Advertising Giant WPP Faces Slow Growth As Companies Cut Ad Spending

Aug 25, 2017
Originally published on August 25, 2017 10:47 pm
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WPP is the world's largest advertising company. It's sometimes called an economic bellwether because it works with huge corporations like Procter & Gamble, Ford and Nestle. NPR's Alina Selyukh reports that the British ad company is facing some surprisingly bad news.

ALINA SELYUKH, BYLINE: In the advertising world, WPP is a behemoth. It owns hundreds of ad agencies. Think classic Madison Avenue. Their clients are the who's who of the Fortune Global 500. They sell all kinds of things - shampoo, mayonnaise, cars. And this reach has made WPP something of a proxy for the health of the world's largest corporations.

BRIAN WIESER: They have some of the most insightful earnings releases of any - certainly any company I cover.

SELYUKH: Brian Wieser is a senior analyst at equity research company Pivotal.

WIESER: They have the most diverse assortment of marketers as clients across many different industries. And so they will have a better read certainly on the large marketers' and large companies' spending habits than anyone else.

SELYUKH: And this week, this read on ad spending habits was particularly pessimistic. Going into 2017, WPP was reasonably optimistic about revenue growth this year. Now the advertising powerhouse says it may not see any growth at all.

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MARTIN SORRELL: We started the year really around 3 percent. Then we moved down to 2 percent. And now we're talking between 0 and 1 percent.

SELYUKH: That's the CEO, Sir Martin Sorrell. He's often described as the most powerful man in advertising. And this week on the earnings webcast, he blamed the decline in ad spending on cutbacks by the big consumer goods companies.

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SORRELL: The three key factors here were a trifecta of digital disruption, zero-based budgeting and activist investors.

SELYUKH: OK, to peel that back in the simplest terms, he's saying the Internet is shaking up advertising, companies are cutting costs, and some shareholders are pushing for better profits. But let's dig in a bit into the digital disruption.

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UNIDENTIFIED MAN: Gillette, the best a man can get.

SELYUKH: Take Procter & Gamble. They own huge brands like Gillette, Febreze, Crest, Pampers. And P&G has been slashing ad spending, especially calling out digital ads, saying they want real humans, not fake Internet bots, seeing their ads. And they don't want their ads next to, quote, "objectionable content." But more fundamentally, the stalwarts in consumer goods have been facing competition from Internet-powered newcomers.

WIESER: It is maybe best described as Gillette losing share to Dollar Shave Club.

SELYUKH: That's a startup that sells razors, now a part of Unilever.

WIESER: And in every category, you could probably find a similar example.

SELYUKH: The new online rivals think differently about advertising - maybe talk to consumers directly or pay a YouTube star to plug your brand. That means the advertising giants like WPP are themselves rethinking how they work. And some analysts say maybe they aren't good economic bellwethers after all. Alina Selyukh, NPR News. Transcript provided by NPR, Copyright NPR.