KEY POINTS
  • As the impact of the coronavirus pandemic hits businesses and their ad spend, advertising holding companies are preparing for a drop in demand and some are telling their employees to expect staff cuts and furloughs. 
  • The advertising industry is bracing for a wider impact of any economic fallout on client spending, since marketing is often one of the first items that businesses cut during a financial downturn.
  • Omnicom Group CEO John Wren wrote in an email to staffers Tuesday that the company's response will include furloughs and staff reductions across many of its agencies.
Advertising billboards seen in Times Square, New York City

As the impact of the coronavirus pandemic hits businesses and their ad spend, advertising holding companies are preparing for a drop in demand, and some are telling their employees to expect staff cuts and furloughs. 

The advertising industry is bracing for the wider impact of any economic fallout on client spending, since marketing is often one of the first items that businesses cut during a financial downturn. Some brand advertisers have said they've already dramatically reduced spend.

In an internal weekly email to employees Tuesday that was viewed by CNBC, Omnicom Group CEO John Wren wrote that the pandemic has had an impact on the economy, clients' businesses, "and in turn, on ours." He wrote that the company has solidified internal measures to meet the changing needs of its clients. The holding company operates agencies across the advertising world, including BBDO, DDB and TBWA. 

"Regrettably, this will include furloughs and staff reductions across many of our agencies," Wren wrote. "We are doing everything we can to limit staff reductions, and to take care of those who are affected."

A spokeswoman for Omnicom Group declined to comment further on the memo.

Wren said agencies will use furloughs rather than permanent reduction "so we can bring people back if, and when, conditions improve and client demand recovers." He wrote that agencies will also participate in government subsidy programs to reduce the reductions of permanent staff. 

Wren also wrote that the company will move people into areas of business that are growing, like Omnicom Health Group. He said the company's executive leadership team is reducing salaries by a third, while Wren is waiving 100% of his salary through the end of September. The company "with few exceptions" has stopped new hires, frozen salaries and has reduced freelancers. It also suspended its share repurchase program. 

Publicis Groupe, which reported its first-quarter earnings Monday, said it was implementing a 500 million euro ($550 million) cost-reduction plan with "full impact in 2020, to adapt and be recovery ready." Its management team members are taking cuts to their compensation as well.

"There is no doubt that we are going through an unprecedented health crisis that will lead us to the greatest recession in living memory," the company said in a statement. "It is too early to predict the full impact it will have on our clients and our business, so we will not provide any guidance." 

Other holding companies in recent weeks have told employees and investors to expect a hit to their business. Another major holding company, Interpublic Group of Cos., withdrew its financial performance targets for full-year 2020 amid the increasing spread of Covid-19. Adweek reported over the weekend that IPG CEO Michael Roth had sent out a memo telling employees about reductions in staff, salary cuts, furloughs and other cuts in spending. 

In late March, WPP, the world's largest advertising group, pulled its dividend and share buyback and withdrew guidance for 2020 after clients canceled marketing booked with the company due to the coronavirus. Dentsu Aegis Network, another ad group, said it is also doing cost-saving measures, including salary cuts with executives taking higher reductions. A company spokesman told CNBC that the company has also used furloughs.