The advertising industry in the UK continues to evolve as it adapts to various trends and ever-changing consumer behaviour. However, a report from QBE has revealed heightened levels of insolvency rates for sectors feeding into the advertising industry, increasing trade credit risk for media buyers.
Jamie Calder, a senior underwriter at QBE Trade Credit & Surety, pointed out that economic performance could affect consumer behaviour – adding strains on the advertising sector. With Brexit and economic uncertainty affecting consumer confidence in the UK, consumers have started holding back on big-ticket purchases.
“New car sales, for example, fell 7% in October and were on course to end the year almost 3% lower than in 2018, according to the Society of Motor Manufacturers and Traders,” Calder wrote in the report.
The Office for National Statistics showed only 1% year-on-year growth in the third quarter of 2019, considered to be the worst growth figures in a decade. Consumer spending also hit a record low in 2019, which the British Retail Consortium described as the worst year on record.
Calder explained that anaemic economic activity could reduce advertising spending as business confidence hits overall investment and business expenditure, and smaller businesses re-assess their marketing budget.
The conditions of main buyers such as retailers, car manufacturers, and travel companies could also affect advertising spending – and economic issues, structural challenges, and changes in consumer behaviour seem to be putting these sectors under pressure.
Calder said the food and beverage industry sees an increased non-payment and insolvency risk. Meanwhile, the food industry re-evaluates its costs as consumers become more conscious about how they spend their money.
“Margins in the industry are being squeezed with increased costs related to Brexit, such as higher import costs and from a shortage of migrant labour, as well as the effects of global warming,” he wrote in the report.
“Retail insolvencies hit a five year high in 2019 as a number of high street retailers shut up shop or pursued a Company Voluntary Arrangement (CVA) in a bid to restructure,” he continued. “It has been another very difficult year for retailers, with a particularly disappointing Christmas period.”
“An orderly Brexit could alleviate some of the pressure on retailers, but insolvencies in the sector are likely to remain elevated. [In] longer term, however, the retail sector has a future that offers potential success to companies who can adapt, control costs, and invest in more efficient and sustainable business models.”
Even though some retailers cut their advertising budgets, the sector remains indispensable as it continues to help businesses in marketing their products and services.
“Companies that spend on advertising during tough times are more likely to survive and grow, especially at critical times of the year like Christmas. As weaker players leave the market, stronger companies will look to take market share and boost advertising spend,” Calder said.
“While advertising budgets have diminished in sectors like retail, they have not disappeared. Advertising strategies continue to evolve, and in a way that will require the services of media buyers that can advise on how best to spend their budgets. Where companies have a budget, they are looking for smarter and more effective advertising that targets potential customers.”
QBE predicts that the advertising sector will continue to grow as it adapts to digitalisation and changes in consumer behaviour. However, it noted the elevated credit risk for media buyers that rely on sectors with insolvencies reaching historic highs.
“We, therefore, believe that credit insurance can provide a much-needed level of security and peace of mind to help businesses continue to grow profitably,” Calder said.
