Nowhere to go but up

VANCOUVER: It's been a tough slog for Vancouver advertising agencies over the past decade, but they wear their war wounds well - at least publicly. The survivors of a local market that has been hacked, slashed and abandoned by the big advertisers in recent years are determined to put a bright spin on the situation.

VANCOUVER: It’s been a tough slog for Vancouver advertising agencies over the past decade, but they wear their war wounds well – at least publicly. The survivors of a local market that has been hacked, slashed and abandoned by the big advertisers in recent years are determined to put a bright spin on the situation.

They could be delusional – some kind of post-traumatic stress disorder. Or they may have a point. By some estimates, the ad spend in Vancouver, after years of slow decline, dropped by as much as 30% over the past 12 months – so perhaps there ain’t no way to go but up.

A recent Strategy round table in Vancouver included Andrea Southcott, president and COO at Bryant, Fulton & Shee; Chris Staples, partner at Rethink; Bob Stamnes, president and partner at Glennie Stamnes Strategy; and Richard Hadden, president and creative director at the Vancouver office of Cossette Communication-Marketing. They began by describing how the former provincial government and fleeing senior accounts made them age that much faster.

Richard Hadden: B.C.’s had a bunker mentality for 10 or 11 years. When were the NDP elected anyway?

Chris Staples: And there were a lot of major clients leaving the market at the same time. Scott Paper and Ikea. It was like a revolving door: big corporations pulling up stakes – for various reasons. The loss of Canadian Airlines was a big deal. Combined with the government [of the day], we’ve never really recovered from that.

The good news is there has been a change of government, but at the same time, the government has come in and slashed ad spending, which has affected a lot of agencies. I think it spent about $10 million on ads in 2000. In 2001, it spent half a million.

At the same time, some Crown corporations like ICBC [Insurance Corporation of B.C.] and BC Hydro have basically stopped advertising. And on top of that, Telus, which is probably the major advertiser in this market, has had its own troubles and really slashed its spending. So if you take all that together, it’s about a 30% drop in the total market ad spend over the last year.

Andrea Southcott: But we’ve had our best year ever, this year. We’ve had 20% growth this year. So there are lots of success stories along with the tough stuff.

Staples: Our revenue is up 30%. We’ve got a bunch of new clients without having to pitch them, clients that haven’t used ad agencies in the past.

Bob Stamnes: We’re probably a little different. We were in the middle of the market for so long and I found that, unfortunately, a dangerous place to be. So, we have become a smaller company and there is no question that spending is down.

Strategy: So how is it that with the market down and agencies hurting, some of you are doing so well?

Hadden: Revenue from outside of B.C. That’s been our saving grace.

Southcott:

We’ve grown both in B.C. and Alberta. What tends to happen is we focus on the negative. There are a lot of things B.C. is doing better than anywhere else.

Hadden: We’ve had success with [software] client Crystal Decisions – they do a lot of B2B work in the U.S. They’ve grown revenues and sales five quarters in a row. They are an out-of-province success that doesn’t add to the editorial slant of ‘things are so tough here.’

Southcott: One of our largest clients is Shaw and they made a conscious decision to come to B.C. because they see the opportunity here and they have made a much bigger commitment here than Rogers ever did. Since the government changed, a lot of companies have recommitted to B.C.

Staples: Because the successful agencies that are left here are really quite lean, we can take accounts that in Toronto would seem like small accounts and make money at them. An account like Coast Capital Savings [formerly Richmond Savings Credit Union] in Toronto – a lot of agencies wouldn’t have touched it and here we can do some really great work for them.

Southcott: And we have a different agency model here [than Toronto]. We get absolutely into the core business with the client. That builds a stronger relationship and more revenue.

Hadden: We are not dealing with the size of client they are dealing with in Toronto. Although [a big client] creates the opportunity for revenue, it does come with a cost. You have to build a structure to service the larger client and that’s not overhead, it’s just bureaucratic weight sometimes. What we’ve been doing for 10 years is pruning. It looks brutal at first, but over time, you see the benefit. I don’t think you can do that as easily in a larger shop that has fairly large national Canadian accounts.

Strategy: So who’s doing all the complaining? Is this just a case of more West Coast whining? Or maybe you guys are made of sterner stuff?

Southcott: I think there is a desire to complain, which is really unfortunate because it creates a negative momentum on its own.

Hadden: Vancouver is a market that has been complaining since Expo ['86] closed. There is a parochial ‘they get everything, we get nothing’ mentality.

Southcott: There is a desire to change that, too. CanWest is starting something right now called ‘Believe BC’ where it promotes B.C. success stories in the papers and on TV. I’ve been talking to business leaders who say there’s this pent up desire to be positive. We have to liberate those success stories and people will realize there is a lot more to feel good about.

