Recovery? You're joking, says Sorrell
Sir Martin Sorrell, the boss of advertising giant WPP, says that any prediction of imminent global recovery and green shoots is premature.
On the economy, Sir Martin says there is a “false sense of security”
Those who say the economy is picking up are kidding themselves says Sir Martin Sorrell, the chief executive of the world’s largest advertising group, WPP.
According to Sir Martin, 64, company figures may show some indication of stabilisation but this does not show the real picture. “I think a lot of what people are saying is based on relief and looking at easier comparatives,” he says. “People like to put spins on things. Things are naturally going to look better, not necessarily because people are spending more heavily, but because you are starting an easier period.
“If you look at the numbers, there is some indication of some stabilisation. It is a bit like when you see country figures coming out where people say that GNP is growing — like in Germany or the UK — and they look at the sequential quarters and don’t compare it to last year. When you look at sequential quarters and don’t compare them, or when you look at the rates of decline and say that the rates of decline are getting less therefore things are getting better, you sort of kid yourselves.
“Unless you are going down to zero, at some point in time it has to improve. If you keep going down you will be in serious trouble. So it naturally is going to look as though it is getting better because the comparatives get easier.”
He continues: “I think we are a lulling ourselves into a false sense of security a little bit. I don’t think there is growth that’s going on — it’s just that we are bumping along the bottom.”
There is a relief because the worst didn't happen
He says that while chief executives and marketing managers may have begun to feel slightly more positive about the global economy, this is not yet translating into actual spending. “I think that is more a feeling of relief because Armageddon didn’t happen. After the Lehman catastrophe, people thought that the worst was going to happen and that somebody was going to turn the lights out. So I think they feel a bit more confident. If you ask me if clearer heads or stronger hearts have translated into signing cheques, the answer is no.”
So, no green shoots then? “I don’t see any at the moment,” says Sir Martin, before referring to a recent annual gathering of media heavyweights in Sun Valley, California. “Wilbur Ross [billionaire investor] said he couldn’t see any green shots, just maybe some moss. I didn’t see any moss — just bare rocks.”
The former Haberdashers’ Aske’s boy is cautious about the economic prospects for next year as WPP’s first-year profits have almost halved in the recession. The company, which owns the public relations firm Ogilvy & Mather Worldwide, last month reported a 47 per cent drop in pre-tax profits for the first half of the year — to £179m. Shares in WPP fell by 3.5 per cent to 501.5p. Recovery, he says, would be “L-shaped: maybe an italic ‘L’ to indicate some sort of uplift but it is going to be mild. It is going to be a long haul.”
Looking ahead, he says the issue is how the governments will balance their budgets. “The focus now is on the US deficits and how the governments are going to handle those deficits. Are they going to cut spending and increase taxes; or let the economies inflate and the nominal value of any debt to decline as a result? Or are they going to risk their electoral position by increasing taxes and cutting spending? Angela Merkel has an election now, Gordon Brown will have it by the middle of next year and President Obama has his mid-term elections in 2010. All these pose pretty ticklish issues, so we’ll see.”
As for WPP, one thing is for certain — it will become increasingly new market- and data-driven, new media- and consumer-oriented. According to Sir Martin, whose current WPP stake is reportedly valued at £74m ($122m), the group’s strategic vision is founded on “the increasing importance of new markets: the BRIC countries [Brazil, Russia, India and China] and Next-11 [Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey and Vietnam]; plus: new media, consumer insight and our market research.
“We are well on our way to achieving our objectives in these areas— 26 per cent of our business is in Asia, Latin America, Africa, the Middle East, Central and Eastern Europe; 25 per cent is in digital; and almost half our business is in these quantitative areas of consumer insight, digital and interactive.” The challenge, he says, is managing their business in the short-term.
The group has had to slash 6,500 jobs worldwide and around 700 in the UK, cutting its worldwide headcount by 6.3 per cent. “As revenues come under pressure, sadly we have had to adjust. The number of people in the group has come down and will fall broadly in line with what happens to revenues. If revenue comes down by six per cent, the head count has to come down by six per cent.”
Sir Martin has presided over WPP for more than 20 years, during which time he has turned it into the world’s largest advertising and communications company with a market capitalisation of £5.3bn (as of 31 December 2008). Not bad considering it started from a rented room in London. Sir Martin was 40 years old and the finance director of ad agency Saatchi & Saatchi when he bought Wire and Plastic Products, a supermarket wire basket manufacturer based in Kent, for £1m. For the next two years, he made 15 takeover bids for below-the-line agencies, boosting WPP’s market value to £134m. There are now more than 2,000 offices in 107 countries with a total of 135,000 staff and Sir Martin’s personal wealth is estimated at £83m.
Today, he is often referred to as the “Sage of Soho” because of his proclamations on the advertising industry and health of the global economy. So, what is the prognosis for the next five years? “I wish I had the God-like answer,” says Sir Martin, before going on to offer his projections, summed up by “continued caution”.
“People expect our industry to stabilise by 2010 and I would agree. By the beginning of the first half of 2010, I think people will feel better. Whether that translated into more spending is another question.
“Having gone through the near-death experience post-Lehman Brothers, there will be a generation of managers who have looked into the abyss and are relieved that they didn’t fall into it, but will be cautious for a long time as a result.”
He identifies five events in 2010 that could help business and have a positive effect on media spending. “In China there is the Expo in Shanghai and the Asian Games in Guangzhou; there is the Fifa World Cup in Africa which, although won’t be as big as the Olympics were in Beijing, but will be very significant in the context of Africa; Obama’s mid-term elections in November; and the Winter Olympics in Vancouver.
“In 2011 there will be a question over rising interest rates and how governments will deal with the deficit issue, which will become more apparent by then.” 2012? “You have the American election, the Olympics in the UK, the European Cup (held in Poland and the Ukraine). As we get into 2012, there will be some expansion that could come but it’s going to be a long haul.”
Sir Martin Sorrell
Born: 14 February 1945
Education: Haberdashers’ Aske’s Boys’ School; MA in economics from Cambridge University; MBA from Harvard Business School
1968-69: Associate, Glendinning Associates (marketing), Westport, Connecticut
1970-74: Vice-president, Mark McCormack Organisation (sports and celebrity agents), UK
1975-77: Director, James Gulliver Associates (food retailer)
1977-85: Group finance director, Saatchi & Saatchi
1985: Invested in Wire Plastic Products
1986+: Chief executive, WPP