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‘Agencies are probably near a breaking point’: How the current crisis exacerbates existing issues

Unless you’ve been hiding under a rock or in self-imposed, non-pandemic-related isolation for the last decade, you know the agency business has been in trouble for years.

There’s been a constant hum of layoffs, mergers and acquisitions as once beloved creative shops close up without much warning. The work is getting more, the fees are getting less. Last week, Publicis Groupe reported its first quarter earnings early this year, reporting and organic revenue decline of 2.9%. The holding company, along with WPP, Omnicom and MDC Partners, also revealed its plans to for layoffs and furloughs to deal with the downturn. But these revenue drops aren’t new. It’s just the latest news in years of holding company CEOs pointing to “unexpected headwinds” to explain disappointing results during quarterly earnings calls.

And that was all happening while the market was on an upswing. Now, things are getting worse. The same problems the agency business was already dealing with persist and worsen now, exacerbated by the current crisis. Like in any industry, this crisis is exposing weaknesses.

And while there are many problems that coalesce at this moment but the main one might be how agencies position themselves: The “put clients first” mentality at agencies is hurting them more than ever. 

Let’s start with the money. With marketers pressing pause or canceling campaigns, cashflow is tighter than ever. At the same time, payment terms are being extended: 30-day terms go to 60-day terms, 60-day go to 90-day and 90-day might go beyond that forcing agencies to make tough cuts, explained an industry consultant. 

That means cutting agencies biggest expense: Talent. Agency staff already burned out by longer hours and fewer barriers between work/life balance will have to do more with less as agencies trim staff to deal with having less cash flow on hand. 

“It’s a Catch-22 for agencies,” said Allen Adamson, co-founder of Metaforce. “Agencies can’t get out of leases and they need to make cuts to survive so they have to cut talent. It’s the only cost they can cut quickly but talent is the most important factor for clients.” 

Trimming talent, asking more of those who are left and keeping the business afloat without consistent cash flow, that’s a recipe for disaster. It’ll be worse for the big agencies as they’re unable to make the tough choices and adapt quickly, according to marketing industry experts. 

“Many will look back at this time and say, we long-pontificated about the future of large agencies, but when the future came, were we ready?” said Mack McKelvey, founder and CEO of SalientMG. “Some will. Some will have to look at their business with fresh eyes; they need to bring in diverse talent to rethink and ultimately re-action everything. Otherwise, the future of agencies may not include them.” 

“The pressure right now is incredibly intense,” said Ann Billock of Ark Advisors. “Agencies are probably near a breaking point.” 

But even if it’s worse for big agencies no one is safe. Ask anyone in the industry what comes next and you’ll hear a worried sigh followed by a delicately worded statement about how now is a trying time but everyone will be better for it. That need to put a positive spin on the accelerated change makes sense. What else can you do? But it’s hard to believe it when the agency business was already being squeezed. The grip has simply tightened.

3 Questions with R/GA EVP and ECD Chapin Clark 

What impact long-term do you think this crisis will have on how agencies do business?

Companies, and managers of people, will be more flexible about remote-working arrangements after this. It will have some effect on hiring. Why limit your pool of candidates to people in your city when you could find someone great in another region and work efficiently with that person through Zoom, Slack, and Google Docs? 

One thing that won’t continue: I think flying cross-country or around the world just for a one-hour meeting is dead. I don’t want to interact with people through screens all day, every day, but we now have ample proof that you can have a perfectly pleasant and effective meeting over video conference. So how can you justify spending thousands of dollars for a handshake?

How are you staying creative?

I’m doing the same things I did before — reading, looking at weird stuff on the internet, observing. A lot of us are living inside lives now — inside our homes and inside our heads. But that’s creating new relationship dynamics, new family dynamics, and if you’re attuned to them, those new dynamics can be a source of new ideas. 

What advice do you have for leaders who’ve never been through a crisis?

Be honest, and err on the side of over-communicating versus withholding information. It’s important to share good news too! Because there is good news here and there — teams are managing to push work live and win pitches — and everyone is looking for something to be hopeful about. Our leadership team has done a great job sharing openly and not sugarcoating things, while also being supportive and encouraging where appropriate.

Four months to new normal

More consumers are settling in for the long haul until we’re set on a “new normal.” In a survey of consumers by consulting agency Gongos, 80% of respondents said “they believe it will be at least four months before we settle on a ‘new normal’ as a society.” That’s up from a previous survey run by the group which found that 61% of respondents believed it will take that long.

Quote of the week

“I can’t stop looking at it,” said Julie Michael, CEO of Team One, of her love of TikTok, which has helped her stay creative during quarantine. “It’s humanity just staring you in the face; people putting themselves out there publicly doing funny and touching stuff. There’s an openness and intimacy to TikTok that you don’t find on any other social media platforms.”

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