UK ad industry cautiously optimistic
As the UK advertising industry moves deeper into the second half of the year and the economic downturn continues, Brand Republic takes the industry's pulse. In this first part of our analysis, Brand Republic finds cautious optimism among many senior agency executives.
LONDON - With the recent IPA Bellwether Report suggesting that advertising expenditure will be revised down during the first half of the year, the evidence of an economic slowdown hitting UK agencies is unavoidable. Earlier in the year, Zenith Media downgraded its estimates for growth in 2001 from 2.4% to 1.4%. It is an assessment that much of the industry agrees with.
The number of pitches is considerably down year on year, with most agencies reporting half the number compared with last year. The accounts up for grabs are smaller as well, and the consolidation along the lines of the $600m (£420.7m) Philips review is set to continue. Some of this is not surprising -- last year, the dotcom boom was still sounding out and internet companies had money to burn.
The dotcom boom came as a major and quite unexpected bonus to the advertising industry, and its crash -- along with the wider media and technology sector collapse -- while definitely the first signs of trouble, is only half of the story.
The advertising industry is a cyclical one and this time the cycle has had the unfortunate timing to arrive hand in hand with the fall-out from the dotcom collapse.
"This is not only a consequence of last year," Tom Deitz, media analyst at Merrill Lynch, says. "The advertising industry is cyclical and now it is in a downturn. We have just passed the seventh month of the year and advertisers are still not giving any indication that they are going to spend their budgets."
It is unfortunate, but the advertising industry leads the way when it comes to recession. The first signs are that the advertisers stop advertising. Even if they have not stopped advertising, they are choosing to run existing work rather than green-light new production activity. This is where agencies have been hit hardest.
Cilla Snowball, managing director at Abbott Mead Vickers BBDO, says, "We have had budget cuts in some cases and there is a climate of caution, but we are encouraging our clients to keep their nerve and reap the proven benefits of maintaining adspend."
The agency message to clients to keep spending is clear and it is being heard and adhered to by some. Last week, the Campbell Soup Company outlined a plan to boost its troubled business by, among other things, increasing its marketing spend by 15% to $200m (£140.2m).
Douglas Conant, president and CEO of Campbell's, spoke the words that senior ad industry execs have been repeating like broken records for years. "Cutting advertising leads to a circle of doom. It happened to us."
What seems very different from the last recession in the early Nineties is that agencies are much better prepared, have read the signs earlier and taken action. This coupled with the fact that many agencies are not having a "really" bad year -- it's more of a 1999 than a 2000 -- the results are consequently not as bad as expected.
Grant Duncan, managing director of Publicis, says, "All the tell-tale signs like redundancies, closure of production companies and a drop in expenditure relative to last year are there, but the truth is that the business is holding reasonably steady."
Yes, there have been job losses like the case of Saatchi & Saatchi, which has axed 10% of its London staff with the loss of around 50 jobs, but this seems the extreme rather than the norm. The plight of interactive agencies is, of course, a different story. These agencies and consultancies have shared the fate of the dotcom businesses which fuelled their exponential boom growth, and closure and widespread job losses have come thick and fast.
The case with the major London agencies appears to be that staff who leave are not being replaced. A headhunter told one London agency head that the situation for them was dire, because agencies have let people go and opted not to replace them.
Simon Bolton, CEO of J Walter Thompson, who left a doubly damp San Francisco and FCB in January to take up the top job at JWT, says this is currently the case at the agency. "We've not been cutting back on staff, but we're being very selective about recruitment, it's nothing like the run race of hires we normally make."
At AMV, the story is similar. Staff numbers are down 5% on December 2000 (331 v 351). Snowball says this is principally a function of avoiding leaver replacements rather than a recession-induced cutback programme. She cites high-profile examples such as CEO Andrew Robertson, who left in March to run BBDO North America and was not replaced. A considerable salary saving.
"Our recruitment has slowed but not stalled and we will certainly keep hiring -- though with more caution. Seven trainees join us in September as usual," she adds.
There are major agencies like TBWA\London that have made no job cuts at all. Garry Lace, joint managing director of TBWA\London, says, "We're proud of the fact that we're one of the few agencies that haven't made any redundancies, and I definitely won't be making any this year."
With more than a few months of the year left to run, it will be interesting to see if this bold promise holds true. More bullish still is Brett Gosper, CEO of Euro RSCG Wnek Gosper, who says that the Covent Garden-based agency is beating the odds and still hiring.
"We're bucking the trend. We're still hiring and hopefully that will last. In the first six months, we had some major new business and our growth was in double digits, as it was last year," Gosper says.
However, he does go on to admit that there is still a lot of anxiety about what might happen, but the agency has not noticed clients making "significant cuts" in their media budgets.
Check back tomorrow for the second part of Brand Republic's analysis
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