EDITORIAL: Agencies must be ready for a slump

The 'phoney war' has come to the UK ad industry, a peculiar and

unreal period in which nobody is quite sure whether the apparent slump

in new-business activity is a glitch or the precursor of something much

worse.



As this week's Live Issue (p20) points out, nothing much seems to have

changed. The economy is in robust health with unemployment at its lowest

level for a quarter of a century, while interest rates have also

remained in check. Moreover, the total UK adspend is predicted to grow

steadily during the year - albeit not at the heady rates of recent

times. Classified advertising, usually the barometer of recession, is

also holding up well.



Yet there is underlying discomfort. Agency new-business directors are

suddenly discovering that their wells are running dry while chief

executives find clients increasingly reluctant to commit budgets they

happily discussed at the turn of the year. The caution among clients may

be no more than a symptom of general jitters sparked by any number of

things from the upcoming general election to the foot and mouth

plague.



Maybe the paucity of pitches is just a manifestation of the way

advertisers are now preferring to do business, eschewing 'beauty

parades' in favour of building on personal relationships.



Maybe what's happening is the market readjusting after gorging on dotcom

budgets.



Nevertheless, agencies would do well to hope for the best while

preparing for the worst. National economies are mutually dependent and

multinational clients are worried about the damage a weakened US economy

could cause to European and Far Eastern markets.



If the worst happens, senior agency executives will be forced to change

mindsets as their management skills are put to the test. The past decade

saw economic growth culminating in two years of unprecedented success

brought about by the dotcom boom and a massive explosion of

free-spending consumers. A lot of agency chiefs have no experience

either of managing in a cold climate or having to adopt leaner working

methods that Madison Avenue has embraced. Clients too will demand even

more accountability, more value for money and more flexible offerings to

protect their consumer base.



If there's an upside to all this, it's that the biggest brands will

sustain their adspend, using difficult times as an opportunity to kill

off weaker rivals. And it will be the giant agency groups which will

offer them the most comfort and protection. Industry consolidation is

proceeding at speed.



A downturn could send it into overdrive.



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