The COVID-19 pandemic has impacted every industry across the country. Almost all of them face tough times right now, from restaurants to tourism to automotive and more.
Advertising is no exception, and in many ways it is experiencing a unique impact. We’re about to see a shakeout among big and small agencies. There’s no easy way to say this part —it’s going to be rough for big agencies. Smaller ones are better equipped and set up to handle the unique economic issues brought on by coronavirus.
We take no joy in that prediction. Yes, we’re a small agency, but many of us have worked at bigger ones, and we know people throughout the industry. This whole situation sucks. But it’s best everyone buckles up and gets ready. The more we can anticipate in advance, the better prepared agencies of all stripes will be to deal with the fallout from the shakeout.
Here’s what we can tell you about what’s to come in advertising.
Layoffs, Furloughs And Pay Cuts
These triple threats have bedeviled employees across every industry the past four months, but it seems especially dire in advertising. It seems like every other day we see news of new job losses, whether temporary or permanent. Ad Age has been tracking the carnage — the list is pretty long, and the majority of the dismissals are coming at major agencies and parent companies, such as WPP, IPG, and Publicis Groupe.
Some cuts have been huge — 20 percent or more. Salary cuts, such as at WPP, have resulted in a loss of 10% to 20% of income for at least a few months.
Already last fall, the industry had been abuzz over consolidation among big agencies. Some of their employees had been exiting to the brand side, and that unease certainly hasn’t been helped by the pandemic.
Small independent agencies have the advantage in this situation of answering only to themselves. They don’t have stockholders they need to appease, like many of the bigger holding companies. That means small agencies can make decisions to benefit their clients without worrying how it will impact anyone else. This responsiveness is a huge advantage during a recession.
Less Advertising, More Problems
The reductions come as advertisers pull back on their spending, trying just to stay in business. Ad spending is expected to drop sharply during second quarter. A few brands did increase spending, but they’re not ones that you would expect to use big agencies. Several direct response companies for example, ramped up spending and saw a corresponding rise in responses.
In times when ad spending booms, big agencies thrive. Advertisers don’t scrutinize their expenses as closely. But when tough times hit, every penny comes into question. When this happens, big agencies become vulnerable.
Last fall, before anyone had heard of COVID-19, one forecaster predicted that if a global recession hit (spoiler: we’re just about there), agencies would lose 3% to 30% of their revenue, the vast majority of that from big agencies.
What Makes Small Agencies Better Poised for Success?
Small agencies are, by definition, lean. They’re naturally built to handle downturns. When a recession hits, they’re in better position than their larger brethren because there’s no fat to cut. Everyone who works at a small agency has a vital and productive role.
The biggest advantage small agencies have during difficult economic times is that they are nimble. They can adapt. When you have a few dozen employees, you can change directions quickly and respond to what your clients want. It’s like making a U-turn with a compact car. As long as you study the oncoming traffic pattern before you do it, it’s not too difficult.
Now, changing direction as a big agency is all but impossible. Corporations are not known for their ability to reverse course. It takes coordination across multiple levels, not to mention buy-in from hundreds if not thousands of people on the new direction. That’s why big agencies often get hit hard during recessions. It’s like making a U-turn with an 18-wheeler.
Small agencies know how to do more with less. This happens naturally during a recession. Payments from clients come late, which is less of a big deal if you have a small payroll. Small agencies understand how to keep expenses low, too.
Focusing On Areas Of Growth
Frankly, a lot of the big agencies are still stuck in the 20th century mindset. They consider TV a must-buy and ignore new media until it’s almost unavoidable. They lack understanding of new, sophisticated measuring techniques, and media directors fail to keep up with the times.
Smaller agencies tend to have younger employees who stay on the cutting edge of technology in their daily lives. They bring enthusiasm for new platforms and new ideas, which facilitates that nimbleness we mentioned earlier.
The coming months will show whether we’re right or wrong on this. We’re pulling for everyone — it’s better for the advertising industry when we’re all in a strong position. Unfortunately for the bigger agencies, the pluses for small agencies far outweigh the minuses, and the same can’t be said for our larger peers.