Turning the Corner?

There was business to be had in 2002, but it was hard-won. “My advice to everyone considering a career in marketing is to go into nursing,” says Steve Rotterdam, chief creative officer at EastWest Creative, an agency based in New York City. “The immediate future still needs to be approached with caution. And yet, agencies are being asked to be smarter, work harder.”

EastWest, which was nevertheless up about 10 percent in 2002 thanks to a combination of new and existing business, was not the only one feeling the tension between playing it safe and breaking new ground in 2002. The first half of the year saw very few major project assignments at most agencies, but that freeze began to thaw in the beginning of the second half, as a few marketers released RFPs. Agencies reported that some real momentum began to build towards the end of the year, only to be stymied by increasing concerns about the prospect of war shortly after the new year began. “We’ve had one potential client in a holding pattern for six months due to the tentativeness in the Middle East,” Rotterdam says. “Whoever can hold their breath the longest these days, will win.”

Dare we hope that the worst is over? Agency net revenues rose 14.8 percent in 2002, to $3.2 billion, according to estimates drawn from PROMO’S annual survey of promotion agencies and suppliers. The majority of that growth came from new client business; agencies reported existing clients spent the same or less in 2002 as they had the previous (and dismal) year. Of the 134 promotion agencies responding to this year’s survey, 23.9 percent reported a decline in revenues, as compared to 28 percent in last year’s study. It seems so long ago: only 5.9 percent of respondents in 2000 and 8.7 percent in 2001 reported declines.

At the Fall 2002 meeting of the APMA (now MAA), attendees representing top international promotion agencies quietly reported that business is still sluggish in all markets, due to a number of factors. Chief among these are: clients that still undertake more work internally, especially print buying, art and graphics development, and copy writing; and clients that are, more than ever, looking to short-term sales to appease shareholders and/or CEOs. There are shops in trouble with servicing and profitability, and some are struggling within large communication groups battling to become profitable.

Consolidation continues unabated as investors focus funding on a few large agencies (think DVC Worldwide) with the infrastructure to absorb boutique shops that help round out their offerings and geographic breadth. “There’s a point below which agencies can’t survive,” says one source, “And several found themselves there this past year.”

Yet it was the smaller shops, with revenues under a million, which reported the healthiest growth, an average 20.5 percent in 2002. Those mid-sized agencies, with revenues from $1 million to $10 million, grew nearly 18 percent on average, while the largest firms, with annual revenue over $10 million, grew at a rate closer to 15.6 percent.

Agencies reported fewer layoffs in 2002 than in 2001, when bloodletting rose into the thousands. Those that were hiring — even for junior positions — were typically inundated with thousands of resumes.

AGENCY NET REVENUES SNAPSHOT

total spent in 2002: $3.2 billion

Net revenues recovered double-digit growth rate, reaching 14.8 percent

Growth came largely from new accounts as clients swapped agencies

Consolidation continues to absorb some small, boutique shops