As warnings of a nearing global recession intensify, industry leaders are entering prep mode. Ad Age chats with Interpublic Group of Cos. Chairman-CEO Michael Roth—who has held that role since 2005 and led the holding company through the 2008-2009 recession—to discuss what effect a reprise could have on the holding company’s agencies and the industry overall, and how he’s starting to gird for the worst.
So how likely is a recession?
Having been through 2008 and 2009, we never really get too excited when we see positive results like we’ve been seeing. [Editor’s note: In IPG’s recent second quarter, the company reported a revenue increase of 9.1 percent and organic growth of 3 percent overall and 0.6 percent in the U.S.] We always anticipate an ultimate reversal, but IPG is positioned for that. We’re constantly looking at our margins and making sure our costs are in line with expected revenue.
How exactly are you doing that?
For example, we don’t add headcount unless it’s revenue-facing. We keep a very hard line on SG&A [selling, general and administrative expenses] in terms of looking at rent opportunities to consolidate space among our agencies. On the other side, we look at where the revenue will be in the future—what is driving growth. Or, if there is a recession, how do we maintain a diverse revenue stream? The Acxiom transaction that we acquired is a great example of both aspects of that—first-party data management is their core business. Even in a recession, companies have to manage their first-party data. That is a revenue stream we see as critical even in a difficult environment.
What might clients consider less critical?
The classic way is to cut back expenses, and marketing dollars are always easy to cut. That’s why everyone is concerned with our sector when there’s a downturn. Except it’s the wrong time to cut. What we do is generate growth and sales, so if you want to generate growth and sales, you have to be able to spend marketing dollars. What we are experiencing now is clients are very tight on the return on investment in terms of their expenses. We really have to prove our value added.
Should we expect clients to shift even more to project work during a recession?
It’s not just a recession; our business is changing to be very project-oriented. But that’s OK. In a project-based environment, you have this opportunity to outperform. You have to bring in all your resources and [IPG uses] open architecture to do that; we bring in the creative, media, data analytics, experiential and PR together to attack the projects that the client is looking for. And they’re big projects, which makes it more difficult to grow on a year-to-year basis because they’re hard to replace.
How might a downturn today differ from the previous one?
In ’08 and ’09, the growth was zero and it was quick. It all happened in December. All of a sudden, everything stopped. I never saw anything like it. I know IPG learned from that; it can hit us at any time, which is why we’ve been in a mode of looking at our cost profile. [This time] it’s gradual. Everyone knows it’s coming; if not now, it’ll be coming a year or two from now. So, we’ve eliminated non-profit businesses. Even in the last quarter, we got out of certain countries [like] Vietnam, where we weren’t making any money.
Is talent more likely to leave in bad economic times? And how is IPG positioned in that regard?
When the economy is bad, you want to be associated with a company that values who you are. Not that I want to see a recession, but I do feel that is a competitive advantage for us in terms of keeping our people motivated and in place.
Might brands recruit agency talent for their in-house teams, which could seem like more of a safe bet in a rocky economy?
Clients are always looking to in-house for efficiencies. Instead of fighting it, we help our clients do that. For example, we help work with our clients for in-housing programmatic, but we [continue] to work with them in their relationships with media owners and the technology that goes into it. You have to keep investing in it, and clients have a tendency in a recession to not invest in that kind of stuff. We built Cadreon from ’09 after. We knew that was what we needed to do to be competitive when the economy turned.
Have your clients begun discussing the possibility of recession?
Well, they’re nervous. Whenever there is uncertainty, you can rest assured that our clients are holding back until there’s clarity. There’s no question that we’re seeing that. The good news is that their core businesses, at least up until now, they’ve been spending money on. It’s the special projects and stuff like that they have a tendency to hold back on.