- Ad giant WPP’s revenue fell 2% in the third quarter on a constant currency basis.
- The company blamed a philosophy of cost-cutting at major clients, driven by the growth of internet retailing, management consultants, and activist investors.
- But WPP said: “Many companies have talked about increasing spend again as volumes growth has been reduced.”
LONDON — Advertising giant WPP has blamed a cost-cutting drive at large companies for a 2% fall in third-quarter revenue, warning that 2017 could be one of the toughest years for the marketing industry since the fall of Lehman Brothers in 2008.
WPP said in its third-quarter results, released on Tuesday, that the industry had bounced back from the financial crisis with a series of record years, but “2017 has, however, been a different kettle of fish, with top-line growth slowing across the industry.”
The conglomerate, a bellwether for the advertising and branding industry, said three key factors have combined to push companies to cut costs sharply. They are:
- The growth of online retailers: “The rise and rise of Amazon poses significant challenges in search and advertising for Google especially and its control of data and private label creates similar challenges for big brands.”
- Management consultants: “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.”
- Distortions from loose monetary policy and the rise of activist investors: “There is little or no doubt that this third factor has had a significant, almost Pavlovian impact on variable cost reduction and encouraging a short-term focus, particularly in the fast-moving consumer goods sector, which accounts for about 30% of our revenue.”
While a philosophy of cost-cutting took hold in 2017, WPP said spending may pick up again next year as sales of consumer goods fall.
“Most experienced package goods executives say, that the alarm bells ring when volumes stagnate or start to tail off and there are fewer users,” WPP said. “After reductions in marketing spending in the first half of this year, many companies have talked about increasing spend again as volume growth has been reduced.”
WPP shares fell around 0.7% at the open in London:
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