‘It all happened so fast’: COVID-19 pandemic ravages hospitality shops

In a matter of days, 2020 went from potential boom year to one client after another ‘pausing’ work. Large agencies say they’re faring better.

The empty Las Vegas Strip. (Photo credit: Getty Images).
The empty Las Vegas Strip. (Photo credit: Getty Images).

SAN FRANCISCO: In the second week of March, Andrew Freeman, founder of Bay Area hospitality agency AF & Co., was hoping to hang on to most of his employees.

Clients had been canceling work and Freeman had been talking to his financial consultants and lawyers, making sure he could pay out the personal time off he owed and trying to find a way to cushion the blow.

"Initially, the way we wanted to do it was to make everyone part-time, not even knowing if they would accept," Freeman said.

It wasn't possible. Last Wednesday, Freeman laid off half his staff -- six employees and two contractors -- and asked those who were left to take salary cuts and work part-time.

"These are life-wrenching decisions you're making, and they can't even be delivered in person," he said. "No hugs, no 'I know what you're going through.'"

Freeman had little choice. All of his clients are in hospitality, one of the sectors hardest hit by the economic effects of the coronavirus pandemic.

"[My clients] are simultaneously telling me they are suspending and pausing -- that's what everyone is calling it," he said. "That's the word of the week for me. It's so unfortunate. Three weeks prior to this, we were on-track to be doing really well. There was lots of new business and then this hits."

"It all happened so fast," he added.

Overall U.S. unemployment numbers are spiking. Last week, 3.28 million unemployment claims were filed, according to the Labor Department. The previous highest weekly total was 695,000 in October 1982.

Cities dependent on hospitality, such as Las Vegas, are being hit especially hard. Last week, Nevada's governor ordered a 30-day statewide closure of nonessential businesses including restaurants, bars and casinos. As a result, the Las Vegas Strip is largely empty and employment levels in the state are crashing. Gaming trade publication CDC Gaming Reports wrote that some 320,000 hospitality employees are "at immediate risk" of losing their jobs.

With eight offices outside of Sin City, Las Vegas' R&R Partners is significantly larger than AF & Co. and is not 100% dependent on hospitality. Yet Las Vegas is its home base -- the firm coined the phrase "What happens in Vegas, stays in Vegas" -- and the casino-hotel industry is a significant part of its business.

R&R is "taking a huge hit" from the pandemic and doing what it can to keep staffers, said CEO Billy Vassiliadis, noting, "We made a decision to hold off on layoffs and try to avoid them as long as possible."

"We froze 401(k) contributions and we're doing some across-the-board minimal pay reductions," he added. "There are no hires right now and no unnecessary travel. We're keeping people employed because it's not as if there's a job market anymore."

Getting a read on staffing in the general PR agency world, where large firms are rarely dependent on one industry, is more difficult. Bigger firms have said they are gaining business in some practices as it decreases in others.

"The obvious sectors that are starting to feel the pressure are travel and tourism," said Richard Edelman, CEO of the eponymous agency, which counts Boeing among its clients.

"And airlines and a little bit of retail. Those are the ones under pressure," he said. "Health and consumer products and food and tech is good so far."

Edelman said that while he has seen clients shift budgets toward employee comms and crisis work, he acknowledged that "in some cases they are postponing work." His agency has not made job cuts, Edelman said last week, but it has mostly stopped hiring.

"We will still make strategic hires, but the headcount will not increase," he said. "That would be inadvisable."

There is "no hiring freeze" at BCW, said CEO Donna Imperato. "We might have to do it at some point, but we actually have a few openings that we need to fill."

A BCW source, however, said that the WPP firm is being very selective in its hiring around the world and has become more stringent with its approval process.

Other agency leaders were more reluctant to specifically address staffing issues.

"Whilst this is clearly a very fluid situation, we are seeing clients continuing to maintain their investment in public relations," said Golin CEO Matt Neale. "The ability for chief communication officers and CMOs to be more agile with their PR spend (vs advertising), coupled with the importance of daily communication with stakeholders undoubtedly underpins the strength of our industry in this time of crisis."

Allison+Partners chairman and CEO Scott Allison also declined to specifically answer questions about staffing levels, but suggested he had not made cuts.

"Fortunately, our teams [in China] did an incredible job in keeping things going while working from home, and we were able to apply those learnings quickly to our other regions," he said. "It's too early to assess the full impact of COVID-19. But for now, our teams are intact and working very hard."

A number of firms declined to comment about staffing. A Hill+Knowlton Strategies spokesperson declined to comment about staffing, as did the Dentsu agency Mitchell. An MSL spokesperson would not comment on staffing levels, instead saying the Publicis Groupe agency is "really focused on caring about our people and being good stewards of our business through all of this." Weber Shandwick and Ogilvy representatives did not immediately reply to requests for comment.

Holding companies also declined to provide specific information about personnel levels. An Omnicom spokesperson said that "at [Omnicom Public Relations Group], our protocols for hiring have not changed at this time" while a WPP spokesperson declined to comment. Via email, a Publicis spokesperson said the holding company was not planning any job cuts, but is postponing recruitment.

Despite the lack of specifics from many firms, the impact of the pandemic on agency employment is clear, other executives said.

"We've gotten so far in PR about 25 to 30 inquiries for help from people laid off, and that was between last week and yesterday. I am sure we are expecting more during this week," said Lisa Fedrizzi, MD at Cheer Partners, which also consults with agencies on HR policies and issues.

One prominent recruiter, who described the agency world as "shot," said that at this point "people aren't even looking, just saying they were laid off, salary cut, waiting to see unemployment packages. Only healthcare is hiring from what I hear, and no one is risking a change now."

The owner of a boutique firm focused on startups said her friends at other agencies are feeling the pinch.

"We have calls from [people] we know and from friends who are not working," she said. "In PR, I have friends who are laying off people. They're scared. I have had six clients in four days call me about putting a pause on their work. There have been no calls today, but it's only 10 a.m."

The agency leader said her firm has been profitable, with "eight to nine months of runway" before it has to cut staff. "[Some clients] are seeing the value of PR," she says. "And we are doing some of our best work ever."

However, she agreed that COVID-19's effect on the business climate has been chilling.

"In the past six months, it was raining money," she said. "Already it's feeling more like a trickle and smaller companies are not being funded. Every VC is holding their cash close. Across the board, we are seeing startups not being able to close their rounds of funding."

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