Notes on the UK public relations agency market

Some observations and suggestions for public relations agency managers from our wheelhouse.

There’s a recurring theme to almost every meeting I’ve had in the past month. The first four months of the year have been a grind.

Public relations agencies have either narrowly hit Q1 business targets or missed them by a small margin. The agency market has switched from being relatively buoyant at the end of Q3 2022 to a slowdown.

Agency order books are still moving, but clients are cautious. New revenue is replacing old rather than driving growth. Business that in September 2022 would have moved from pitch to contract to delivery within weeks is now taking several months to convert.

The slowdown is impacting payments. Debtor days are slipping from 30 to 45 to 60 days and even further out. Keep a hawk-eye view on debt collection and cash flow.

The relationship between agency employers and employees has reset. Conversations about the cost of living and inflationary increases have been replaced by hiring freezes. Recruitment has stalled in all but replacement and investment roles. 

We knew it was coming, but the whiplash is no less acute. The consumer slowdown started early in 2022, impacted by the cost of living crisis, energy costs and Brexit.

As Bill Clinton’s strategist James Corville infamously said, it’s the economy, stupid. The twin effect of inflation and high-interest rates are dampening spending and investment. The economy isn’t in recession, but it is resiliently flat.

Technology and media layoffs and a slowdown in private equity funding are also having an impact. We’re not sure which companies are zombies (start-ups whose funding is running out), explained one agency founder.

I’ve been reviewing data for signals that will lift the UK economy. The fundamentals are well understood and the Bank of England intervention is working, but not as quickly as we would like.

Therein lies our biggest challenge. The UK economy is not in recession, but it is being talked down by organisations such as the International Monetary Fund and critically the media. This is inevitably impacting business and consumer confidence.

There’s unlikely to be any short-term stimulus. May has three Bank Holidays, with two back-to-back. It may help lift consumer spending, especially if the weather is good, but it won’t do anything for productivity.

A criticism by businesses of the UK government is the lack of a coherent strategy for growth beyond a hotchpotch of Brexit and levelling up plans. The Grand Challenges for growth focused on AI, ageing, clean growth, and the future of mobility, were quietly withdrawn in March.

It leaves agencies working hard to find opportunities.

Health and well-being are proving resilient. DE&I, ESG, and misinformation as it relates to reputation and trust, remain at the forefront of the corporate agenda.

There’s a note of caution from a recent USC Annenberg study that the public relations industry may have overblown the purpose agenda. It reports that consumers, employers, and investors view performance as more important than culture, vision as more important than earnings, and sustainable products as more important than sustainable practices.

The launch of OpenAI’s ChatGPT has driven AI, ironically one of the government’s kiboshed Grand Challenges, up the corporate agenda. It’s no longer an issue that is siloed in innovation teams and has become a strategic C-level priority.

In addition to AI, organisations are also seeking advice on various media and technology innovation issues. The nascent Amazon influencer platform, Google Analytics 4, audio, LinkedIn, and TikTok are all focus areas. What to do about Twitter is very much a live issue.

The current climate is driving an opportunity for investment and M&A. In the three years that Wadds Inc. has operated, we’ve never seen so much activity in this area.

Agency managers should make time to focus on the fundamentals, consolidate, and take informed decisions about investment areas so that you’re ready for the next upturn.

We’re here if you need help. I’ll check back in a quarter.