SPIN CONTROL:
PR Execs Talk About the Downturn and How They’re Controlling Costs
It hasn’t turned out like a carefully scripted press release.
On New Year’s Day, public relations execs bid a happy farewell to 2001, one of the toughest on record for firms in the industry. Insiders cautiously predicted that they’d see a turnaround by mid-2002, or by the third quarter at the latest.
But the early-year hope hasn’t turned into much of a rebound. The economy continues to sputter along with only modest improvement while Wall Street focuses on scandals that have put a stake in the nation’s confidence level.
Staff reporter Jennifer Bellantonio talked to executives at some of Orange County’s largest public relations firms about their assessment of the industry, how they’ve been impacted and what they’ve done in reaction.
First up is their assessment of the industry and when they expect a turnaround. Later, executives address what they’ve done to control costs and what their hiring plans are.
Rick Sharga, executive vice president, general manager of Costa Mesa-based neoBrands:
This continues to be the worst economy in memory for advertising and public relations firms. It’s tied directly into the sluggish economy, of course, but I believe that there are also fundamental problems facing the industry that might prevent it from ever reaching the levels it enjoyed prior to the economic meltdown
Some business segments,consumer-packaged goods, travel and entertainment for example,seem to be recovering more quickly than others. Some,such as technology, where neoBrands has traditionally focused,continue to languish.
My expectation is that the economy will come back around sometime late this year or early next year. I’m afraid that the ad business,as we know it today,may have seen its historic peak. And the public relations industry relies primarily on ad-supported media for getting their clients noticed.
Meg Waters, principal of Lake Forest-based Waters and Faubel Inc.
The industry doesn’t seem to be rebounding quickly.
We don’t expect a strong comeback for 18 months, or until the beginning of 2004.
Laer Pearce, president of Laguna Hills-based Laer Pearce & Associates
Our public affairs projects are steady in good times and bad. That part of our business has actually grown over the last few years and is growing even faster now.
Our consumer business dropped off, as expected, and is coming back, as expected. In the last month, we’ve had several opportunities to pitch substantial consumer accounts, so I believe the corporate budgets are returning.
David Paine, president of Irvine-based PainePR
While the economy is better than it was a year ago, it remains very weak. We do not expect to see much in the way of meaningful improvement until the middle of next year. Companies continue to be very cautious in their spending, and we do not anticipate that changing this year.
Lisa Zwick, senior vice president and general manager of Benjamin/A Weber Shandwick Company
The economy as a whole has been slow to recover, but we’re seeing the initial signs of a comeback for high-tech public relations, especially in emerging markets.
Doug Freeman, principal at Santa Ana-based Freeman/McCue
Given the realities of the business world today, the ability to immediately bounce back from adversity is becoming increasingly difficult.
The public relations industry as a whole, however, is well-positioned for growth in the near future as the many challenges facing corporate America,integrity issues and investor/consumer relations among them,are likely to be immediate drivers of expanded public relations involvement
Ralph Rodheim, president of Rodheim Marketing Group in Costa Mesa
I do not see a total economic turnaround happening during this calendar year. I do expect additional negative corporate announcements related to accounting matters. And as a result, companies will have to write off the negative assets.
The continued threat of terrorism, coupled with the mistrust of corporate America will keep investors on the sidelines, at least until values drop to a point where greed kicks in. Then we will see the uptick.
Frank Wilson of Laguna Hills-based Wilson & Associates Inc.
I am an optimist. But I don’t expect our industry to come back until at least first quarter 2003.
This business usually leads an economic downturn and trails the recovery. That is because most clients consider advertising and public relations as a discretionary item in their budgets.
Right now, with some exceptions, clients have either stripped down their spending or are holding off doing so. Those that haven’t are paying the price.
There is still too much uncertainty in the markets and in the international scene. The only good sign is that the housing market remains strong and that has buoyed the economy.
Christopher Perez, senior vice president of Irvine-based Magnet Communications
As a marketing discipline, public relations is very resilient to economic slowdowns, primarily because our campaigns come at a much lower price tag than other marketing strategies.
