Despite claims that PR is one of the better placed disciplines when it comes to a recession, new research by Plimsoll suggests consultancies are heading for troubling times. Can PR professionals prove the doubters wrong or are we set to see redundancies sPlimsoll, the industry analysts, has unveiled its findings after assessing the survival chances of 1000 UK PR firms. PR heads and staffers of a nervous disposition should look away now.
The research indicates that 116 companies need to consolidate immediately or their survival is in question; in some of these firms, 30 percent of their workforce could have to go. As many as three quarters of the agencies analysed need to reduce their headcount; almost a fifth are already running at a loss.
In total, 1,164 jobs could be cut.
Yet, if any marketing discipline is capable of talking itself out of a crisis, it has to be PR – a discipline famed and fabled for its mastery of spin. However, PR agency bosses seem agreed that their profession is entering a period of flux. “Whether the figures are correct or not,” reasons Citypress MD, Charles Tattersall, “there are definitely going to be some casualties over the coming 12 months.”
Losing sleepTattersall believes the agencies most at risk will be those overexposed to one or more sectors that are facing worsening marketing conditions; he outlines the troubled house building and property development sectors as pertinent examples. “If you’re running an agency that specialises exclusively in these markets, you should be losing sleep,” he warns. “It’s likely to be too late for you to diversify to hedge against the risk of your clients falling like a pack of cards or cutting budgets so deeply that you slide into the red.”
He adds that single clients that account for more than the overall margin the agency makes can lead to instability. “If they move their business elsewhere or stop spending, you’re instantly in a loss making position and have tough choices to make. Yes, you can make redundancies but, if you’ve got high fixed overheads, your options could be limited.”
Another problem that Tattersall highlights is how PR firms, as businesses, can sit uneasily in the traditional business model structure. “Entrepreneurs and creative media people don’t generally like admin and systems but it’s essential to know your financial position at all times. It’s the only way you can make informed decisions as MD or agency owner.”
Bron Earnes, managing director of Haslimann Taylor, calls the figures “concerning” but insists that PR firms running a tight ship and keeping a close eye on the balance sheet need not panic just yet.
She predicts that “consultancies working to at least a 20 percent profit margin, consistently reviewing revenue forecasts and keeping a close eye on costs in relation to income, should weather the storm.”
She admits that “recruitment agencies are certainly sending in more candidates who have been made redundant,” and adds that we will probably see more new PR start-ups as a product. “While the market may lead to more candidates to choose from, all agencies will, I am sure, be doing all they can to keep their top performers on board and happy.”
Earnes reckons the industry should take heart from the fact that PR is much less dispensable now than it has been in previous economic downturns – and she might have a point. The Drum recently carried out a poll on its website asking which marketing discipline would be best suited to thrive in a recession and PR came second only to digital.
“PR has a key role to play in terms of reputation management and this is even more critical when times are tough,” she suggests.
In her capacity as chair of CIPR west of England, and MD of Corixa, Lis Anderson accepts that budgets in some sectors – namely retail, financial services and property - are being reduced and projects delayed. She tempers, however, that the CIPR is seeing growth and that business is not as bleak as made out. “In my CIPR capacity, membership to the CIPR has grown in the region, most significantly from start-up freelancers. In addition, PR events, activities & regional organisations such as Bristol Media are experiencing great attendance & growth of membership numbers at significant rates.
“In terms of Corixa, as an independent operator, I think we’ve used our position to respond quickly to market conditions. Call it fleet of foot. Perhaps larger groups have not been able to be so flexible.”
ConsideredAnderson admits the coming months “won’t be a walk in the park” but thinks the changes set to hit PR – directly attributable to tightening budgets – will not necessarily all be for the worse. “One of the most significant changes I am noticing is that clients don’t seem to be spending time, resource or energy on ‘drawn out’ pitching processes,” she observes. “There seems to be a real move away from the traditional, sometimes random, beauty parade approach to more considered selection process. That’s certainly been good for our business.”
If PR is in the midst of a crisis, evidence would suggest it is yet to become endemic. For instance, the R word on the lips of Willoughby PR managing director Jane Ainsworth isn’t recession – or redundancies, for that matter – but recruitment. “We’ve taken on four new members of staff already this year, we have an advert out for a new starter in our Nottingham office and we have a new and very senior member of staff set to join us soon.
“I think that agencies that spread their risk, watch their cashflow, keep a close eye on their debtors and can prove their worth to clients will have more than a fighting chance of getting through these dark days – and will come out smiling the other side, whenever that might be.” Ainsworth adds brightly.
Tattersall shares the upbeat sentiment and wryly says the coming months will be “interesting”. He thinks clients will yearn for stability in testing times and look to established players; smaller agencies with low cost bases and fees could also do well, he proffers.
“We will see PR companies trim excess fat to prepare for leaner times. But there’s no need for panic,” he says. “PR is a well-established marketing discipline that is increasingly coming into its own as clients understand the benefits it can add to their business. Client spending isn’t going to disappear overnight.
“The effect of these difficult economic conditions is just going to keep agencies on their toes and ensure that they’re focused on delivering great service and results, whilst re-shaping their business to suit the needs of changing markets.”
Of course, we could easily dismiss this as spin from the professionals – so what about the view from an eager observer... When I asked a colleague about the ‘crisis’ surrounding PR agencies the other day he said there wasn’t one. “They’ve just got to work harder with less people,” he quipped. There might well be some truth in that.