WPP CEO Takes the Long View Over Ad Land's Worst Year Since '08By
Sorrell says spending will return as clients seek sales growth
WPP ‘not blaming’ consumer-goods giants for recent troubles
WPP Plc Chief Executive Officer Martin Sorrell said investors should look beyond the advertising industry’s difficult year because marketing spending will return as clients aim to grow sales.
“I look more at the last 25, 32 years than the last 12 months,” Sorrell said in a Bloomberg TV interview Tuesday, when asked about the 29 percent decline in WPP’s shares year to date. “We’ll see changes.”
The world’s largest advertising group and its peers -- such as Publicis Groupe SA, Omnicom Group Inc. and the Interpublic Group of Companies Inc. -- are having their worst year for share performance since the financial crisis. Investors are concerned about cuts to marketing spending at major customers including Procter & Gamble Co. and Unilever Plc, while the companies also face stiff digital competition from tech giants such as Facebook Inc. and Alphabet Inc.’s Google.
Sorrell, who founded the company in 1986, has overseen a tenfold increase in WPP’s share price over the last two decades, compared with a doubling of the FTSE 100 index. He’s now facing tough questions about whether he has a strategy to deal with new market headwinds after the advertising giant cut its growth forecast twice in the last four months, sending its shares to their lowest since 2014.
Sorrell said consultants were advising clients to scale back advertising, a trend that will have to reverse if companies want to expand volumes.
“If you don’t innovate and you don’t invest in brands, you don’t win,” he said.
Sorrell rejected Publicis CEO Arthur Sadoun’s view that the industry had spent too much time pointing the finger at the consumer-goods companies for its recent troubles. Earlier this month, Sadoun said those companies were “fed up” at being blamed.
“He’s got it wrong,” Sorrell said. “We’re not blaming anybody. We’re trying to explain what’s going on. If you understand what’s going on you can try to do something about it.”
The advertising industry has been further hit by concerns about the efficacy of online advertising, which represents 40 percent of all marketing spending, up from 20 percent in 2011, according to Magna Global data.
In January, P&G’s Chief Brand Officer Marc Pritchard said much online advertising involves fraud, with bot accounts generating fake clicks. Companies have also pulled back from YouTube over concerns that their commercials are appearing next to inappropriate videos.
P&G has said it has cut $100 million to $140 million in digital advertising spending this year without seeing a negative impact on sales, a move Sorrell downplayed.
Taking $140 million out of their online ad budget “isn’t tiny, but it’s not significant in the overall context,” Sorrell said.
— With assistance by Jonathan Ferro, and David Westin