Economy sparks air of cautious optimism

Nagging reports out of the U.S. predicting an economic slowdown in 2001 are prompting some marketers this side of the border to keep their media spending plans on a short leash. That said, most media buyers, agency managers and clients contacted...

Nagging reports out of the U.S. predicting an economic slowdown in 2001 are prompting some marketers this side of the border to keep their media spending plans on a short leash. That said, most media buyers, agency managers and clients contacted for this article remain cautiously optimistic.

Bruce Claassen, president and CEO of Genesis Media, which estimates growth in Canadian ad spending this year will slow to about 2%, compared to last year’s 4.4%, says some of his clients have begun holding back on long-term ad planning, choosing instead to move forward quarter by quarter.

While that’s not unusual, he says for the past three or four years, advertisers – confident that the economy was chugging along – have generally been willing to negotiate broad-based ad plans for a full 12 months.

‘Some clients have made a decision in terms of what their commitments are going to be in 2001,’ he says. ‘But many other clients have yet to commit for the full year. Some of them are just committing for the first quarter and second quarter. It’s going to be subject to what is reported and what actually happens south of the border.’

In the U.S., the well-documented travails of the technology sector, rising energy prices, and a steady trickle, if not stream, of corporate profit warnings in more traditional business sectors, have taken the steam out of the equity markets and are fuelling fears of a potential general economic recession.

On the U.S. advertising front, 2001 is still widely expected to produce modest gains over last year, during which both the Olympics and the presidential election provided a significant media spending boost. A softening factor this year will come from the fact that the dot-com sector – which has played a key role in sparking an ad boom over the last couple of years – has faltered. Last year, for instance, an estimated 135 major U.S. Web sites failed, directly contributing to the disappearance of approximately US$200 million in ad spending – a small but not insignificant drop in the estimated US$300 billion U.S. ad market.

Here in Canada, however, the dot-com ad rush has been much less pronounced. So, as the technology sector loses its lustre, the Canadian ad industry should experience less of a shock, say the experts.

That is not to say that Canada is impervious to what’s happening south of the border. Many of the factors triggering an economic slowdown transcend the 49th parallel. Automakers such as Ford and DaimlerChrysler, for instance, have both issued profit warnings and slashed production recently, and General Motors is expected to begin laying off production workers and possibly even closing some plants in Canada and the U.S. this year.

Yet, economists are still predicting the Canadian economy will expand at a rate of up to 3.5% this year – down from 5% in 2000, but still a full point higher than what is projected for the U.S.

Because economic growth is still in the forecast, albeit at a slower pace, the advertising community in Canada continues to be cautiously upbeat.

‘We’re obviously well into 2001 planning, so we’ve spent quite a bit of time with our clients,’ says Arthur Fleischmann, president and CEO of Toronto-based ad agency Ammirati Puris. ‘I think everyone is guardedly optimistic. I’m not seeing anyone hit the panic button yet. Clearly our clients who are more retail based – the Sears and Eatons of the world – are the bellwethers of the economy. They’re the ones who feel it first, and I don’t actually see anyone pulling back.

‘I haven’t heard anyone talk about contingency planning, yet,’ he adds. ‘Everyone just sort of has a nagging concern.’

Blair Severn, national marketing manager with Sony of Canada, says that because economic slowdowns inevitably have a negative impact on big-ticket items, such as the home entertainment systems Sony brings to market, he is watching the situation very closely.

‘Right now, we’re setting up our plans and our budgets for [2001] based on a moderately optimistic growth in the economy,’ he says, pointing out that Sony has allocated the same ad spend for 2001 as it did in 2000. ‘If [the economy] does slow down, we probably would make some adjustments. Would we pull advertising? No. Would we be a little bit more careful or maybe moderate our plans? Yes.’

With such uncertainty as the backdrop, Claassen predicts more advertisers will drop tertiary media to cut costs in the coming year. The first to go, he posits, will be Web advertising. And he says magazines – which have garnered excellent ad sales in recent years – could take the biggest hit of all.

David Cairns, general manager of Carat Canada in Toronto, agrees.

‘Magazines tend to be used for long-term brand-building,’ he explains. ‘With longer close dates, if you need to take action and get some advertising in the marketplace immediately, it’s not your best medium. Any time there is a slowing economy, you see less brand-building and more retail.

One thing is certain: if there is a real economic slowdown in Canada, advertising cutbacks will occur. After all, as Claassen points out, ‘Advertising is a very, very simple and very, very quick mechanism with which to pull back expenses.’