Stamnes: There is still some fallout from failed dot-com businesses, though. And you combine that with layoffs at a PJ or Lanyon… So all those things start to feed on themselves. This is a business that’s notorious for the fact that if there isn’t something to talk about, then we’ll just create it.

Hadden: I was just reading that we have the lowest level of consumer confidence in Canada.

Staples: And you look out the window here in downtown, and you see literally 15 new skyscrapers being built within two blocks of here – more than in Toronto, Edmonton and Calgary combined.

Strategy: So we have a morale problem.

Hadden: Vancouver has very high highs and very low lows. It’s manic-depressive.

Southcott: We just need a little Prozac…

Staples: I think Toronto might be going into a tunnel and we’re coming out of one. I think they could learn a lot from what we’ve been through – whether they want to or not.

Strategy: So tell our friends in Toronto which agencies are most at risk in this environment.

Staples: Depending on government revenue is always a dangerous thing to do. We have zero percent government revenue so we’re not affected.

Stamnes: And relying too much on a single client.

Southcott: We’ve had clients whose spending is down this year and we’ve had clients whose spending is up. You have to diversify your portfolio.

Hadden: A lot has to do with attitude in agencies. The agencies that are at risk are the ones that are literally afraid to fail. They get overly conservative or they are afraid to take risks.

Staples: And there are examples of real confidence in Vancouver as well. Grey Worldwide has just opened an office in Seattle. They’re saying, ‘Why can’t we get business from the Northwest?’ It makes more sense in a way than getting business from Toronto, and our dollar is so favourable. All of us will be watching that.

Strategy: What’s the human toll of a down market like this?

Southcott: If you look around this table and at the market, we’ve had the same people in agencies for a long time. So there is stability. And senior people here get their hands dirty.

Stamnes: That is absolutely a keystone part of this market. It’s always been ‘hands on,’ very senior. There are no senior operators here sitting back and waxing their desks and waiting for their martini lunches.

Staples: I always talk about the merry-go-round of Toronto. I’m convinced that most agencies in Toronto spend 30% of their days just watching the merry-go-round… who’s getting fired, what’s happening to Labatt… It’s splendid isolation out here.

Southcott: You also have to look at your values. We look at our business as being in it for the long-term. It’s about people. So if we head into a tough time, we’re more flexible about the profits that we deliver in order to keep people. It’s important to trust that things are going to work out. And if you bend your values for short-term changes in the economy, you suffer way more in the long term.

Strategy: What about agencies that drastically cut rates? It makes sense that if there is less demand for ad services then prices might fall.

Staples: This isn’t a market that has been driven by pricing wars.

Stamnes: Actually, it’s coming up a little bit. And there is more talk about it. [Drastically cutting rates] is a ridiculous strategy in my opinion, but it comes from a lack of confidence, desperation.

Hadden: It’s bailing rather than fixing the leak. It’s certainly not long term.

Strategy: Does this market grow the talent you need to sustain your agencies?

Staples: People make a choice to live here and they stay. And people pick an agency and they commit to it, even if there are rough patches. At all of our agencies, turnover is so low that maybe you are looking for one or two people a year, unless you’ve won a big account. There are lots of people in Toronto who would rather live here.

Southcott: We’re getting a lot of resumes from south of the border and we’re hiring from south of the border. It’s because of the reputation of this market.

Stamnes: And because of the downturn in the market, it has improved the quality of people out here.

Staples: People will routinely take a 20% to 30% pay cut to come from the U.S. and live in the city because they can work on great creative, and for lifestyle reasons.

Strategy: According to Strategy’s Creative Report Card, Vancouver still has some of the best creative houses in the country. Some of you are even on the list. How is it that with dwindling resources and, in some cases, morale, Vancouver can pump out the award-winning creative?

Staples: The great thing is the lack of grinding process. In Toronto, it can take a year between a brief and finished TV commercial. Out here, you have a lot of entrepreneurial companies where you are pitching right to the president, and they’re risk-takers. The budgets aren’t big and there is not the time to overthink. And that results in fresher work, riskier work, and that’s been great for Vancouver.

Stamnes: For many clients, the advertising agency is their marketing department. We just don’t have that middle layer [of bureaucracy] that can cripple a project.

Strategy: So what’s the future? Are we ever going to get rich out here?

Staples: My dream for this market has been to be like a Portland or a Minneapolis in the U.S. and I think we are on the verge. We’re getting work from all over – Chicago, New York, Toronto.

Strategy: Do you need the big companies to come back?

Staples: No. We’re growing new big companies. You look at Electronic Arts and other companies just sprouting up. Nike in Portland in 1980 was nothing and it took its agency to a global presence. We’re going to see some Nikes coming out of Vancouver.