define children differently in Bangladesh.” Glass questioned the video evidence. “The pictures you showed me mean nothing to me. I’m not sure who they were or what they were.”

But the footage was indisputable. Wal-Mart’s image as a company that cared about American goods was ruined. And the ads that Bernstein-Rein had produced for the company were roundly criticized as responsible for perpetuating a lie.

Soon, Wal-Mart became the target of attacks from anti-globalization activists, organized labor and lawyers who brought class-action lawsuits from former employees claiming discrimination and mass unpaid overtime.

After the Dateline episode, Wal-Mart dropped its efforts to find American manufacturers to make its products, says Nelson Lichtenstein, a professor at the University of California-Santa Barbara and author of the book Wal-Mart: The Face of Twenty-First-Century Capitalism.

Instead, Glass took what he had learned about finding American manufacturers and haggling for lower prices and applied it to factories in Third World countries. Wal-Mart would position itself as a manufacturer’s biggest buyer and then demand a lower price, which the manufacturer would have to accept or risk going out of business.

“‘Buy American’ was a real learning experience for Wal-Mart,” Lichtenstein says. “Now they knew how to squeeze factories for every penny.”

Even the original “Buy American” factory, Farris Fashions, lost much of its Wal-Mart business. At the height of the campaign, Wal-Mart bought 242,000 flannel shirts from Farris. By last year, the number was down to a few thousand shirts, says Marilyn Burroughs, who started the company from her home in Greenbrier, Arkansas, with her husband, Farris, in the early 1970s. With Wal-Mart buying much of its goods from overseas manufacturers, Farris Fashions finally shut its doors in October 2005.

Wal-Mart also took criticism for ruining downtowns across America. Books and documentaries (including a 2005 film by director and activist Robert Greenwald titled Wal-Mart: The High Cost of Low Price) reported that hundreds of towns essentially lost their business sectors when a Wal-Mart opened.

The revelation that Wal-Mart hurt small towns directly contradicted the premise of the Bernstein-Rein “Buy American” ads.

Inside Bernstein-Rein, employees grumbled about representing Wal-Mart. Jeff Bremser, who has been Bernstein’s chief creative director for the past 30 years, says Wal-Mart lost its moral focus when Walton died. “Wal-Mart had changed,” Bremser says. “Wal-Mart used to be a very honest company. They were never involved in any trickery under Sam.”

In his defense, Bernstein says he didn’t know that racks with “Made in the U.S.A.” logos contained foreign-made goods.

Bernstein says he believes Walton had good intentions with the “Buy American” effort. Wal-Mart’s executives didn’t follow Walton’s directives to find homegrown merchandise, he says. “They never went out to be deceitful, to be harmful or to hurt anyone. The last thing they wanted to do was marketing that’s misleading.”

The idea that Wal-Mart was ever run on moral ideals is a myth, counters Judy Ancel, director of the Institute for Labor Studies at the University of Missouri-Kansas City.

“I just don’t believe in this golden-age theory of Wal-Mart,” she says. “Even when Sam was alive, they were just as predatory as they are now.” Ancel believes that Bernstein-Rein participated in fraud with the “Buy American” campaign. “Are they implicated in what Wal-Mart does? Of course they are.”

After the “Buy American” debacle, Bernstein-Rein had to recast Wal-Mart’s image. The plan, according to several current and former Bernstein-Rein employees, was to ignore the negative press.

“The strategy was that there is really only one Wal-Mart, and that’s the closest one to your house,” says Carter Weitz, a former Bernstein-Rein art director who’s now with the Lincoln, Nebraska, ad firm Bailey Lauerman. In other words, the idea was that shoppers would continue to come no matter what was said about the company, as long as their neighborhood Wal-Mart had the cheapest merchandise.

Several current and former employees mentioned the closest-to-your-house strategy to the Pitch word-for-word. But when asked about it, Bernstein said he hadn’t heard of it. “If they were doing that down in the creative department, that wasn’t something I was a part of.”

The strategy to ignore the negative publicity helped Wal-Mart weather the “Buy American” fiasco. In 1997, Wal-Mart became the nation’s biggest employer and had its first year of $1 billion in sales. This year, Wal-Mart reported a record $312 billion in sales.

But on April 28, Wal-Mart announced that it would put its $578 million advertising contract up for review. Bernstein-Rein and GSD&M of Austin submitted proposals to stay on.

On August 8, Bernstein summoned his 353 employees to the lobby atrium of the Bernstein-Rein offices. Bernstein had built the atrium two years earlier to celebrate the firm’s 30th anniversary. There’s a counter on one side, comfy couches throughout, a cappuccino machine and a refrigerator stocked with root-beer bottles showing Bernstein’s photo. Bernstein called each different department into a small conference room, where he told his employees that Bernstein-Rein was out of contention for Wal-Mart’s ad business. The contract would officially end after the December holidays.

In a press release, Wal-Mart spoke only of the search for a new ad firm. “The agency review process is ongoing,” the release read. “We have not made any decisions or announcements at this time.”

Bernstein tried to turn it into good news. “He tried to put a positive spin on it,” one employee tells the Pitch. “He kept emphasizing that this would allow them to go after clothing and shoes and electronics companies that compete [with Wal-Mart]. But there were a lot of employees who thought this was very bad news.”

Several of the agency’s employees have sent out résumés. But for some who objected to Wal-Mart’s business practices, the announcement was a relief. “They had always encouraged us to shop at Wal-Mart. I didn’t shop there, and I know others wouldn’t either.”

This week, Bernstein-Rein is expected to make a major statement about the future of the company. According to agency spokesman Neil Neumeyer, the agency will announce several new clients, including Ubisoft, retailer Steve & Barry’s University Sportswear, and Epic Wake Boats. Two more major clients are onboard but will not be announced until after the first of the year, Neumeyer says.

