Ad industry wrestles with recession

  • Article by: DAVID PHELPS , Star Tribune
  • Updated: June 22, 2009 - 5:35 AM

"Flat is the new up" for Minnesota's industry as many clients cut back on marketing.

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he Olson agency has managed to prosper and add new business, though “we’re not chasing everything,” said President Kevin DiLorenzo, left, with CEO John Olson. “Sometimes you have to say no.”

Photo: Glen Stubbe, Star Tribune

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Two years ago the Twin Cities advertising community giddily assumed it was on its way back to the glory days of the 1980s, with Carmichael Lynch's newly won $200 million Subaru account leading the way.

The recession changed all that. Some agencies saw layoffs. Some saw revenues decline. Some struggled for new business. Some treaded water. Very few have thrived.

"Flat is the new up," became the mantra for bottom-line financial growth, but even flat is an ambitious goal when corporate clients are slashing marketing and advertising dollars.

"Those cuts travel down to the agencies and there's only one way to reduce costs and that means you let people go," said John Purdy, a professor of advertising at the University of St. Thomas with 35 years of hands-on experience in the business.

Nearly 3,000 people work in the state's advertising community, according to the advertising agency association. The top 25 firms generate combined annual billings of about $2.5 billion.

"Like everyone else we had to pare a few people," said Doug Spong, president of Carmichael Lynch, the third-largest agency in Minneapolis. "There isn't anyone else in town who hasn't."

Buoyed primarily by the new business from Subaru and stable business from longtime clients like Harley-Davidson, Carmichael Lynch saw revenues increase by 5 percent last year to $63 million.

"Agencies are a reflection of their clients, and we've been very fortunate to have a brand like Subaru that is at a price point that consumers can afford and is a brand that appeals to the consumer," Spong said.

But not all agencies were as lucky.

Martin Williams had two rounds of layoffs totaling 30 people after the agency lost a telecom client and was an unsuccessful bidder for financial services giant J.P. Morgan. Annual revenue of $62 million was down 1.6 percent in 2008, according to Adweek Media.

Martin Williams, which counts agricultural giant Cargill and Marvin Windows among its clients, expects 2009 to be a little better.

"We saw this coming and made adjustments," said CEO Tom Moudry. "We've tried to control costs -- travel, office functions, summer parties, subscriptions. If there's a silver lining, it's that we've taken a look internally and restructured to be faster."

Revenue at Minneapolis advertising stable Campbell Mithun declined 2 percent in 2008, to $96 million, even though the agency secured $150 million in new billings.

So far, 2009 is proving to be a wait-and-see period.

"About one-third of our clients are cutting back because business is tough. One-third are maintaining or increasing their budget and one-third is just kind of flat," said CEO Steve Wehrenberg.

Wehrenberg said the agency's food and packaged goods clients are doing fine as penny-pinched Americans stay at home to eat their meals while its hard-hit financial sector clients like the Hartford are doing less. And to underscore the volatility, Campbell Mithun learned last week that H&R Block, a client of nine years, is taking its $120 million book of business to another agency.

"It's definitely not a growth year for us unless a miracle happens," Wehrenberg said.

Advertising is important to the Twin Cities economy, generating nearly a half-billion of revenue each year, billings of more than $2 billion and providing jobs.

The seemingly endless recession is not to say agencies have withered and died in the historically strong Minneapolis advertising sector. Some even prospered with a combination of new business and deft use of interactive media to satisfy client needs.

The Olson agency actually grew in the heart of the economic downturn, going from 156 employees in 2007 to 186 employees last year. Founder John Olson boasts of 11 consecutive years of double-digit growth, including an increase from $25.1 million in 2007 to $35 million last year.

In the past six months, Olson has landed clients such as Memorex, Carlson Country Inns & Suites, Lee Jeans, Chinet and United Health Group's Ovations division.

"We're not chasing everything," Olson president Kevin DiLorenzo. "Sometimes you have to say no."

Colle+McVoy saw its 2008 revenues reach an eight-year high at $26.3 million. Interactive billings increased by 300 percent and now account for 30 percent of the agency's revenue.

"We're extremely fortunate. We have no clients in the [battered] automotive, financial or health care sectors," said Colle chief executive Christine Fruechte. The rise in social networking means more work from its interactive clients, which include ESPN, Yahoo, Aveda and the Manhattan Toy Co.

"You have to be aware where your consumers are going for their information," Fruechte said.

In recent years, Minneapolis also has seen advertising grow in smaller boutique agencies that spun off from the larger ones in town.

Pocket Hercules was formed two years ago by three former Carmichael Lynch creatives. Current clients include prominent names in fishing such as Rapala and Shimano.

Two-year-old Barrie D'Rozario Murphy was created by two former Fallon creative types and a Saatchi & Saatchi refugee. The agency recently won awards from the Museum of Modern Art for two United Airlines ads that premiered during the Summer Olympics last year, and for a video ad promoting the Chambers Hotel in Minneapolis.

Seven-year-old Morsekode is the creation of Mark Morse, another former Fallon employee. Morsekode, which recently added Morton Salt as a client, is a 15-employee firm that specializes in marketing and brand development using a video and Flash platform to add animation and interactivity to Web pages.

"The people who are doing well have a specialty in new media for a direct one on one contact with the customer like social media and interactive media," said St. Thomas's Purdy. "It's an intriguing toy to a lot of clients."

David Phelps • 612-673-7269

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