In Sandy's Wake: The Cost to Adland
The effects of Hurricane Sandy will reverberate for weeks as marketers and agencies across more than a dozen states tally storm-related losses and make up for lost business days.
New York, New Jersey and Connecticut make up 10.2% of the U.S. population, but a far heavier concentration of advertising, media and marketer employment. The tri-state region is home to 22 .8% of Ad Age 's subscribers and accounts for 20.8% of U.S. employment in advertising, public relations and related services, according to Ad Age DataCenter's analysis of government data.
One analyst predicts Sandy will register an up-to-$500 million blow to the already slowing U.S. ad industry, but media execs interviewed late last week don't sound as pessimistic. There will be short-term lumps as networks offer make-goods thanks to storm-pre-empted programming in the nation's largest media market, but eventually most budgeted dollars will get spent -- just in a more-compressed period. And potential ad-spending increases from categories such as auto and home improvement will offset some of the losses.
"There's always a way to spend money if there's money to spend," said Gerri Donini, senior VP-broadcast at RJ Palmer.
Planalytics, a weather-focused consultancy, estimated that major retailers had at least 10% of their locations in the storm's path, while many had close to 20%. Nearly a quarter of Macy's stores were affected, including its Manhattan flagship, while Starbucks closed about 1,000 locations from Virginia to Maine.
Howard Penney, analyst and managing director at Hedgeye, warned that the closings could have a significant impact, noting that sales trends were already decelerating in early October.
For many marketers, attention is shifting from merely opening stores to transporting supplies in the wake of continued power outages and gas shortages. Mr. Penney said a Starbucks in New Jersey had reopened last week, but could not make lattes because milk had not been delivered.
Sandy could also damp holiday spending, which the National Retail Federation predicts will be up 4.1% this year. It isn't immediately re-evaluating its holiday forecast based solely on Sandy, but NRF's chief economist, Jack Kleinhenz, contends that it could shift consumer spending.
"If you were impacted, you may have to rebuild and replace, which will hit your budget," he said. "Those sales will come from a different category, [such as] furnishings, home improvement, maybe department stores, which could put a crimp in holiday sales [for other retailers]."
According to Automotive News, the auto sector may rebound faster than people think, as buyers replacing damaged vehicles push up auto prices across the country. Chevrolet dealer Judy Schumacher-Tilton predicted her Denville, N.J. store's power outage would last into this week. She also weathered 2011's Hurricane Irene, but this year believes it'll take longer for customers to return in earnest because of the widespread power outages in New Jersey and the long lines at gas stations.
Joseph Spak, an analyst at RBC Capital Markets, said the number of vehicles scrapped in last week's storm could exceed the estimated 640,000 ruined by Hurricane Katrina in 2005, thanks to damaged fleets of local governments, utilities and taxi companies.
The week before the election was already a super-tight advertising environment, with broadcasters required to continue to carry political ads for federal races. But then storm updates and press conferences preempted ad breaks and what little space was left was snapped up by insurers such as Allstate, Geico, State Farm and Nationwide, which have emergency ad budgets for disasters. (To circumvent the power problem, State Farm flew planes with banners over affected areas promoting its phone number, 1-800-SFCLAIMS.)
Car makers such as Chrysler's Jeep, home-improvement chains such as Home Depot and advertisers selling generators and other recovery services also bought the storm. That left slim pickings for marketers pushing big new products such as Microsoft's Windows 8, Apple's iPad Mini or Activision's latest installment of its "Call of Duty" franchise.
"You've got a lot of posturing for holiday sales, and they are losing out on a week's worth of exposure among the 5 million without power," said Mary Beth Garber, exec VP of Katz Media Group.
Newspapers, though, may see some benefit as certain advertisers try to reach people with last-second ads specific to events, said George Janson, managing partner-director of print at Group M. "In terms of ads that were supposed to be placed, they'll still be placed," Mr. Janson said. Business, including planning for 2013, will proceed, he said: "It's just getting compressed."
Rino Scanzoni, chief investment officer at Group M, said broadcast networks and local stations will incur some make-goods due to power loss. That will tighten up inventory, "but it is manageable," he said. Despite Sandy's disruption, ultimately marketers and media execs believe future negotiations hinge on issues bigger than the storm alone: this week's presidential election and the state of the economy.