Yes, there is a second-half recovery brewing. No, it won't be an easy ride back to the heights of 2000. Any second-half recovery looks anemic at best, and it could be as late as 2004 before there is significant growth in ad spending. So the end is near-for the ad recession. But that by no means signals a robust recovery.
"One of the real differences in this recession is the speed of onset and the depth," said John Perriss, chief executive of Zenith Optimedia Group. A forecast from the media-buying company, owned by Publicis Groupe and Cordiant Communications Group, projects no upturn in U.S. or worldwide ad spending until 2003.
"When it does come, [the recovery] will be slower than we've seen before," Mr. Perriss warned.
Things really are different this time around. Some advertising categories that powered the 1990s boom-such as telecom, technology and financial services-won't again spend like they did then, at least in the foreseeable future. And media fragmentation-via multiple cable channels and other media-means marketers' spending is being spread thinly among more media. Through it all, marketers are changing the way-and the amount-they spend to market products and are looking with more interest at alternatives beyond traditional advertising (AA, July 1).
"In economic times such as this, I think that marketers are forced to focus more on strategy and not the ability to simply outspend the competition," said Bob Gamgort, general manager-chocolate at Masterfoods USA. "As budgets tighten, it is very difficult to justify any expenditure if the program is not on strategy and does not deliver a significant return."
In private meetings and at investors conferences throughout May and June, agency and media executives warned 2002 could be another year to write off. The recovery scenarios spun in 2001 have given way to forecasts of a stretch of scraping bottom before the upturn.
Even consumer spending-the recession's Little Engine that Could-is running out of steam. After trending up in early 2002, the Conference Board's consumer confidence index waffled in the second quarter-down in April, up in May, back down in June-and personal spending fell in May for the first time in six months, according to U.S. Government data.
While a few observers privately worry of a "double dip" into recession, the consensus is that risk remains remote. Advertising prospects, meanwhile, are improving in some categories. Package-goods advertisers likely will be among the first to spend aggressively again, said Sean Orr, exec VP-chief financial officer of Interpublic Group of Cos. Indeed, many food and household product advertisers are planning additional spending this year.
But some areas remain depressed, including formerly high-flying sectors such as telecom, technology and financial services, Mr. Orr said at the Midyear Media Review in late June. "They continue to be in irons, so to speak," he said.
a little confusing
It's all a little confusing for consumers and marketers. Gross domestic product grew nearly 6.1% in the first quarter and around 3.5% in the second, so why does it still feel like recession?
"This economy is not so much GDP-related as [corporate] profit-related," said Bob Schmetterer, chairman-CEO of Havas' Euro RSCG Worldwide. Speaking at a recent investors conference sponsored by Deutsche Bank Securities, he noted there is a direct relationship between corporate profits and marketers' investments in marketing.
Paul Richardson, group finance director at WPP Group, cautioned at the same conference that an ad recovery will lag behind an economic recovery because CEOs are reluctant to commit to new product launches this early in the recovery cycle. "It will take time to work [profits] into our budgets and for confidence to come back," he said.
This recession has brought on a new attitude among corporate leaders, who are under pressure from a weak stock market and increased shareholder scrutiny, Publicis Groupe Chairman-CEO Maurice Levy said at AdWatch: Outlook 2002, a June conference co-produced by Advertising Age.
In the wake of Enron, companies face pressure to both be more conservative in accounting and deliver strong profits, and that could give them reason to hold the line on expenses such as advertising.
But holding back on advertising can be dangerous, Mr. Levy warned. "If you have all the CEOs being cautious about investing [in marketing], the ones who go first will gain market share," he said.
What will that take? "Courage," Mr. Levy answered.
But queasiness seems to be the prevailing feeling in the industry. Magazines reflect the sustained drop in technology and financial advertising. Newspapers continue to suffer from weak classified volume due to rising unemployment. Even the healthy broadcast network TV upfront market was partly a mirage of money shifted to pre-season orders from scatter sales, or sales made during the season.
Upfront sales are only a part of the equation, and other media beyond network TV still look worse for wear in the second half, said Dawn Hudson, president of PepsiCo's Pepsi-Cola North America. Speaking at AdWatch about the pace of recovery, Ms. Hudson said: "It is slow and it is cautious."
So, yes, recovery is around the corner. But marketers may have to get out and push the car to get it there.
contributing: stephanie thompson