WPP chief executive Mark Read has told Campaign that he is “very cautious” about the pace of any recovery in the second half of 2020, partly because of the risk of a second spike in coronavirus cases in some parts of the world.
The world’s biggest agency group has warned of a “tough” second quarter, after a 7.9% slump in net sales in March, and it is making an undisclosed number of “permanent headcount reductions.”
Read offered some positives in an investor presentation as “we have witnessed a decade’s innovation in a few short weeks.”
Staff have sped up working practices, even as 95% of them have been at home, and they have been delivering some client projects in a matter of days or weeks that might have previously taken months.
Some advertisers are also rethinking the merits of in-housing because it comes with fixed costs while agencies can be more agile and have broader sector knowledge, WPP told investors.
This is an edited version of Campaign’s interview with Read.
You say you have ‘plans in place to flex against a number of economic scenarios.’ Some companies are bearish – British Airways is talking about several years to get back to normal. What are the scenarios that you see?
Clearly, the second quarter is going to be tough and the outlook after that is uncertain. Our experience from China is there can be quite a rapid recovery – albeit not to the levels of before the pandemic.
How things progress from there [after Q2] is [going to be] a result of both the economic situation as well as [how] the health situation unfolds.
So, if you look at what we see across WPP, we see a number of markets starting to emerge the other side of the worst of the lockdown, which gives us hope that things will get better. But, at the same time, we see other countries that have moved to ease regulations start to reintroduce them.
So I think we have to be very cautious about the outlook in the second half of the year.
WPP suspended the dividend, halted share buybacks and the most senior leadership took pay cuts at the end of March. Now, you’re making what sounds like a second wave of savings, including salary sacrifice for more staff and permanent headcount reductions. Can you be explicit about the job cuts?
It’s a careful balance that we’re trying to navigate between protecting as many jobs as we can, protecting the company, continuing to serve our clients and being ready for the recovery, which evidence has shown from China can be quick.
Cost measures that we’ve taken are primarily those that give us some cost flexibility while limiting the number of permanent headcount reductions, and I’m going to decline to give you the exact number.
Our goal is very much to limit the number of permanent job reductions, but there will be parts of the business that will be permanently impacted.
Which agencies or parts of the business are facing reductions – for example, creative agencies?
It’s less to do with particular kinds of agencies. Clearly, there are some parts of the business, like the event-related businesses, that are impacted, but they are a very small part of WPP.
It’s more that there are certain clients, particularly in the travel and leisure sector, where they are very severely impacted. It’s really more about clients than it is parts of the business.
Omnicom said on its earnings call this week that it may need to be quite severe on costs in the third quarter as well as the second quarter, so that it starts adding costs again only once revenue returns, not ahead of a pick-up in revenue. What’s your view?
We’re looking to manage our costs to have the right balance of cost reduction in 2020 and set ourselves up for success in 2021. I don’t think it’s about managing costs quarter by quarter.
What’s your message to clients about investing in communications and advertising in a downturn?
Clients invest in marketing for a return on investment. That’s what they need to focus on – not the absolute level of investment
Clearly, in the current economic situation, we’re not naive enough to suggest that clients should continue to invest either at exactly the same level or exactly the same way as they did in the past. At the same time, the opposite reaction of totally stopping spending is also the wrong one.
What we are saying is they should look to get the maximum return on their marketing investment and there are a number of activities that they can do that will give them that return at the moment:
One is to communicate with their customers at a time when things are tough and customers want to hear from companies.
The second is at a time when your competitors aren’t spending and media prices are low, for those companies that have the financial resources it is a good time to market, if they can market in the right way.
And, in addition, at a time of rapidly changing consumer behavior, those companies that want to figure out how to get out of the other side, it is quite an interesting time to innovate and understand what you can do and drive demand.
Those companies that have invested in ecommerce and direct-to-consumer channels – and you know the investments WPP has made in ecommerce in the last few years – are going to be in a stronger position.
Our message to clients is not one around spending; it’s about ensuring they get the maximum return on their investment.
What you’re seeing from clients is a reallocation of budgets – it’s not as straightforward as saying from analogue to digital or digital to analogue.
I was talking to one client who was saying they are finding daytime TV a very effective medium for driving sales online through their direct channels.
When you took over WPP in 2018, you talked about radical evolution. It seems obvious that we are now in a phase of revolution. How different should WPP look?
If you look at the changes we’ve made over the last two years, I think you’d probably describe them as a revolution, not an evolution. Bringing VML and Y&R together and bringing Wunderman and JWT together were fairly radical steps.
The changes that we’ve made – the simplifications in the structure [of WPP], the investments in creativity and technology, the deleveraging [by reducing debt] – have all put us in a stronger position.
The current environment calls for us to accelerate those [changes] and we will be looking to further simplify and integrate the business.
One thing that I have observed is a much greater degree of collaboration across WPP and a real sense of the company coming together. You see that to some extent, with 3,000 senior executives across the group taking salary sacrifice [of 10%-20%] in the second quarter.
We are going to accelerate what we’re doing and continue on that path [of simplification and integration], but with greater focus.
WPP has already returned to 90% occupancy in your offices in China but how do you see the return to work happening in other markets?
We’re planning how our people will return to offices as some countries begin to ease restrictions. We will only begin this transition once we are confident that our offices can operate safely and are working with our country managers and agency leaders to ensure this as restrictions start to lift in individual markets.
Our expectation is that we will move conservatively and keep the density of people in our offices at low levels, while also taking into account the safety of our people where they need to use public transport to get to work.
This story first appeared on campaignlive.co.uk.