If and when.
John Wren’s ominous April memo to Omnicom Group employees warning of “furloughs and staff reductions across many of our agencies” presaged a dark period for advertising.
“Where possible,” Omnicom’s CEO wrote, “our agencies will use furloughs rather than permanent reductions, so we can bring people back if, and when, conditions improve and client demand recovers.”
Fallout from the COVID-19 pandemic pushed the economy—and agencies—into a deep downturn. History suggests agency employment won’t hit bottom until months or even years after a recession ends.
John Rogers, WPP’s newly appointed chief financial officer, offered a stark view on a late April investor call.
“We don’t know the impact and the longevity of COVID-19, but what we have done is developed a range of possible economic scenarios with different levels of net sales progression and decline,” Rogers said. “And we’ve got detailed plans against each one of those scenarios to take cost out accordingly as well as very good early indicators in the business to inform us to what we would need to accelerate taking those costs out.”
The biggest expense? Labor. Staff costs in 2019 were equal to 65.4 percent of WPP’s revenue less pass-through costs.
And even before the pandemic hit, big changes were afoot. Accenture Interactive, which in 2019 bought creative standout Droga5 (Ad Age’s newly crowned Agency of the Decade), displaced Interpublic Group of Cos. as the world’s fourth-largest agency company. Consulting rivals Deloitte Digital, PwC Digital Services and IBM iX all rank in the top 10.
For the agency business, last year now looks blissfully mediocre compared to the current depressing state. Overall U.S. agency revenue rose a tepid 1.2 percent in 2019, the weakest growth since the Great Recession. (For reference, U.S. agency revenue tumbled 7.5 percent in 2009, the sharpest drop since Ad Age published the first Agency Report in 1945.)