Ad Agencies Mirror Their Clients as They Cut Back on Spending, Staff

It is hard to remember when Los Angeles advertising executives have sounded so utterly frightened about the future. Sure, advertising is the hyperbole business. But these days in the ad industry, it could be an exaggeration to say business is OK.

The effects of the recession and the Persian Gulf War are hobbling--and in some cases crippling--some of the most familiar agencies in town. However, even before the recession and Gulf War took hold, many Los Angeles agencies were struggling with the new realities of an industry in which clients are demanding much more and paying much less.

“It has never been this bad,” said Charles Sharp, a West Los Angeles headhunter who matches executives with agencies. “The end of the Gulf War will not signal the return of health to the ad industry. The ad industry itself is going through a slow, painful change.”

Just how tough are times in the Los Angeles ad community?

* Keye/Donna/Pearlstein, after several years of financial hardships, is expected this week to agree to merge with the Seattle agency Livingston & Co.

* J. Walter Thompson, which long has ranked as one of the largest agencies in Los Angeles, slashed its staff to 80 from 160 during the past year.

* Campbell & Wagman, which has nearly halved its payroll, last week laid off six more employees.

* Lord, Dentsu & Partners (formerly HDM) saw its staff dwindle from 104 to 85 employees during the past year while its annual billings dropped 23%.

* Ayer Tuttle laid off eight employees during the past two weeks and cut its staff nearly in half during the past year.

* Dailey & Associates laid off four employees last week and is not replacing most employees who quit or retire.

* Ketchum Advertising laid off five employees last week.

“Almost every agency in the city is cutting staff,” said Dennis Kuhr, executive vice president at J. Walter Thompson, which this summer moved to a new and less expensive Wilshire Boulevard location. “If I had my choice,” jested Kuhr rather morosely, “we’d have moved into a big garage.”

Long one of the powerhouses of Los Angeles advertising, J. Walter Thompson no longer ranks in the top 10. Losing 20th Century Fox and Bally’s Health & Tennis Corp. certainly played a big role. But it is also suffering the trouble that almost every agency is going through: Clients are spending less for advertising.

“Advertising is not a fun business these days,” said Craig Campbell, whose agency Campbell & Wagman expects its 1991 billings to dip to $26 million from $37 million last year. “Clients are not spending as they have in previous years. We are simply mirrors of our clients.”

Ayer Tuttle now employs just 23, compared to 40 people on its staff one year ago. “Everyone in this business is talking about cutting back,” said Donna F. Tuttle, the agency’s chairman. “If you’re not doing it, you’re not being smart.”

Dailey & Associates has suspended hiring all temporary help and is cutting way back on its use of free-lance work. “All the agencies in town are scrambling for new business like never before,” said Phil Joanou, chairman and chief executive.

At Ketchum Advertising, along with the recent layoffs, some research projects have also been eliminated. “You’re not going to see anyone returning to the days of spend, spend, spend,” said J. Craig Mathiesen, president of Ketchum.

One of the largest agencies in town, Foote, Cone Belding, recently received bad news from its oldest client, Sunkist. The cooperative lost virtually its entire crop of oranges to the December freeze and eliminated its 1991 ad budget, said Stephen Hayman, general manager of the office. “I definitely think the advertising industry is in for a bad time in 1991,” said Hayman. “And I’m not sure I see any real end to it in sight.”

Said Richard Zien, president of Mendelsohn/Zien: “Everyone in town is taking a long look at their client lists and asking: Are these guys going to be with us in six months?”

Of course, things might not seem to be all that bad when one agency’s answer to the recession is to have the staff cars washed less often. But consider this: The cars are all Hondas. And the Los Angeles agency that’s washing its fleet of 20 Hondas monthly instead of weekly happens to be Honda’s ad firm, Rubin Postaer & Associates.

“It might sound like small potatoes but it adds up,” said Gerry Rubin, chairman of the agency. “When its your client’s product, you want it to look as good as possible. But we know the client is practicing the same form of cost savings.”

Ailing Housing Market to Try Ad Treatment

As the nation’s sick real estate market continues to slump, one real estate firm is turning to advertising in search of an answer.

The Century 21 regions representing Southern California, Alaska, Hawaii, Guam and Saipan last week handed their combined $3-million advertising account to Mendelsohn/Zien Advertising of Los Angeles. This is a new regional account not previously handled by an outside agency.

“My attitude is if homes are selling themselves, no one needs as much help. But when times are tough, they need an agency like ours,” said Richard Zien, president of Mendelsohn/Zien. “This will be the beginning of a much more aggressive campaign for them.”

‘King’ Maker Dials In to Leo’s Stereo Account

The ad agency that concocted the familiar “I am the king” slogan for Paul’s TV & Video has landed the $4.5-million advertising business for Leo’s Stereo.

Jack Lawlor Advertising, the 35-year-old Pasadena firm that specializes in creating consumer electronics ads, has already begun to create ads for the 26-store chain. The work was previously done by Leo’s in-house operation.

“We’re going to change their image and clean up their advertising,” said Dean Dudley, president and chief executive of Jack Lawlor. The new campaign will focus on Leo’s specialties: cellular phones and car stereos. But, no, owner Leo David will not appear in the 27-year-old chain’s ads and claim to be the “king” of car stereo.

New Volvo Agency Focusing on Future

The president of Volvo’s new ad agency insists that helping Volvo overcome its recent image problems is not the real task at hand.

“The real obstacle is the car market itself,” said Bob Schmetterer, president of the upstart New York ad firm Messner Vetere Berger Carey Schmetterer. “With all the competition, it’s tough to sell cars these days.”

His agency won the $40-million Volvo ad business last week nearly four months after Volvo faced ridicule and legal challenges for a TV spot that faked the safety of one of its cars. In October, Texas’ attorney general charged that a Volvo used in a TV spot had been reinforced while other cars had been weakened. A “monster truck” squashes the other cars while a Volvo remains intact.

Schmetterer wants to look ahead--not back. “That commercial is not an issue that we will address.”

4 L.A. Ad Shops Going After Dole’s Account

Last week Dole Food Co. revealed that it had narrowed the review process for its $35-million annual ad business to four Los Angeles area firms. At stake is one of the West Coast’s largest packaged goods advertisers.

“This is a once-in-a-lifetime opportunity,” said Charles W. Reynolds Jr., president of Lord, Dentsu & Partners, one of the agencies still in the running. Also vying for the account are Cohen/Johnson, Team One Advertising and the Irvine office of Backer Spielvogel Bates. Backer’s New York office has handled the advertising.

Dole won’t say when the winner will be selected. But industry sources say it may be before month’s end.