On the latest episode of ‘Storyboard’, CNBC-TV18’s Shibani Gharat spoke to Mark Read CEO, WPP on the impact of & leadership, in times of COVID-19 and the way forward.
Gharat: Britain has moved further towards easing the lockdown restrictions. What is it like in London currently?
Read: When you go outside in London today, it feels pretty busy actually; it is not quite back to normal, but it is a lot busier than it was 9 or 10 weeks ago when we sent a hundred thousand people around the world to work from home. There is no way in which things are getting back to normal – restaurants are closed, shops are still closed, hairdressers are closed, dentists are closed. So, while people are still going into work, there is no sense that the city is yet back to normal.
Gharat: Some of the markets that WPP operates in have also started opening up. What is this unlock like for WPP agencies, have employees started going back to work and what are the operational level challenges currently that you guys are facing? Has the operation changed for good?
Read:To answer your last question first, clearly it has been a change for good. It is easier to go into lockdown, I think we are all finding out, than it is come out of the lockdown. China which is the first country to go into the lockdown has also been the first to come out and you have to commend the Chinese health authorities or Chinese authorities for the rigorous measures they took and the control they got over the virus.
I did a town hall with our people in Shanghai last week, and while people were wearing masks, you got the sense that things are back to normal. But even in China they are not totally back to normal, offices are probably running at 80 percent occupancy rate at the moment compared to 100 percent pre-COVID.
The sense is that consumer activity is picking up, but I think confidence does take some time to recover. It is going to take time for confidence to grow and for the various part of the economy as they unlock to have a positive effect on each other. Similarly, for the global economy, will we have some markets in lockdown and lot further behind than others — we need a coordinated economic recovery around the world to get back to where we were at the beginning of the year and that may take 18-24 months, unfortunately.
Gharat: What are the key learnings from this unlock that can be applied as a model into the other markets as well?
Read:I think it has to be voluntary, it has to be gradual. We have to make sure offices are safe, we have to think about how people get into the office, not just when they are in the office. I think there is a spectrum of people – for every person I know that is sort of reluctant to come into the office, there is someone that would be dying to get back in.
Senior executives that live in nice houses and gardens may feel differently from what junior people that probably live in apartments and sometimes with their parents or many other people who are keen to get back into the office. So, I think we have to cater to a wide variety of people.
Gharat: How much has been the impact of COVID-19 on the revenue already and what is the further impact that you expect on the WPP business in the coming days?
Read: We did see some impact in the first quarter in February and March in China and in March in most other parts of the world. I think we expect that most people in the second quarter to be the worst quarter of the year. We need to see a gradual recovery in Q3 and Q4 but we still expect a negative impact on our revenues over that period. I think that is the unfortunate reality of the situation we have to deal with.
Gharat: What has been the strategy of survival so far for WPP and how are you going to apply it in the coming days?
Read: Our focus has been on our people and keeping them safe and on our clients. There is a reason to market at the moment, consumers do expect to hear from companies about what they are doing and I think that those companies that are financially strong and can afford to market will benefit disproportionately from their investments and that is certainly something that we are hearing from clients at the moment.
Also, this is the greatest period of innovation perhaps we have ever seen. We have seen a decade’s innovation in eight weeks and so those companies that are understanding in real-time the changes in consumer behavior will be those that benefit. We have also been focusing on communities and places around where we live. In India, we see work from Ogilvy with the government of Mask Force, Wunderman Thompson has done a campaign with Times of India.
We need to think about this in terms of three phases. The first phase is to react, the second is recover and the third is renew. The react phase is over, I think people at the moment are focused on how do we think about recovery. But I think what is much more interesting is how they can think about renewing their business, how clients think about how they are going to need to operate in the future. So people have been very resilient through this and have kept busy and have kept talking to clients and to each other. So I think it is too far to call it prospering but I think that people have managed extremely well.
Gharat: How are you managing costs at WPP?
Read: Clearly, with our revenue impact, we needed to take cost action. We are looking at different scenarios for our costs and the first was to stop hiring and limit the pay increase, look at discretionary expenses like travel and award shows that can be quite substantial in our industry. So we worked our way through that.
We have put a number of people on a four day or three-day working weeks where it is appropriate and we have also had a number of senior executives, about 3,000 people across the group, take salary sacrifice or pay cuts in the second quarter. We are going to look again at that and see what is appropriate in that area for the rest of the year.
