With 43 years experience in recruitment, and having steered companies through and out of recessions in the past, we had a candid chat with Nigel Harse about the facts he’s seeing from the Staffing Industry Metrics panel of recruitment agencies, and where he sees the market heading.
The impact of COVID-19
The last 3 months has been a turbulent time in recruitment, what are some of the key facts that you’ve witnessed?
Here are the 3 headliners that best encapsulate the impact of COVID-19 on the recruitment sector:
1. The perm market crashed like a stone with a devastating impact for 98% of SIM participants.
For many of us the world really did change from the end of March, work from home, isolation, lockdown, stand down and fear were instant impositions on our life, work and businesses. So it’s no surprise that the pipeline of perm sales was instantly slashed.
April 2020 ANZ perm sales fell 67% on the prior month and impacted 98% of recruitment agencies. This is without doubt the greatest decline we have witnessed since we started collecting data in 2003. We often think of the impact of the GFC but it pales in significance in comparison because it took 7 months for the market to travel to its trough, a fall of 69% for the period, the CD-19 event was instant and everywhere and caused a 67% decline and wreaked havoc on the industry. There was no mercy and all sectors were impacted, some a little harder than others.
Some good news though, perm sales in May has improved for 70% of firms and early reporters data suggests a further improvement in June but results for both May and June are well down on last year.
The impact of CD19 on April and May perm sales is immediately seen with perm sales plunging 64% when compared to 2019
The first half of 2020 looks grim with perm sales for January to May 2020 recording a 39% YOY decline and we anticipate this will slip further. Having said this don’t be fooled there is work out there as always, just not in the same volumes.
2. The temp/contract market has witnessed some wild variations driven by some firms just being in the wrong sector and at the wrong time, health, hospitality, travel, and many white-collar roles came to an instant halt. Government restrictions and work from home disabled some but quickly enabled others and if your client was deemed to be an essential service and they adapted quickly to the new environment you may have seen your results improve. One thing’s for sure, and that is there is still life in the temp/contracting market in ANZ and the most resilient sector at the moment is the ICT sector where many firms are reporting record times.
CD-19 had a minimal impact (when compared to perm sales) on April’s ANZ temp/contract sales. It’s a fact that over the last 17 years April sales are always lower than March (Public holidays and # of weeks in the month). The average monthly sales decline in April over the last 17 years is 18%, April 2020 fell an average of 16% (but with some wide variations). 70% of firms reported a lift in temp/contract sales in May and once again the early data for June suggest further improvement for many.
ANZ temp/contract sales in the first half of 2020 will reflect a year on year decline of around 12%.
3. Across ANZ, 1 in 8 income producers were axed in March, followed by 1 in 7 axed in April with a further 10% departing in May, an average 36% axed in 3 months
Teams of 10 or less reported a minimal change of 10% to 12% decline over the Jan to May period
Teams of 11 to 20 reported a 24% reduction in May
Teams of 21 to 40 plus reported an average loss of 2 in March and April, then escalating 5 departures in May, a 31% reduction in 3 months
Teams of 41 plus reported early headcount reductions of 20% in March and a further 10% in May
NSW has experienced a 30% reduction in income producers in April and May, VIC has experienced a 35% reduction and all other States experienced a reduction of 20% to 25%
The smaller teams of 10 or less staff are the most resilient thus far with some teams remaining untouched by events so far.
What type of agencies are holding-up the best, and in what metrics?
Without a doubt, it’s those firms with a healthy contribution from their temp/contracting desks which contribute 80% to 90% of gross profit. In other words, the contribution from temps and contracting produces enough cash to cover your operating costs. It’s a mixed bag of results and it’s more about who your clients are and if they have been able to keep working in one way or another. A good metric to keep an eye on is Temp/contract gross profit divided by Operating cost.
Here is an example:
Temp/contract gross profit of $10,000 / $20,000 of Operating cost will give you a Temp/contract contribution spread of 50% and in ideal circumstances, it will be 100% plus as in the next example
Say, Temp/contract gross profit of $30,000 / $20,000 of Operating cost will give you a Temp/contract contribution spread of 150%
Those doing well at the moment have this metric well above 100%
Which type of agencies has been hit the hardest?
Those hit hardest have been those that are historically over-dependent on the perm market and working in the sectors hardest hit by restrictions. Hospitality probably being the hardest hit of all with an instant and prolonged shutdown.
Have there been any insights that have surprised you the most?
Yes, the speed and unilateral negative impact upon everyone but the speed at which we have all learned new ways to do things is quite amazing and opens the door for lots of changes for the future, if you embrace the opportunity! I’m amazed that debtor days have reduced for many participants but I’m not sure how long this will keep happening and it’s a metric that I would be all over!
Through your conversations with your participants and others in the industry, how do you think agency owners and leaders are holding up at the moment?
The vast majority are apprehensive but quietly confident about the future. They have taken the opportunity to cut costs, clean and tidy up some of their processes and build new opportunities from their relationships.
How do you see things playing out in the industry over the rest of 2020?
It’s going to be a challenge for many, JobKeeper is propping up so many jobs and companies and with lower subsidies kicking in from October and January we can’t be sure of the true impact on unemployment and confidence levels. We will probably see the usual trend in times of uncertainty, which is an increase in demand for flexible workforces.
What are the top 3 things do you think agency leaders should be focusing on at this particular time?
Keeping costs where they should be
Ensuring productivity levels are still at a sustainable level
Clearly understanding what is holding you back from achieving growth in the provision of truly flexible staffing solutions for a volatile and likely to be changing market for the next couple of years
