As ad spending falls, agencies trim jobs - 145 employees of BBDO Detroit lose jobs
The dream merchants too are feeling the heat of global economic downturn, as consumers go into a save for the troubles ahead mode and trim their expenses, a direct impact is seen on advertising expenditure and cutting flab in advertising agencies.
NEW YORK: Madison Avenue is fastening its seat belt as the cascading effects of the financial crisis begin to hit the advertising industry.
Consumers are suddenly cutting back spending on everything from cars to clothing, so companies are reducing their ad budgets or shifting to lower-cost alternatives like e-mail marketing and public relations.
That means layoffs at agencies, which have carefully counted heads whenever clients have started counting pennies since the dot-com bust.
Several big agencies have been reducing staff levels throughout the year. But the pink slips are flying faster since the failure of Lehman Brothers in mid-September intensified the crisis in the global finance markets.
"It's one big Maalox moment," the trade publication Advertising Age declared in an e-mail message sent to readers Thursday, referring to an advertising campaign for a stomach antacid. The message asked them to vote in a weekly online poll in which the question was: "Do you think your job is in jeopardy?"
Whatever the answers, the jeopardy turned out to be real for 145 employees at an office of BBDO Worldwide in Troy, Michigan, part of the Omnicom Group, who were told Thursday that they would be laid off immediately. That represented 22.1 percent of the estimated 656 employees in the office, known as BBDO Detroit.
The reason for the layoffs, across all departments, was the drastic drop in sales for Chrysler, the principal client of BBDO Detroit. That slump has led Chrysler to reduce its ad spending for the first nine months of this year to an estimated $800 million from more than $1 billion for the same period last year.
Chrysler reported Monday that sales in October for its Chrysler, Dodge and Jeep products had plunged 34.9 percent, compared with sales in the same month last year. Sales for the first 10 months of 2008 fell about 26 percent from the same period in 2007.
The layoffs at BBDO Detroit were "in response to reduced levels of activity by its key client, Chrysler," according to a statement from the agency, as well as "changes in the nature of planned activities" - in other words, future ad spending will probably be reduced.
BBDO Detroit creates national campaigns for the Chrysler and Dodge brands of cars, trucks and minivans. The office created national campaigns for the company's Jeep brand until April 2007, when those duties were shifted to an agency in San Francisco called Cutwater, also owned by Omnicom.
BBDO has about 2,000 employees in North America, said a spokesman at the New York headquarters, Roy Elvove. In addition to the Troy office, BBDO North America has offices in cities that include Atlanta, San Francisco, Toronto and Chicago, where the agency is known as Energy BBDO.
Like other large agencies, BBDO has been reducing staff levels throughout the year. Last spring, for instance, when the BBDO Los Angeles office lost the creative assignment for Mitsubishi Motors North America to a Hollywood agency named Traffic, 10 to 15 jobs were eliminated there and others were transferred to the BBDO San Francisco office.
Not all BBDO clients are pulling back. The agency has campaigns coming for retailers like Best Buy and Lowe's, as well as the Hyatt lodging chain and the Campbell Soup Company. And the BBDO San Francisco office has won assignments from advertisers like the cable company Comcast and Harrah's hotels.
The cutbacks at BBDO Detroit were announced just a few days after an interactive agency, Razorfish, owned by Microsoft, said it would lay off 40 employees, and Arnold Worldwide in Boston, part of the Arnold Worldwide Partners unit of Havas, said it would lay off about 50 employees.
In the past month, several major agency holding companies - Omnicom, the Aegis Group, the Interpublic Group of Companies, the Publicis Groupe and the WPP Group - warned that the advertising industry was slowing down because consumers were spending less after their confidence had been shaken by the financial crisis.
"During the past few weeks, it has become clear that the global financial situation has begun to weigh on marketers' spending plans for both the fourth quarter and 2009," Michael Roth, chairman and chief executive at Interpublic in New York, said in a statement as he released on results for the third quarter in October.
"While we believe that with our strong performance year to date we remain positioned to achieve our financial objectives for 2008," Roth said, "the impact of an increasingly unsettled and volatile business environment on our sector is not yet clear and creates a risk to meeting our stated goals."
Cautionary as those remarks were, they came nine days before many U.S. retailers reported steep declines in October sales at virtually every type of store. Those reports, issued Thursday, foreshadow a difficult Christmas shopping season.