Layoffs, wage freezes, bankruptcies – yet agencies saw growth

A surprising number of direct agencies have expressed rosy reports on the state of the industry over the past year. Reviewing many of the 2002 Direct Agency of the Year (DAOY) submissions, it was as if it was a year no different from any other - certainly not one characterized by a severely slumped economy.

A surprising number of direct agencies have expressed rosy reports on the state of the industry over the past year. Reviewing many of the 2002 Direct Agency of the Year (DAOY) submissions, it was as if it was a year no different from any other – certainly not one characterized by a severely slumped economy.

Those direct agencies must be looking through rose-coloured glasses. Either that, or they’re kidding themselves. At least that was the upshot of comments expressed by a couple of this year’s DAOY judges.

This year’s DAOY competition attracted 12 agencies at its outset (prior to shortlisting). Of those, almost half reported revenue growth over the last year, with almost all the agencies touting and crediting new business wins from the past year.

But as Grey Direct so aptly pointed out in its DAOY submission: ‘Where client spending had been holding consistent, 2002 actually saw it decrease for the first time in a number of years.’

If anyone can attest to the economic hardship experienced this year, it’s direct marketing suppliers. The most recent forecast put out by TrendWatch Graphic Arts, reports printers are viewing 2002 as the bottoming out period. The most recent financial statement from Markham-based PLM Group reads: ‘…It’s fair to say we’re operating in recession-like conditions as far as customer spending on marketing and promotion is concerned.’

‘It was a horrible year for printers – just look at how many casualties there were,’ says Kevin M. McKay, sales and marketing manager, TopLine Printing & Graphics of Mississauga, citing the demise of dominant shop Arthurs-Jones Clarke Lithographing of Mississauga, among at least four others of note. ‘DM is down, advertising is down. It was a really weird year because in a bad economy, there’s a school of thought that says, ‘advertise more’ – that didn’t happen this year. There were huge peaks and valleys – that’s not common.’

McKay wonders whether spending was diverted to areas like online direct marketing, hybrid Web sites and CRM – where the cost per thousand is still low versus the traditional, and more costly, ink on paper.

Mark Stephens, president of Mississauga-based fulfillment and letter shop, Innovative Response Marketing, agrees it was a bad year – set off primarily by the chain of events following Sept. 11, 2001. ‘We’re seven years old and we’ve grown in the lettershop every year except this last year. This year, we took at least a 30% cut,’ he says, adding that fortunately, the fulfillment side of the business grew thanks to new clients, so he was able to at least break even.

While sales eroded slightly, TopLine, for its part, didn’t suffer too big a blow, says McKay, only because of new business. ‘Everyone was getting two, three or four quotes, which they never would have done before. So interestingly enough, we were able to grow on the strength of new business and we capitalized on the fact that people were out there looking for quotes.’

It’s the same story for direct shops. While there was very little direct business up for review in 2002 in Canada (compared to other years), according to Peter Coish, president of Lowe RMP – this year’s Direct Agency of the Year – what little there was certainly helped to propel many agencies forward.

‘To be honest, in January, I was scared – we had come out of December on a real high and then in January, it felt like I had dived into a puddle of mud. You couldn’t get going, people were holding back and there was nothing out there new business-wise,’ he says, adding that shortly thereafter the gods began shining and Lowe won the HSBC Bank USA business.

‘I think it’s a zero-sum game right now – there’s not a lot a whole lot of growth happening in the category in spend and the way you grow is you take it from someone else. So it all adds up to zero in terms of overall growth.’

Mark Wright, president of Toronto-based MMRM, which tied for DAOY runner-up position with OgilvyOne, says new business wins over the year, including Loyalty Group, McNeil, Royal Canadian Mint and Microsoft, have carried his agency through, and in fact contributed to stellar growth rates (see MacLaren MRM coverage in the Direct Agency of the Year report, page D7). ‘Our new business is down a bit, but it’s what has kept us flying.’

‘Nearly every agency in the city has been freezing their salaries, laying people off – most have lost pieces of business and have had major downsizing in terms of spending,’ he says, adding that MMRM has not had to cut any staff. ‘What’s happening is that a lot of agencies have mature pieces of business where you’re doing your best and damndest just to maintain the spend – you’re not growing. But there hasn’t been a lot of new business activity for direct marketing. It’s getting tough for everyone.’

‘We need to be careful as an industry,’ adds Coish. ‘There was this arrogance in the early 1990s. The economy was awful, but direct marketing grew during that recession. And everyone said the measurability of our discipline means that clients will spend money on us because they know where the money is going. But what we’ve seen this year is pullback – across the board. We would be foolish to think we were immune because we’re in this measurable medium.’

More than ever, he says, agencies should be paying attention to every single project, to ensuring results for every client and first and foremost to hanging on to what they’ve got. ‘In terms of growth, there are new accounts occasionally coming up for review – and I think next year there will be a lot more.’