Omnicom to Reduce Global Real-Estate Space Even as Employees Return to the Office
The owner of ad agencies including BBDO and TBWA predicts continued growth throughout 2023 as clients spend on performance- and event-based marketing services
Omnicom Group Inc. said it will significantly reduce its real-estate footprint and formalize return-to-office requirements for all U.S. employees as the company said it expects growth to continue through 2023, an indication that executives believe marketers’ continued spending will help the advertising giant largely avoid the economic headwinds that have hit the tech and finance industries.
Omnicom, which owns agencies such as BBDO, OMD and TBWA, will require all U.S. employees to return to the office at least three days per week, Chief Executive John Wren said on a call to discuss the company’s first-quarter earnings.
“The great resignation is over,” said Mr. Wren. “Naturally, there will be individual cases where people won’t want to come back, and they’ll seek other alternatives. But in the scheme of things, it is not going to be significant.”
Organic revenue grew 5.2% year-over-year in the first quarter, beating analysts’ consensus estimates of 3.9%, according to Wells Fargo. Total revenue for the quarter was $3.44 billion, a 1% increase over the first quarter of 2022, and Omnicom is on track to meet its own predictions of 3% to 5% organic growth for the year, said Mr. Wren.
Organic revenue is a metric that removes the effects of currency fluctuations, acquisitions and disposals.
Omnicom was the first of the major ad holding companies to report its earnings for the first quarter. Its share price hit a 52-week high of $96.78 before the market closed Tuesday and continued to rise in after-hours trading.
Omnicom plans to reduce its global real-estate holdings by more than 1.6 million square feet, said Mr. Wren. Since 2018, the company’s total headcount has increased by approximately 4,000 while office space decreased by 35%, he said.
Mr. Wren acknowledged that Omnicom would spend more money in the short-term to reintroduce employees to in-office requirements. In order to facilitate the transition, Omnicom has also invested in U.S. satellite offices such as locations in Connecticut, New Jersey and Long Island, N.Y., designed to reduce New York-area employees’ commutes, he said.
The company reported $119.2 million in pretax real-estate repositioning costs for the quarter, but this upfront payment will significantly reduce rent and occupancy expenses in the long term, said Chief Financial Officer Philip Angelastro.
Mr. Wren noted continued uncertainty related to the war in Ukraine and rising instability in the Middle East, as well as the collapse of several banks that served the tech industry.
“Clients are getting cautious, and they’re trying where they can to avoid long-term commitments and create as much flexibility in their spending as possible,” said Mr. Wren. “Therefore we’re doing the same.”
One way Omnicom will try to control costs is by opening three company campuses in India as hiring and offshoring operations in that country continue to grow, he said.
The company’s strongest revenue growth came from so-called precision marketing services, which allow advertisers to target consumers directly by using behavioral data, as well as experiential, or event-based, marketing, with the latter seeing especially strong growth outside the U.S., Mr. Wren said.
The company will also increase its investment in AI tools, primarily through a partnership with Microsoft Corp. Clients that want to participate in related projects will combine their data with Omnicom’s own database in order to find new ways to target consumers, according to Mr. Wren.
“There’s a lot of ethical questions as well as privacy questions,” he said. “We’re testing it, playing with it, but certainly not deploying it to the full extent of the power that it has.”