It’s unclear whether the new business will make up for the loss of Wal-Mart.

Bernstein arrives at the Plaza Apple Store on October 25, wearing a bluish-gray wool jacket that doesn’t quite match his blue polo shirt and green slacks. The combination is unacceptable to him. “I got dressed in pieces today,” Bernstein explains. “I’m a mess.”

Bernstein is known for spending his lunch breaks shopping on the Plaza. He’ll come back to do more shopping on the weekends. He’s a collector of collections, including antique jukeboxes and Steuben glass. When Sharper Image used to auction off its slightly outdated items every Tuesday, Bernstein would buy everything. “Legend has it,” Bremser says, “that there’s untold warehouses full of unopened Sharper Image stuff Bob bought.”

Inside the Apple Store, Bernstein puzzles over every detail. He says this is how he comes up with marketing ideas. Wandering around Blockbusters and similar chain outlets helped him imagine Beauty Brands.

“Now, do you guys have iPods that work with Bluetooth?” he asks an Apple salesman.

“We don’t, but there’s some off-brand stuff.”

Bernstein points to the new iPod Nano with the aluminum casing. “These red ones, are these three GBs?”

“Four,” the salesman says.

“Ah, four. Good.”

Bernstein wanders through the store, checking out the ear buds, the carrying cases and every docking station. “I’ve got the Bose,” he says, pointing at one model.

Finally, he buys one of the cheapest things in the store: a clear plastic cover for his iPod Nano.

The next stop is Halls. Along the way, he reveals some news. That morning, Wal-Mart selected its new ad agencies. “I’ve got it on my phone,” he says, pulling out his Palm Pilot and scrolling for a text message from Ad Week magazine. Wal-Mart chose Draft FCB, a Chicago firm formed from the merger of two other agencies that had struggled financially in recent years.

Inside Halls, Bernstein is beloved by every commission-making salesperson.

In the glass department, he greets the saleswoman, Jan, by name. He inspects a table of sales items. “Did you see the information I sent you?” she asks excitedly.

“I did. Good,” he says, and heads over to a case filled with carved glass. He points out a clear glass bowl with green-glass seahorses on each side.

He doesn’t say he wants something. He says, “I could use that.” His normal shopping partner is his wife, Phyliss. The salespeople keep asking about her. “Phyliss and I will be back here on Saturday,” he says. “We’ll see you then.”

Bernstein has spent more time shopping these days. With his son Steve largely running the agency, Bernstein spends winter months at the condo he owns along the Gulf of Mexico in Naples, Florida. He bought the property in 2004 for $5.6 million. He says he doesn’t get into the highbrow social scene in Naples. “We go down there, and we don’t do anything,” he says.

It’s the same here in Kansas City. Bernstein rarely makes public appearances. In June, he gave a rare speech as part of an entrepreneur program put on by the Bloch School of Business and Public Administration.

Partial retirement has allowed Bernstein time to play with his collection of toys. According to Jackson County tax records, Bernstein owns 15 boats and cars, including a ’57 Ford Thunderbird and his commuting vehicle, a silver 2003 Mercedes-Benz AMG SL55. The Bernsteins have regular parties for the agency at their home, which they call “the farm.” It’s a six-bedroom, 6,400-square-foot house that was built in 1929, just north of the Loch Lloyd Country Club.

In Halls, Bernstein wanders into the main corridor before spotting an item on a faraway shelf. “Want to see something truly amazing?”

He heads directly to a bowl carved out of red-leopard wood by artist Philip Moulthrop. It’s $2,100. “You see the grain lines on this? Just a real work of art.”

He heads to the silver department, where the saleswoman remarks under her breath, “He just loves to shop, you know.”

Bernstein picks up a few items before walking off. “We’ll be in Saturday,” he tells the silver saleswoman.

“Oh, good,” she says. “I’ll be sure to be here.”

Salespeople scramble to meet him when he walks into the men’s clothing department. His main saleswoman, Davida, has something going on, but backup Manny steps in to help.

“How are you feeling, Manny?” Bernstein says.

“Oh, I’m OK,” Manny, says, leaning back against the sales counter, his belly sticking out from a gray suit.

“Well, you’ve gained some weight.”

“I know.”

“You should lose it. You need to lose it.”

Every salesperson who passes by, Bernstein asks: “What’s new? What’s exciting?” But in the end, he heads for the sales rack in the rear.

He pulls out a few 44 regulars before finding a green Armani. He throws it on but decides it’s too tight. Finally, he finds the same jacket in gray. It fits.

“Get Vito,” Bernstein says from the mirror. Manny calls the tailor, who arrives in minutes, chalk in hand.

Manny says the jacket is $525, but with 25 percent off, it comes in at just under $400.

“I’ll come back for it on Saturday,” Bernstein says on his way out. No money changes hands.

Bernstein talks again of losing the Wal-Mart account. He tries to wave it off at first: “It’s just part of the business.”

He explains that now he can try to get business from direct Wal-Mart competitors, even Target.

But after a bit, he reveals that he has some hard feelings over being dumped after 32 years. “It’s an emotional loss. Most definitely, it’s an emotional loss,” he says. “I was distraught. It was like losing an old friend.”

On the way toward the door, Jan spots him again. “See you Saturday?” she says with hope.

Bernstein replies, “You know I’ll be back.”

The man who made his living helping to sell cheap merchandise all over the world has plenty to spend on shopping — and it’s safe to say he won’t be doing it at Wal-Mart.

Bob Bernstein speaks in these clips from in-house promotional videos provided by Bernstein-Rein.

 

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