Worst agency redundancies to hit when govt furlough scheme ends

Half of agencies yet to make redundancies, while two-thirds of businesses have already introduced pay cuts for all staff, survey shows.

Worst agency redundancies to hit when govt furlough scheme ends

The worst of agency redundancies has yet to come, with about half of agencies saying they will have to make cuts before the government's furlough scheme comes to an end in October.

That's according to Coronavirus Media Business Outlook Survey Mark 2, the second iteration of research from Moore Kingston Smith around the impact of coronavirus. The survey polled 100 agencies in advertising, media, design, digital and PR in mid-June. 

It found that almost 17 per cent of agencies have already made cuts, with the majority reducing staff by up to 10 per cent. 

However, almost 51 per cent plan to make redundancies this year. And the cuts are forecast to be deeper, with 58 per cent predicting staff reductions of up to 20 per cent and another 22 per cent predicting redundancies for more than 20 per cent of staff.

The majority of respondents said they are planning to implement job cuts within the next two or three months, before the furlough scheme – relied upon by 85 per cent of participants – comes to an end.

Salary cuts, generally seen as a way of preserving more jobs and avoiding large-scale redundancies, have also been widely utilised. 

Although only 55 per cent of agencies thought they would cut pay when asked in the initial study in April, when asked in June, 68 per cent had introduced this measure.

Less than 40 per cent have implemented pay cuts for the entire workforce, with 14 per cent confining salary reductions to senior management, nearly half of whom had their pay packets cut by more than 20 per cent.

While 44 per cent of agencies were contemplating reducing working hours for staff in April, 39 per cent had actually done this by June, with a further 20 per cent still considering it as a future option.

Profit projections

In April, amid the immediate chaos of the Covid-19 lockdown, profit margin projections dived, with 14 per cent of agencies forecasting a loss and less than a quarter expecting more than 15 per cent net profit margin. In June, the proportion forecasting a loss has risen to 21 per cent, with a further quarter predicting margins of 0-5 per cent.

"Continued price pressure from clients will not help agencies’ fortunes here – for some years now, many clients have been demanding more for less," the report said. "This crisis will only amplify that pressure, with around 75 per cent of respondents citing increased price pressure from clients as a result of coronavirus."

However, predictions for revenue levels have improved since early April, when only 2 per cent thought these might improve in 2020 compared with 2019. In June, 9 per cent of respondents predicted an increase in revenue.

In terms of new-business opportunities compared with "normal" expectations for this time of year, 42 per cent said these were much reduced, with 8% saying they had stayed the same. A small proportion (12 per cent) said new-business opportunities had increased.

Among those who have been doing pitches during lockdown, almost 73 per cent said they had found it "a little" or "somewhat" challenging, with 7 per cent saying they had found it "very challenging". Conversely, 20 per cent said they had found it no different or easier than usual.

Future working practices

Moore Kingston Smith also asked when agencies were planning to reopen their offices. The answers were varied, from "we already have" (12 per cent) to "January and beyond" (5 per cent). However, the most popular month was July (28 per cent), followed by September (21 per cent).

When asked about future remote-working practices, more than half said they will be allowing more remote working going forward, with a further 31 per cent saying they will encourage more remote working and 15 per cent saying they will be insisting on it.

"It has been widely documented that working life will likely never return to how it was pre-coronavirus – more flexibility, agile working and days spent working from home being the anticipated ‘new normal’," the report noted. "Many agencies look forward to the savings this will ultimately bring in property costs, especially those in central London."

When will it all end?

Looking ahead to the long-term viability of their business, 40 per cent said despite being "very concerned", they thought their business would make it through.

Factors such as how well the government stimulus package works, whether there is a second wave of infections and how quickly a readily available vaccine can be produced are of course all unknown, so answers were understandably mixed when asked about predictions on when client activity would return to pre-coronavirus levels.

However, the joint most popular answers for recovery were the first quarter of 2021 and the second half of 2021. Some 16 per cent were honest enough to admit they didn’t have a clue.

Although the report warned that the situation could get worse before it gets better, it also revealed that 87 per cent of respondents believe the crisis presents them with an opportunity, with more than half saying it allows for "rationalisation of their business".

Others thought they could generate higher sales or that there would be opportunities to take over competitors. This is a different picture from April, when more than half of participants stated that they did not see the current situation as a business opportunity.

A version of this article was first published on Campaign.

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