Will COVID-19 push the ad world into cutbacks & lay-offs?

While some agency heads said job cuts seem to be inevitable, others also believe that getting rid of talent might backfire in the long run

e4m by Misbaah Mansuri
Updated: Apr 13, 2020 9:02 AM

The coronavirus pandemic is causing tectonic shifts in businesses with each passing day. Revenue losses and a pause in clients’ advertising spends as sales plummet, are all making the going tougher for ad agencies.

As agencies navigate the turbulent times ahead, many have opted for layoffs to offset the revenue losses. We ask industry experts some pressing questions: Can our agencies weather this storm? With advertising being largely a people’s business, how should they deal with the scenario?

A rocky road ahead?

The CEO of a leading ad agency, on the condition of anonymity, shared that it’s been a tough road for ad agencies who have some big travel, hospitality and retail clients. “These brands have continued to reduce services and rethink their advertising strategy as people stay home. Retail clients might be making revenue online but due to store closures they are also facing the heat,” the source said. He indicated that the slowdown in the categories is trickling into the agency world that relies on the sector’s marketing campaigns in a big way to stay afloat. 

According to a new survey from Fishbowl, a clear majority (65.4%) of ad industry professionals believe the COVID-19 crisis will lead to layoffs at their agency, 

According to Subhash Kamath, CEO & Managing Partner, BBH, while different agencies will have different ways of dealing with the crisis, there’s no denying that businesses will take a big beating in the months to come. "I think different agencies would have different priorities and compulsions. It is indeed tragic if people lose their jobs in such an extreme situation. No agency will ever want to lose its best talent. But there's no doubt that businesses would be hit very badly in the coming months. How different agencies react to it will depend on their leadership,” says Kamath.

To be sure, holding companies like IPG and Publicis Groupe have been exploring cost reduction methods. “We have multiple cost levers to align expenses with changes in revenue and our operators are executing as appropriate on both the revenue and expense sides,” said Michael Roth, Chairman and CEO of IPG, in the company’s public statement on the impact of coronavirus on its business. 

The Publicis Groupe in its official statement also stated that the company was “rigorously managing operating costs, including the postponement of some expenses in order to get through the current situation”. 

Another ad industry exec, who didn’t wish to be named, shared that the lay-offs ahead seem to be inevitable as agencies tend to allow quarter-by-quarter financial considerations to dictate operational decisions. “While talent within agencies is one of the biggest assets, they are also one of the biggest costs. During such recessionary marketing conditions, agencies can’t help but make the hard decisions,” he said. 

 The ‘people’s business’

The advertising industry has been facing a high churn and talent exodus even before the COVID-19 crisis. In any case, for creative agencies, holding on to a client may be easier than holding on to talent. Estimates show that annual turnover rates are upwards of 30 per cent, making advertising the industry with the highest talent turnover rates, second only to tourism.

K V Sridhar (Pops), Global Chief Creative Officer, Nihilent & Hypercollective, says that small to medium-sized agencies might have to opt for layoffs in such a scenario while bigger agencies might be able to sail through if the costs are managed well. These lay-offs might however backfire in the long run, he added, advising that both agencies and employees should just hold on as the business should bounce back soon.

 “We have seen a similar situation in 2008 when the global recession hit us but recovery didn’t take as long as we anticipated. I think the same is the case with the current situation. The industry should leverage this opportunity to up their digital skills as digital advertising won’t see a dip in such a scenario. Moreover, layoffs are a temporary solution because sooner or later they will need the talent which is one of the ad industry’s biggest assets,” Pops suggested.

Prathap Suthan, Managing Partner and Chief Creative Officer (CCO) of Bang In The Middle, too pronounces that resorting to lay-offs will reflect poorly on the agency, given that it is a situation where no one’s really at fault. “As of now, compared to every other issue that I have faced in my longish career, this is a situation that is not limited to advertising alone. Everyone is in the same boat. Everyone is grappling with similar issues. Everyone is plagued with the same questions. No one has been spared. The whole world has been put on pause. Of course there will be a dip. There will be pressure on every brand and client and agency. However, as I mentioned earlier, it’s not anyone’s fault and no one is sitting pretty. This too shall pass. And soon enough when life gets back to even keel, the markets will come back, sales will rise, and work will pick up. It may take time. But it will. And once that happens, and work picks up speed, you will need people, or hopefully more people. If you currently give up on people, or come down hard on numbers, while it might temporarily save you some bleeding, the future may not be very good. Who wants to work for a client or a brand or an agency that gave up on you or was heartless and cruel when the days were gloomy. I read about a company that sacked many people last week, and once the wheels begin to move again, who really would want to work for a company that has blood on their hands? Or even if they do recruit more people, they will end up paying a higher cost. Again, it’s not that the workforce comprises insensitive or unintelligent people,” he remarked. 

Suthan went on to say that such is the situation that even employees are aware of the state of business and how work is down, earnings are down, and most of them would be aware of how best to keep businesses going and jobs going. “They’d proactively pitch in with a drop in salary till business gets back on track. Instead of choosing to be adamant and demand full salaries, they’d also know that such inflexibility would push employers to take harsher decisions. At the end of the day, this affects all. And all of us will have to make compromises for us to stay together and together build a better tomorrow. We really don’t have another choice,” he added. 

After all, in a service- and relationship-based business, an agency’s offering is only as good as its people. Raghu Bhat, Founder & Copywriter, Scarecrow M&C Saatchi, opines that this is the time when the culture of an agency will be put to test. “A lot depends on the long-term business outlook. If agency heads are optimistic about the future of the agency, they will try to retain talent. If not, they will take the easy way out and slash costs,” he remarked.

For Bhat, the two other variables that define the situation are the 'profit pressure from holding network' and the humanity quotient of current agency heads. 

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