HH Gregg account goes up for grabs

March 12, 2007

HH Gregg--under increasing market pressure--has put its multimillion-dollar advertising account up for bid, and Pearson McMahon Fletcher England this month decided not to pursue the contract it has held for an unprecedented 24 years.

That leaves only one agency with a strong local presence--Publicis--in the running for one of the state's largest advertising accounts, industry sources said. Gregg officials said there are five finalists for the job.

"My only desire is that some local agency can retain this account," said Bruce Bryant, principal of locally based Promotus Advertising and past president of Indianapolis AdClub. "The ripple effect of retaining a blue chip advertiser like HH Gregg is huge. Not only from a financial impact, but from an image standpoint, losing this account would have a devastating effect on the local advertising community."

Gregg officials were quick to say the decision to rebid the work is not a reflection on Indianapolis-based Pearson.

"Pearson McMahon Fletcher England's work has been phenomenal," said Jeff Pearson, who joined Gregg as vice president of marketing in the last year and is not related to the advertising agency principal Ron Pearson. "We've grown tremendously, and they've been with us every step of the way."

But, he added, "It's always good for a business to make sure it has the latest thinking and the optimal skill set" from an advertising agency.

"We want to have the best in class in all those new, emerging areas, and this is just a part of our continual evaluation process."

Earlier this year, the locally based consumer electronics and appliances retailer told its agency of record that the account would go on the block. Pearson, along with Publicis and a handful of out-of-state firms, was invited to bid.

Publicis officials declined to comment, and HH Gregg officials would not say which agencies are involved. Industry sources, however, said agencies from St. Louis, Cincinnati and Miami are among the candidates. Gregg officials said they hope to announce the winner in April. Pearson surprised Gregg officials and industry insiders by declining to bid. Only once in the last 24 years--in 1999--did Gregg put the work up for bid. The decision not to bid will likely spur downsizing at one of central Indiana's largest ad agencies. About 20 of Pearson's 45 employees worked on the Gregg account--many of them full time.

Agency President Ron Pearson said it was a great run, but his firm decided not to rebid for the project after considering the resources it would take during a time Gregg anticipates major growth.

"The bottom line is, we would not be doing our other clients justice by doing this," Pearson said.

Pitching for the work alone would have required dedicating at least five employees to the task for four to eight weeks, Pearson said.

"We looked at this from every possible angle, and only made this decision after a tremendous amount of soul searching, and prayer on my part," he said.

He's hopeful the decision will lead to long-term prosperity at the firm he founded in 1977.

"It's sort of like a fire in Yellowstone Park," he said. "Almost immediately, new sprouts begin. We will come out of this with an even stronger firm."

Pearson said he hopes to reassign as many people on the Gregg team as possible to other projects.

"There's no problem with this company," Pearson said. "We're financially sound. In the short term, we'll have to make some adjustments."

This isn't the first time the agency has suffered heavy losses in a single year. In 1999, it lost two of its biggest clients, St. Vincent Hospitals and Health Services and Brightpoint Inc., but managed to keep growing.

Pearson is credited with some memorable Gregg campaigns, including one featuring local twin boys sporting burr haircuts and another featuring country music star Reba McEntire. The agency also coined Gregg's slogan, "Welcome to the digital revolution."

Gregg is an advertising behemoth. In its most recent fiscal year, completed last March 31, it spent $41.7 million on advertising, nearly double the likes of highly visible Marsh Supermarkets. At its zenith, the Hoosier Lottery represented a $10 million account.

Agency owner Pearson said only $20 million of that is handled in-house, but he admitted the account is a plum one and was the agency's largest.

Gregg, meanwhile, is under tremendous pressure to grow. Even though the retailer has expanded from just 18 to 77 stores since 1999, industry experts said investors want to see more. Gregg, which now operates in eight states, disclosed in public filings that it plans to add another 23 stores by early 2009.

Gregg received a $111 million cash infusion in 2005 from Freeman Spogli & Co., the same Los Angeles-based private equity firm that poured cash and spurred rapid growth in the former Galyan's Trading Co. retail chain. Freeman Spogli now owns 80 percent of Gregg.

Gregg's same-store sales growth for the most recent fiscal year was 1.7 percent, trailing Best Buy's 3.5 percent and Circuit City's 10 percent.

"The pressure in this sector is pretty intense, and companies are always looking for ways to lift themselves higher," said Bob Gustafson, an advertising professor at Ball State University. "Advertising is one of the most high-profile ways to do that.

"If [HH Gregg] is looking to go a different direction after 24 years, they must be under pretty serious pressure to make a change. All that pressure could come to bear on their new [advertising] agency."

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