SI Review: March 2011

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Research Report: Place and Search Bounces Back

After the downturn

Place and Search Sector Outpaces Temporary Staffing

Staffing firms have been grappling with some surprising twists and turns in this recovery. For instance, while the broader economy has been limping back, the place and search sector has surprisingly run ahead, rebounding an estimated 20 percent in 2010. Here’s why the phenomenon is interesting.

Place and search typically does best in times of labor shortage, when few people are unemployed. But overall unemployment is hovering in the 9 percent range, and even college-level unemployment is roughly double its usual rate. So why, then, is place and search taking off?

Maybe corporations cut staff too deep and are now being forced to reverse some of those cuts. “I think a lot of hiring is happening because during the recession, corporations had cut staff to the bone, and now they have to scale up to capitalize on the improving economy,” says Sona Sharma, senior research analyst at Staffing Industry Analysts, the publisher of this magazine. “We are especially seeing strong hiring in the professional sector, such as IT.”

Traditionally, it’s been the temporary employment sector that comes back faster after a downturn. Let’s take a look at some numbers that are a departure from the usual trends.

Place and Search

The place and search sector’s revenue fell further in the recession than temporary help, but it also rose faster in 2010. U.S. place and search revenue plummeted 51 percent in 2009 compared with a 25 percent decline for temporary employment, according to estimates by Staffing Industry Analysts. Estimated place and search revenue then rose 20 percent in 2010 compared with an 11 percent increase for temporary staffing.

The place and search segment includes direct hire, temp-to-hire and retained search.

Direct Hire

But it was direct hire revenue that made the biggest bounce. After falling 58 percent in 2009, Staffing Industry Analysts estimates U.S. direct hire revenue rose 20 percent in 2010 to $4.2 billion.

Robert Half International Inc., the largest provider of direct hire in the United States, mirrored the trend. The Menlo Park, Calif., company reported that its revenue from direct hire fell 70 percent in the second quarter of 2009, the worst quarter of the recession. Its U.S. temporary and consulting staffing revenue fell 34 percent that same quarter. Then Robert Half’s U.S. direct hire revenue rose 39 percent in the third quarter of 2010, while its temporary staffing revenue rose only 14 percent.

“We believe this demand was bolstered by clients who had previously made deep personnel cuts and needed to reinstate a portion of their workforce at the first sign of improving business conditions,” the company wrote in a filing with the U.S. Securities and Exchange Commission.

Other companies also reflected this development. Sue Burnett, president of Houston-based Burnett Staffing Specialists, says direct hire business at her firm started to come out of the recession before temporary staffing did. Typically, however, direct hire is the first to go and last to come back.

“We’ve definitely seen an increase in direct hire,” says Burnett, who has been in the staffing industry for 40 years. Burnett says her firm, which began in 1974, started as a direct hire firm but now generates the bulk of its revenue from temporary help. This recession was different from previous ones because the company continued to have direct hire business. “Other recessions, literally, did not have any direct hire jobs,” Burnett says. “This was the first one where we didn’t lose that much direct hire.”

The company’s locations -- it operates in five cities in Texas -- may have helped, she says. “I would say that this recession in Texas was not nearly as bad as it was in other parts of the United States,” Burnett says. “There’s still a lot of business out there.”

The oil and gas industry remained strong and the company is seeing strength in its sales division and its HR division, she says. “This recession, to me, was not nearly as bad as the 2001-2003 recession,” Burnett says. During that recession, the Enron bankruptcy hit the Houston economy hard, impacting other companies in the area, she says.

Some staffing executives echoed the same sentiment regarding direct hire. Len Adams, CEO of New York-based Adams Consulting Group, says the direct hire side of his business was busier than a year earlier. It rose more quickly than the temp side, but there were some specific projects that bolstered it, Adams says.

And in direct hire, clients are also being choosy about candidates, he says. “They still want to see several candidates as opposed to just a couple,” Adams says. “They are still being conservative with their offers, they’re not throwing money around. … There’s still that sense that there are a lot of people out there.”

High unemployment notwithstanding, executives are still finding it hard to find top talent. An interesting aspect to this entire business is that it remains difficult to find top talent despite the perception of it being an employers’ market, says Tony Gray, president of Search Services of Houston.

At their end, employees are more risk-averse than ever, Gray says. They can be reluctant to change jobs given the still-difficult economic environment. Employed job-seekers may feel that if they take a new job and it doesn’t work out, there will be fewer opportunities for them.

“It’s been difficult in this market to recruit top talent because people are gun-shy about making a job change,” he says. Still, demand for direct hire had steadily increased, particularly in the third and fourth quarters of 2010, Gray says.

However, Staffing Industry Analysts estimates the value of the direct hire market in 2010 at $4.2 billion. That’s less than half its estimated value of $9.8 billion in 2007. It doesn’t appear that direct hire revenue will return to its 2007 peak for a bit.

“We project that the U.S. direct hire market will be $4.7 billion in 2011,” says Tony Gregoire, senior research analyst at Staffing Industry Analysts. “That is not a high level. It’s less than the size of the market in 1998. It just feels high because it was $3.5 billion in 2009. However, unemployment will need to get down to more normal levels for direct hire to reach its 2007 peak of $9.8 billion. That will take several years. We might even experience another recession before that happens.”

Temp-to-Hire

The recession has made some candidates more accepting of certain work arrangements. The dictum any job is better than no job definitely holds true. One big change after the recession is that candidates are open to more types of arrangements, whether it’s temp-to-hire, temporary or direct hire, says Michelle Boggs, president and CEO of McKinley Marketing Partners Inc.

In the past, people tended to focus on either direct hire opportunities or contract work. “Those that wouldn’t have considered temp-to-hire a year or two years ago, they’re pretty open to it,” she says. Boggs’ firm, based in Alexandria, Va., focuses on providing high-end marketing professionals.

In 2009, temp-to-hire revenue dropped quickly and its rebound in 2010 is estimated to have been slightly slower than direct hire. Staffing Industry Analysts estimated U.S. temp-to-hire revenue fell 55 percent in 2009 and then rose by an estimated 15 percent last year. The estimated temp-to-hire revenue of $2.2 billion in 2010 was less than half its estimated revenue of $5.0 billion in 2007.

Retained Search

U.S. retained search revenue fell the least in 2009, although it was still down by 40 percent.

In 2010, retained search was estimated to have grown by 22 percent -- a slightly faster rate of growth than the other parts of place and search. But retained search revenue is expected to grow slightly more slowly than direct hire and temp-to-hire over the next two years.

Heidrick & Struggles International Inc., the second-largest retained search firm in the United States, reported its Americas revenue fell 35.9 percent in 2009. Americas revenue at Heidrick then rose 29.9 percent in the first nine months of 2010 to $189.2 million.

The Future

Overall, place and search revenue is projected to grow faster than temporary help in 2011 and 2012, but not by nearly as wide a margin. And it will remain below the 2007 level despite the growth.

Revenue from this segment is forecasted to rise by 13 percent in both 2011 and 2012, according to projections by Staffing Industry Analysts, in comparison with growth of 12 percent and 9 percent for temporary employment.

The total revenue from the segment is an estimated $14.9 billion in 2012 compared with an estimated $22.5 billion in 2007. So what does this mean for staffing industry professionals? Place and search is currently growing and will continue to do so in the near future in a period of rapid expansion. Increasingly, the challenge going forward will be less on the sales side and more on the recruiting side as surplus talent is recruited and placed.

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