The world’s biggest advertising group, WPP, has revealed its global net sales in the third quarter of 2017 fell 1.1 per cent meaning revenues were flat and it would have to reduce its profit margin targets.
Announcing the results at its AGM in the UK yesterday, the group also warned shareholders that it was facing “a changing industry” because of new players and changing client behaviour.
The Asia-Pacific – in which Australia is lumped – fell a worrying 4.5 per cent in the third quarter and is down 1.5 per cent in the year to date.
It believed three factors were in play for its profit downgrade – the rise of the consultancies, tighter client budgets and, of course, Facebook and Google.
WPP supremo, Sir Martin Sorrell (main picture), had already warned that 2017 would be the company’s worst in a decade.
In a statement, WPP said: “For certain, the advertising and marketing industry has had a good run for the last seven years since the Lehman crisis of September 2008, and a very weak year in 2009, with your company experiencing a V-shaped recovery in 2010 and sequentially record years from 2011 onwards until 2016.
“2017 has, however, been a different kettle of fish, with top line growth slowing across the industry. What may have brought about this significant shift, which seems to have started almost in the first quarter of this year?
“It does seem that in the new normal of a low growth, low inflation, limited pricing power world, there is an increasing focus on cost reduction, exacerbated by a management consultant emphasis on cost reduction and the close to zero cost of capital funding of activist investors and zero-based budgeters,” WPP said.
When it came to the consultancies – the likes of Deloitte and Accenture – increasingly attempting to cut creative agencies’ grass, WPP agreed they were buying-up smaller agencies and soaking up talent.
Sir Martin himself telling the BBC Today programme yesterday: “Consultancies are going to clients and suggesting they are spending too much, not just on marketing, but generally.”
Sorrell added that with a globally flat sharemarket, investors were also demanding that companies cut costs which often meant significant cuts to marketing and advertising budgets.
When it came to the consultancy businesses, the WPP report noted: “Most agencies report, including ourselves, that even when they do compete directly with the consultancies on digital projects, the win/loss records are consistently strong, particularly given the continuing importance of the creative dimension for success.
“Where the consultancies may have made some inroads is their focus not so much on the digital area, but more importantly on client concerns about cost. Very few CEOs will resist the suggestion that they may be overspending and the promise of an audit or review that will only cost a proportion of any cost savings generated or a contingency fee,” the report said. “So, it may well be, that consultant activity is having some impact, not so much in the digital area, but more because of an emphasis on cost containment.”
