NEW YORK • WPP, the world's largest advertising group, cut its growth forecast for the year as clients, led by consumer goods firms, cut back on marketing budgets, raising broader concerns about the health of the industry.
With major companies in the United States like Procter & Gamble facing sluggish growth, traditional providers of mass marketing, like agencies and television networks, are feeling the ripple effects. At the same time, the disruptive companies threatening those established players are typically growing online without the help of agencies and TV ads, at least in the beginning.
"It's the digitally native brands that are taking share, both from a consumer level and also when it comes to their spending on advertising," said media analyst Brian Wieser at Pivotal Research Group. "The advertisers that are growing are not the ones who benefit disproportionately either from TV or from agencies."
WPP, which owns agencies including Y&R and Ogilvy & Mather, said annual net sales may be flat or grow up to 1 per cent as it reported that the measure shrank in the first half of the year. The company's stock tumbled 11 per cent in London, and its closing price on Wednesday was the lowest in more than a year.
The company said consumer packaged-goods firms, which account for a third of its revenue, cut spending in response to pressure from digital competition and activist investors.
But WPP's chief executive Martin Sorrell said in an earnings call that the company believed its clients would have to spend more on media and agency fees once the marketing cuts began affecting their sales.
Others in the industry are not so sure. Publicis Groupe's chief growth officer Rishad Tobaccowala said: "The way I think about advertising is, it's in secular decline and I need to think about products and services much more than I need to think about communication."
WPP's clients include Unilever, which rebuffed a takeover attempt by Kraft Heinz this year and said recently it would cut the number of creative agencies it works with by half.