2002 has been a much stronger year for Magnet Communications, although new business growth is still moving slowly.
Erika Price Schulte, public relations director at Irvine-based RiechesBaird Advertising and Public Relations:
The second half of 2001 was the most difficult period in our agency’s history,we know we share that pain with others in the industry. We took some very aggressive steps to ensure that we’d get through it. Fortunately, in the second quarter this year, we’ve seen a decisive increase in business. The recovery will continue to be a long, slow process, and there will undoubtedly be more obstacles to come, such as the current accounting scandals on Wall Street.
Hilary Kaye, president of Tustin-based Hilary Kaye Associates
Serious prospects are ready to go. They are not deciding if they will move forward, they are deciding how they will move forward. There’s a definite change in the tone of the companies we are talking to.
Jennifer McLean, vice president/director of Irvine-based T & O; Public Relations
The economic rebound is predicted to impact small- to medium-sized businesses first. We’re finding, as a result, that those companies that are servicing those markets are seeing some increase in activity and even revenue.
How are you controlling costs in this economy? What are your hiring plans going forward?
Sharga of neoBrands
We downsized. We’re somewhere between one-third and one-half the size we were at our peak level. The executive management took dramatic pay cuts, and in some cases went off the payroll entirely so that we could keep as much of our team employed as possible. And we sublet some office space to reduce overhead costs. Future hiring will be directly related to business growth. And, unlike years past, hiring will happen after the business has been secured rather than done with an eye toward possible growth.
Waters of Waters & Faubel
We haven’t had any layoffs, and our billings and revenue is about the same as last year. Rather than large increases to base salaries, we use performance-based bonuses. We have no immediate plans to hire new full-time employees. We will continue to outsource as necessary.
Paine of PainePR
While we have not had to resort to significant layoffs, we have been watching our costs carefully. We are not hiring many people at this time, but that could change if business improves.
Zwick of Benjamin
We have actually hired new employees in the past few months. We intend to recruit for select positions, although the pace of hiring is definitely slower today than it was a couple of years ago.
Freeman of Freeman/McCue
Unfortunately, agencies can’t turn cost control on and off like a faucet. We’re charged with providing a service to corporate clients and, hopefully, the sound judgment shown in good times also applies when the belts get tightened.
Staff expansion is generally a function of account depth and involvement, and as always, we will make those decisions based on clients’ needs.
Rodheim of Rodheim Marketing Group
I am very cautious. I do not want to hire and then have to let people go. We do our best to create a “safe” and secure working environment. Having said that, our client base continues to expand and we are on the verge of adding more quality professionals.
Melinda Morgan of Irvine-based Morgan Marketing & Public Relations
During the first quarter I personally scrutinized every overhead cost. The agency reduced many freelance and outsourced projects, keeping the work inside the firm. We switched to more cost-effective vendors and educated employees on the importance of billable costs, billable hours and other issues.
We’re hiring. I am confident for a strong third and fourth quarter. Fortunately, business is booming and calls are coming in.
Wilson of Wilson & Associates Inc.
Last year and again this year, we went through our entire expense budget and made cuts in almost every category except salaries and agency promotion. This included putting money that might have been paid out to me as owner into a cash reserve.
We froze hiring and tightened up on our receivables. We did a complete review of our insurance coverage and changed our health insurance policy. We are renegotiating our rent in line with current market rates in the area.
We will not be hiring until we see clear signs of a recovery, and that means booked business.
Perez of Magnet Communications
Like most other agencies, Magnet had a hiring freeze, but we were always able to reward our producing employees. They may not have been big performance increases, but they were at least something. Only our Hispanic practice has been on a hiring swing,
Hilary Kaye of Hilary Kaye Associates
We lost two people last year from attrition and I have not replaced them. I have used independent contractors as needed to supplement our staff. Having a smaller in-house staff has enabled HKA to weather the downturn very well. We are now positioned properly for the upturn.
McLean of T & O; Public Relations
We managed our operations more tightly. We also looked for recovery through current clients. Most of our clients have been with us for several years and we were able to drive some new strategies that garnered additional project budgets. Our hiring plan hasn’t changed.
