Ad Agencies

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After a brutal 2001, in which U.S. ad spending dropped an estimated 4% to 6%, the worst is likely over for the advertising industry. At least, agency executives hope so.

"We've reached the bottom in terms of the economy," said Greg Stern, president, Butler, Shine & Stern, Sausalito, Calif. That positive conclusion notwithstanding, the San Francisco Bay area executive, and many other agency executives nationwide, are wary about prospects for 2002. Mr. Stern describes the economy's recovery as an L-shaped situation, rather than a V-shaped one.

"We took the hurt this year," said Russel Wohlwerth, senior partner at agency review consultancy Select Resources International, West Hollywood, Calif. Since August 1999, when agency employment peaked at 202,300, the industry has lost 17,800 jobs, and employment now is at its lowest level since May 1999 (AA, Dec. 17). Detailing the industry's pain, one agency executive who requested anonymity said, "New pitches were down by 52%, by our math. If you want to make the assumption that, in some cases, being half-off in new pitches from the previous year means being half-off in [new] billings, that would be a pretty good assumption."

The nation's economy will pick up in the second or third quarter of next year, Mr. Wohlwerth and others expect. The generally cautious tone is hardly surprising, given the uncertain results of the war in Afghanistan and its effect on the current soft economy and consumers' reluctance to spend. Any benefit of an economic recovery, agency executives believe, won't be felt in 2002. Said Andy Berlin, chairman, Berlin, Cameron & Partners, New York, now a WPP Group-owned shop: "If corporate profits look up, particularly in package goods and retailing, then those sectors may increase advertising and marketing in the second half of 2002. I don't think [an upturn] will affect our business until first quarter of 2003."


Still, several agency chiefs expect an increase in reviews and new business pitches.

"Like agencies, clients in 2001 cut back. Marketing budgets were slashed and employees were laid off," said Linda Sawyer, chief operating officer of Interpublic Group of Cos.' Deutsch. "With a strengthening economy and pared back corporate infrastructures, clients might decide to launch reviews" to stimulate consumers. Marketers' mindsets-and budgets-may not be as generous as they were in the recent past.

"The prevailing feeling is, `How do we get more for less?' because the money is just not there," said Rob White, president, Publicis Groupe's Fallon Worldwide, Minne-apolis. "All marketers will scrutinize spending."

One strategy that may gain popularity, particularly among the country's largest brand-spenders, is consolidating accounts. Francis Kelly III, president of Havas Advertising's Arnold Worldwide, predicts that in addition to consolidating accounts, clients may also opt for lower-cost services, including public relations, promotions and direct marketing to stretch dollars.

Even if the recovery is slow in coming, agency executives say the best way to take advantage of positive momentum now is to service existing clients well. Grey Global Group's Grey Worldwide, whose clients Mars' Masterfoods USA and GlaxoSmithKline in 2001 rewarded the agency with additional business, is using such a tactic. "Advertising leads a recession and lags the recovery," said Grey New York CEO Steve Blamer. "You've got to fight even harder to lead your clients and look for new opportunities with them."

Contributing: Mercedes M. Cardona, Hillary Chura, Alice Z. Cuneo, Kate MacArthur, Rich Thomaselli

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