Thursday 7 May 2020 2:33 pm

UK firms face ‘Darwinian culling’, warns ad mogul Martin Sorrell

Scores of British companies face being wiped out in a “Darwinian culling” caused by the coronavirus crisis, advertising veteran Sir Martin Sorrell has warned.

In a bleak prediction of the UK’s economic outlook, Sorrell said the country was “dramatically underprepared” for the pandemic and only the strongest firms would survive.

Read more: UK economy: Is the Bank of England’s 2021 rebound scenario too optimistic?

“You feel it in the markets already. It’s terrible, it’s shocking, it’s catatonic — a lot of companies will go down,” he said.

Sorrell, who founded WPP and served as its chief executive for more than three decades, said he expected a V-shaped recovery, with the “horrendous” effects fading by the end of the year.

But he warned a lot of companies will have “gone to the wall” by then.

“In our industry, a lot of highly-regarded production companies have gone,” he said. “I think it’s going to be very difficult. This is a Darwinian culling.”

The despondent comments echo grim forecasts released this morning by the Bank of England, which said the UK could be on course for its worst crash in 300 years.

The Bank said it expected the UK economy to shrink by an enormous 14 per cent this year, though a strong rebound is forecast for 2021.

Small British businesses have been granted a safety net through the government’s coronavirus business interruption loan scheme (CBILS), as well as its recently launched bounce back loans scheme.

More than £5.5bn has been paid out under the CBILS initiative, though the scheme has drawn criticism from some small business owners.

Sorrell also raised doubts about the loans, saying they took some time to implement and expressing concerns about the requirement for personal guarantees.

“A lot of this stuff will be deployed where it is least needed — to large businesses and not to small businesses.”

Read more: Banks blasted over ‘disappointingly slow’ pace of lending as coronavirus loans hit £5.5bn

Driving the digital shift

Despite the sombre outlook for the wider economy, Sorrell, who now runs digital advertising firm S4 Capital, argued that the crisis will accelerate a shift to digital products and services.

“It will be an acceleration of what was already there,” he told Finito World magazine in an interview shared with City A.M. “Consumers were moving online; now they’re going to move faster.”

As a result, advertisers will increasingly turn to digital media and the decline of traditional TV will accelerate, Sorrell said.

The 75-year-old advertising executive also argued that the downturn would cement the position of tech giants such as Google, Facebook and Amazon — following a short-term hit from their small business customers.

Read more: S4 Capital shares rise as advertising firm shrugs off Covid-19 hit

In turn, Sorrell said this was likely to benefit S4 Capital. “We will benefit as long as we get through the next few quarters,” he said.

In its first-quarter figures published this morning, the advertising firm posted double-digit increases in both revenue and gross profit, though growth has slowed considerably from recent quarters.

S4 said its tech clients — which account for roughly half its revenue — had remained relatively resilient, despite some campaign deferrals to the second half of the year.

And while many companies may not survive the crisis, Sorrell struck a note of cautious optimism about a rebound to the economy once the pandemic has passed.

“I’m sure there will be a relief rally in the sense that when people are released from all this purgatory, there will be excesses,” he said.