Dentsu was central to the commercial strategy behind the Tokyo Olympics, which have been postponed to next year © AP

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Dentsu will make almost 6,000 of its overseas employees redundant, as the world’s fifth largest advertising company wrestles with the fallout from the Covid-19 pandemic and the postponement of the Tokyo 2020 Summer Olympics.

The Japanese group revealed a £640m restructuring programme — involving redundancies and brand consolidation — on Monday. The company warned that it expected a second straight year of losses. 

The international operations of Dentsu, which took over UK’s Aegis for £3.2bn in 2013, are headquartered in London, and the latest measures will affect 12.5 per cent of its 46,560-strong workforce based outside Japan. The company declined to provide a regional breakdown of the job cuts.

In Japan, where Dentsu controls almost 30 per cent of its domestic market and employs nearly 20,000 people, about 230 staff have applied for early retirement.

While the company has blamed the downturn in global spending caused by Covid-19, it began streamlining its struggling overseas operations before the pandemic. Late last year, it reduced its workforce in the UK, Singapore, China, Australia, Brazil, France and Germany. 

After withdrawing its annual guidance in May, Dentsu said it expected a net loss of ¥23.7bn ($227m) for the fiscal year to the end of March, compared with a year earlier loss of ¥80.9bn. Its revenue is expected to fall 11 per cent to ¥928.7bn. 

$30bn Estimated cost of Tokyo Olympics

In the first nine months of the year, Dentsu’s performance in Asia-Pacific was hit after it lost a significant client in China, while revenue in the US fell as customers cut back on spending budgets. 

Recent estimates from GroupM, WPP’s media buying agency, and Magna, part of IPG Mediabrands, suggested that the resilience of digital marketing had softened the blow to global advertising spending compared with the 2008 financial crisis.

But Dentsu, which has been slower to adopt digital marketing in its home market, has struggled to offset the downturn in traditional forms of advertising such as television and print. 

In addition to the pandemic, Dentsu was central to Japan’s efforts to host the Olympics in Tokyo this year — a project that, by some estimates, may end up costing about $30bn and which were postponed when Covid-19 hit earlier this year.

Dentsu executives presented the sponsorship opportunity as a matter of patriotic duty, according to managers at several of the Olympics’ roughly 50 big Japanese sponsors.

The campaign was a success, creating a sponsorship pool estimated at $3.1bn — the largest ever attached to a sporting event. Japanese companies in the gold tier of sponsorship included Mizuho, SMBC, Nomura, Canon and Fujitsu, which paid about $100m for the original sponsorship deals, and will be called upon by Dentsu for a supplementary payment for the rescheduled Olympics in 2021.

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