The last thing we have done is look at permanent headcount reduction; we have had to reduce our headcount. We are looking at what the likely size of the business is going into next year and making sure that by the end of the year through a mix of turnover and permanent headcount reduction, we are in a good place to right-size our cost to our revenues base next year.
Gharat: You have spoken extensively on how important India as a market is for WPP. Can you give us an insight on the kind of work that has come out of India during the COVID time and how has the Indian market fared in terms of business for your organization?
Read: India has been impacted, there is a very heavily media-driven market, and so there is no way it has escaped this. I mentioned some of the work that we have done for our communities, we have also been working extensively with Hindustan Unilever on their response to the crisis, we have done some very nice work for Mondelez – to say thank you through a chocolate box and a number of creative examples.
I think in India we are seeing much greater demand or much greater television viewing, up 50 percent, but also a lot of growth in the over the top (OTT) services. We have been helping grocers move their business online and hyperlocal delivery systems. So we are helping the whole Indian ecosystem move much more quickly online frankly in the same way we did elsewhere.
I was a little bit nervous when the lockdown happened. I talked to Srinivas, the India Country Manager about sending everybody home, but we did it and we sent people home with equipment and people have continued to work really extremely effectively from their clients. We are very reluctant to make permanent headcount reduction in India. It is a fantastic market for us, it is a great growth market, and we have excellent talent. So as much as we can, we are trying to protect the people that we have in the business.
Gharat: Tell us what is happening to market budgets globally? Big events are getting canceled, production of goods and of course production of TV shows, even on the OTT platform and television has really stopped. So, where are marketers investing, and what is really happening to all those allotted marketing budgets for this year?
Read: What we saw in 2008-2009, particularly in newspapers and I know that it is a big category in India that is still resilient, clients cut their spending in newspapers by 40-50 percent. They never went back. I think my concern for free to air broadcasters is if the budget gets cut substantially, will they ever come back in the same way? Particularly the magazine business has been impacted, they have a heavy luxury goods quotient there and those companies are really struggling because of the lockdown and the situation in China and the lack of travel because duty-free is a big source of demand to them.
We are seeing negative impacts on advertising spend pretty much across the board to a different degree but I do think that those clients – as I said before – who are ready to come back quickly will be those clients that benefit. We have seen in previous downturns of those companies that maintained their investment and by the way in an era of declining trends maintaining investments means typically you increase your share of voice, increasing your share of voice will benefit – marketing is an investment.
The other interesting thing is that I saw the Expedia results where they said that they are not spending a lot of money on search and digital media and that is funny, their brand investments are driving and continue to drive significant traffic to their site. So I think some clients are looking at the continued investment in brand over direct responses as some of them want to continue. So it is really going to be interesting as to how it all plays out in terms of clients’ marketing spend
Gharat: I am coming back to your statement that you said earlier how we have witnessed a decade of innovation in the past few weeks, what will it mean for consumer behavior in the coming days as we step into every step of the unlock that globally we are seeing currently?
Read: I defy someone to tell me something that hasn’t changed in the last eight weeks. We are having this debate on a zoom code and someone said what about hairdressing and I pointed out you didn’t get a hairdressing consultation online where professional hairdresser would tell your partner how to cut your hair. So it is hard to think on something like that – all over the UK people are doing online exercise classes, something that you imagine you have to go to a gym to do before, auctions where you need to go to an auction house and now vote online and I think people are learning this new behavior.
You don’t unlearn things and once you have learned to do something particularly once you have learned to do it over three-four-five months and six months, we are not going to go back to the way we did things before. I think some things we will go back to – I hope we go back to restaurants and I hope we go back to going on vacations, I am not sure if we are going to go back to traveling as much, I am not sure if we are going to go back to going into the offices much.
So I think these trends may be more acute at the moment but I don’t think that they are going away. I cannot think of the last time I used physical currency to pay for something. I have just got used to using my phone to pay for everything in a way I never had done before and retail is going to accepting it. So I think it is going to be a real innovation shift in those companies that had most of the digital and direct channels to communicate and manage their consumers who clearly will be those companies that benefit and everyone else is going to have to catch up.
I think to catch up has been in a way the world over the last five years – consumers are ahead of companies in terms of innovation, decades ago, you have talked about the adoption curve in companies with larger technology and consumers would adopt it. Today I think the world has reversed, consumers adopt technology and companies are trying to figure out, how do I reach them now, how do I develop online banking services, how do I make what I want to do. So I think we are going to see all of that innovation.
Now with innovation comes dislocation and disruption and I think that is the worry that we have in an economic impact of the recessionary impact of what is going on at the moment as well.