Shrinking ad budgets increase fear of job cuts at agencies

Analysts are predicting a marketing services “bloodbath” early this year, as marketing communications groups look to cut costs and carry out the widespread job cuts announced at the end of 2008.

Interpublic Group, which houses agency networks McCann Erickson, Lowe, Universal McCann and Initiative, is considering cutting up to 2,000 positions worldwide, and already this year WPP is reported to be cutting several thousand jobs globally – the majority to come from its western Europe and North America offices, having earlier instigated a recruitment freeze. Omnicom Group could axe up to 3,500 across its business.

Omnicom agency BBDO Worldwide had already cut staff in North America after losing the bulk of its flagship PepsiCo business, and the effects of the ailing car industry, which hit its client Chrysler. Sister agency Phd cut jobs in Detroit and is closing its Atlanta office. For now, though, its UK counterparts appear to be in a better position, with OMD and Phd landing new business.

For Havas in the UK, its major ad agency network Euro RSCG is having to look at its head count following the losses of the £30m 3 Mobile and £13m The Sun and News of the World accounts late last year.

It is unclear where the axe will next fall, but as one analyst points out: “Staff make up about 80% of total costs for groups like WPP and is the most obvious cut to be made in difficult times.”

Yet the director of marketing consultancy Fintellect, Bob Willott, says holding companies will need more than ever to keep hold of their most talented staff, which could signal cuts in the junior ranks, or among those thought to be the least effective in their agency.

The various groups already hold diverse portfolios of market research, design, brand strategy and PR and have begun investing heavily in digital, possibly at the expense of the traditional ad shops. Some suggest the recession will speed an inevitable process up.

“The arrival of digital technology will make some traditional above-the-line agencies more vulnerable depending on how much they have embraced digital. The economic environment should accelerate change,” says Willott.

Head count

One agency executive says holding companies are likely to cut jobs under the cover of the recession, “but actually what they’re doing is repurposing their businesses”. “Overall there will be a reduction in head count but people will still hire in growing areas. Some expect a bloodbath in January with people being laid off. Someone described it to me as companies going on a diet in the New Year,” the executive says.

Enders Analysis media analyst Toby Syfret says the scale of the cuts will depend on economic developments in the Far East. “There are already reports that things are really bad in China and India, so it will depend on whether those markets go into negative growth like everyone else.”

Syfret adds that the big marketing communications groups with strong global footprints are better placed to weather the economic storm, than media companies that are focused in one country particularly hit by the economic downturn, such as ITV in the UK.

A similar observation could arguably be extended to UK-centric marketing services groups such as Chime Communications, which owns ad agency VCCP, and the Engine group, which owns WCRS.

Yet, as Willott concedes, the big multinational groups have lived through hard times before and are likely to come through it leaner and meaner. “The poor performers and the naive will be the ones who will go to the wall,” he says.

Camille Alarcon

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