Global supply chain crisis darkens outlook for ad spend

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Tightening global supply chains have clouded the outlook for the advertising industry as companies struggling to source products and components rethink their plans to spend big on promotional campaigns.

Toy makers, auto dealers and furniture suppliers are among the companies taking a more cautious approach to ad spending as disruptions at ports and factories continue, according to executives and analysts at the industry.

Bottlenecks meant that advertisers in “a wide variety of industries and geographies” could “slow down their marketing spend, given the diminished need to drive incremental demand,” said Jeremi Gorman, chief commercial officer of social media group Snap, during a results presentation last week. .

It’s the latest sign that supply bottlenecks are having a ripple effect, beyond industries immediately facing shortages. Advertising agencies have rebounded from the depths of the pandemic, when lockdown restrictions prompted customers to cut spending, but supply chain issues threaten to hamper the recovery – at least among specific customer sectors and some types of work.

“Performance” advertising – tactical promotions that attempt to directly drive sales – was more vulnerable to a downturn than “branded” advertising or longer-term efforts to educate consumers, analysts said.

The fourth quarter has traditionally been a particularly important time for performance advertising, said Steven Cahall of Wells Fargo, as retailers and suppliers promote products to run out of stocks as Christmas approaches.

“Marketing has been held back,” said James Zahn, editor of industry publication Toy Insider. “You can’t market a toy that you don’t know will actually be on the shelves. “

So far, there are few signs that delivery delays are having a noticeable financial impact on the world’s largest advertising groups. Results released in recent days showed third-quarter revenue increased 7% year-on-year to $ 3.44 billion at Omnicom, 12% to 2.62 billion euros at Publicis and 16% at $ 2.26 billion at Interpublic. WPP is due to report this week.

While the pandemic has skewed year-over-year comparisons, organic revenues for Publicis and Interpublic were higher in the last quarter than at the same time in 2019, according to Citigroup. However, Omnicom remained below the pre-pandemic total.

For the last three months of the year, Citigroup predicts a slowdown in the rate of organic revenue growth at all three companies: from around 111% of 2019 levels in the third quarter to 103% in the fourth at Interpublic, from 105% cent 102 percent at Publicis and 99 percent to 95 percent at Omnicom.

Noting “the increase in supply chain problems,” Steve King, chief operating officer of Publicis, said there was potential for performance advertising to “suffer if inventory or merchandise started. to be exhausted or to decline. For the moment, it is a small risk, but we are obviously paying very close attention to it. “

John Wren, president and chief executive officer of Omnicom, called the impact of the disruption in the supply chain “big unknown”, adding that the problem tempered the optimism of corporate customers about consumer spending and the return of employees to the workplace.

Discussing the fourth quarter on a call with analysts, Philippe Krakowsky, chief executive of Interpublic, highlighted the spread of the Delta coronavirus variant, not supply chain issues. “The tone of the company is strong, but Delta has definitely created some uncertainty at the macro level,” he said.

Cahall added that the “branding” work done by the world’s largest advertising groups should help protect them if customers cut “performance” budgets.

“Automotive is the most notable weak category, and furniture can be too, but there are other categories that are well above 2019 levels,” he said, citing a strong demand for advertising in industries such as sports and legal betting.

Additional reporting by Andrew Edgecliffe-Johnson in New York


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