Germany: Living with Recession

The dark cloud hanging over Germany's ad agencies isn't going anywhere in a hurry. But it's not all Sturm und Drang, as Lucy Aitken discovered.

The times they are a-changing in Germany. In a matter of days, the Germans go to the polls and are likely to throw out the German chancellor, Gerhard Schroder. One reason Schroder has fallen out of favour so dramatically with voters is his lamentable track record of managing Germany's economy.

The legacy left by Schroder and his finance minister, Hans Eichel, will be a budget with a record deficit. Predictions indicate that, by the end of 2005, public debt in Germany will have hit EUR1.5 trillion, or 68 per cent of gross domestic product, and could rise to a scary 111 per cent of GDP by 2050 - similar to Italy - if action isn't taken. The smart money is on the conservative Angela Merkel to be the next chancellor. Under Merkel, taxes, including value-added tax, will almost certainly rise.

Germany's lacklustre economy has meant that the past four years have been pretty gloomy for agencies. Sebastian Turner, a partner of Scholz & Friends Group and the chairman of the board at Scholz & Friends Germany, which charmed Cannes jurors last year with its work for the window company Weru, observes: "Almost everybody has downsized. As well as D'Arcy and Bates closing down on an international level, some network offices have been slashed in half and a few agencies have gone out of business altogether."

Yet, as always in a recession, hard times have spawned a healthy start-up culture. Just as Clemmow Hornby Inge quickly established itself as the hot Soho start-up in 2001, Kempertrautmann is fast acquiring an enviable reputation in Germany. Launched in July 2004, the agency has five clients and is rumoured to have won Audi. It has also won acclaim for its campaign for the electronics chain Media Markt. The agency co-founder Michael Trautmann says: "It is better to launch mid-recession, so in better times, we'll always remember how we started."

This perspective is essential, Trautmann believes, when it comes to motivating staff. Along with his co-founder Andre Kemper, Trautmann is considering a St Luke's-style partner scheme for the agency, to maintain long-term stability. "We want to create a community that can go through both good times and bad," he says.

It's also important to pay your staff what they're worth and not charge bargain-bin prices for your services. He counsels: "For good work, you need good people and they have to earn good money or they'll leave. You have to fight clients for money because, once you say you'll do the work for less money, you're lost."

Many German agencies have already found themselves out of pocket because big pitches have swallowed up mammoth quantities of resources. Arno Lindemann, the executive creative manager of Jung von Matt/Fleet, Hamburg, thinks pitches in Germany have become outrageously wasteful: "Ten years ago, you'd show a drawing to a client and they'd say 'we love the idea'. Today, you get clients contacting 20 agencies, ten are invited in for chemistry meetings and five are short-listed. The shortlisted agencies go through several rounds and don't get a pitch fee. No-one can afford to lose three pitches in a row."

Part of this elaborate approach towards pitches stems from clients exercising extreme caution in an unforgiving economic backdrop. According to some agencies, clients fear making long-term decisions, so they become even more reliant on market research and, specifically, pre-testing. To many creative minds, these kinds of processes simply kill original and sparky ideas dead in their tracks. Agencies also agree that clients are demanding more bang for their buck.

Hans-Peter Eisinger, the global media director of Siemens, says his agencies are not cutting prices, however. "There's a kind of stability on the fee side because we are still paying what we were paying two or three years ago." He adds that a large question mark hangs over "campaigns with long-term commitments", such as branding posters at airports targeting Siemens' business-to-business audience. "Everything is under evaluation right now," Eisinger says. "Small and medium-sized agencies are really suffering because of the recession; the average life-cycle of agencies is shorter than ever."

These agencies need to change to survive, Aris Theophilakis, the chief operating officer of Springer & Jacoby Group, says. "Agencies have to be more flexible and break up processes and structures that aren't working. If they don't, they start to suffer."

His colleague Oliver Schwall, the managing director of Springer & Jacoby Group, adds: "The easiest way to motivate people is through the product that you deliver. Helping clients and winning awards can be inspiring for everybody." Among recent awards successes was his agency's "Coke can" ring-pull idea for the Smart car, which won a silver at Cannes.

Creative and effective work provides a mental lift that helps to combat the psychological effects of being stuck in a recession. Trautmann, along with many of his contemporaries, believes that the recession in Germany is as much a psychological state as an economic one. "People are getting used to it, so it's more or less part of our business today," he says.

Theophilakis agrees: "In Germany, where you have a very Protestant culture, the recession becomes more psychological than anything else. And that can be more pessimistic than optimistic."

So the EUR64 billion question is: when will the recession be over? Predictions vary, but Stephan Rebbe, the co-founder of the hotshop Kolle Rebbe, is cautious, estimating that it will take two years. "We need a new government and we need a new state of mind," he says. "That takes time."