March 2003

Corporate spending won’t rebound soon

Why exhibitor cost-cutting has to move beyond rhetoric and into reality

By Cathy Chatfield-Taylor

“I’ve been seeing 5 to 10 percent reductions in my budget over the past two years,” says Sal Cavallaro, CME, Manager of Marketing Support Programs for United Technologies Corp. (UTC) in Hartford, CT. “If the economy remains flat, I still see budgets decreasing, although it will be closer to 5 percent, maybe less, because we’ll start to reach a point where you can only shrink so much, then you’ve got to start eliminating shows,” he says.

If, on the other hand, the economy rebounds, Cavallaro expects a delay in the ripple effect. In that case, trade show spending will remain flat for a year, then increase by 5 percent or less the second year. “It takes some time for a change in the economy to impact us,” he says. “Exhibit managers react to the needs of marketing and our senior executives, and they react to the economy.”

A $28 billion company that ranked No. 59 in the Fortune 500, UTC sells high-tech products to the aerospace and building systems industries. All told, UTC’s seven business units exhibit in 140 to 160 shows worldwide, with a seven-figure combined annual budget. Despite budget cuts, expectations for “return on objectives” over the next three years won’t change significantly. That means doing more with less — downsizing exhibit space, sending fewer people and signing multiyear vendor contracts to get better pricing. “We’re doing everything we can to keep costs down,” Cavallaro says. 

Spending trends

The Chicago-based Trade Show Exhibitors Association (TSEA) expects that cost-cutting strategy to continue. TSEA reports that the average total exhibiting budget decreased 36 percent in 2002. Spending forecasts for 2003 and beyond aren’t available, but TSEA President Michael Bandy says more members are re-examining their budgets quarterly. “If they get to an end of a quarter and things aren’t looking good, they look at chopping,” says Bandy. “It’s not like the old days when people used to put an annual budget together and follow it.” 

The result may be mid-year decisions to pull out of shows, despite contracts. Space accounted for only 40 percent of the average exhibit budget in 2002. By canceling shows, companies can still save on services, staffing, freight and other costs. In fact, Bandy says costs are one area exhibitors don’t feel show managers are serious about addressing. “Exhibitors feel like they pay all of the bills and support all of the deals and yet have no means of stating their case short of withdrawing from the event,” he says. He points to drayage as an example, saying “You simply can’t equate value to drayage, no matter how you slice it. And exhibitors are more than ever asked to be accountable and measure results.”

Cost and the value delivered will be driving factors in corporate decisions about trade show participation. If exhibitors continue to cut staffing and promotions to pay for the increasing costs of show services (see “Exhibitor Cost Projections” at right), they’ll fail to achieve their return on objectives. That, in turn, will affect decisions about subsequent shows. 

Still, Exhibit Surveys Inc. in Red Bank, NJ, reports that exhibitors see value in face-to-face meetings. In fact, 33 percent of respondents to the Value of Face-to-Face Study, performed for the Center for Exhibition Industry Research, think exhibitions will gain value over the next two years, compared to 15 percent who see the value decreasing. Accordingly, 27 percent of exhibitors surveyed expect to increase the number of shows they participate in over the next two years; only 13 percent plan to decrease the number.

Future forecasts

Economists Richard Berner and David Greenlaw of Morgan Stanley in New York City view uncertainty about the future as a key factor in business spending pullback and a drag on U.S. economic growth. However, anticipating a sizable stimulus package from Congress, they expect to see 4.6 percent average growth in the four quarters ending in the spring of 2004, according to a Morgan Stanley Global Economic Forum report. 

Business executives are less optimistic. A Pricewater-houseCoopers Management Barometer survey found that only 48 percent of top executives are optimistic about the economy’s prospects in 2003, down from 69 percent in early 2002. “U.S. senior executives continue to see uncertainty in the economy caused by the threat of more terrorism and the possibility of war in the Middle East,” states Frank Brown, PricewaterhouseCoopers’ Global Leader of Assurance and Business Advisory Services, in Sales and Marketing Management (SMM) Performance eNewsletter. “More than a year after 9/11, their confidence in a business recovery, which had been building slowly, has weakened considerably.” 

Executives may be more optimistic about their own companies’ growth prospects. In the PricewaterhouseCoopers 6th Annual Global CEO Survey, 72 percent of CEOs were at least somewhat confident about prospects for revenue growth in 2003. In fact, 58 percent said they would meet their profit targets, and 31 percent expected to beat them. On a continuum between cutting costs to survive and spending to promote growth, 59 percent of CEOs stood on the middle ground, 31 percent were spending and 9 percent were cutting back. 

The forecast is bright for total spending on communications, which includes entertainment and trade shows. Spending is expected to increase at a compound annual rate of 5.5 percent from 2001 through 2006, according to Veronis Suhler’s 16th Annual Communications Industry Forecast. Still, it’s a slower pace than in 2000, when communications was the second fastest-growing sector of the U.S. economy. 

Scenario planning

What do all these numbers mean? “Almost all forecasts I’ve seen — whether it’s for corporate spending, what interest rates are going to be, or technology adoption, etc. — they’re almost always wrong to some extent,” says business futurist Bob Treadway, CSP. That’s because they rarely consider how events will play out as various forces and factors interact. Instead of making forecasts, Treadway plans scenarios. 

“I think the Iraq war is probably the most profound event that will occur in the next six to 12 months that will affect the next three years. Everything else hinges on that,” says Treadway, head of Treadway & Associates in Anacortes, WA, and facilitator for IAEM’s Senior Associates Institute on Business Management Solutions for the Future, to be held April 21-23 in Las Vegas.

How the war plays out will impact the economy and, in turn, corporate spending. His best-case scenario: A short, bloodless war fought with help from allies other than Great Britain and costing less than $20 billion could result in an economic rebound by early to mid-2004. Worst-case? Fighting drags on longer than 90 days, costs surge over $200 
billion, Bush’s popularity tanks and the Republican candidacy is up for grabs in 2004, causing another swell of uncertainty and a double-digit recession.

Anticipating the worst, Treadway says show managers should be prepared for this scenario: “What am I going to do if my overall revenue stream getscut by 30 to 50 percent?” A show’s key to success, he says, is to develop robust plans that will work in a wide range of scenarios; and, if you have to cut to survive, don’t cut your best people, cripple your best technology or alienate your best customers. In fact, Treadway says, “Do as much as you can to bolster your assets going into this kind of situation.”

Cathy Chatfield-Taylor covers the exhibition industry as a freelance writer/editor. She can be reached atcathy@cc-tunlimited.com.