Office/Clerical Staffing Growth Assessment: Industry Research Report

Office/Clerical Staffing Growth Assessment

Published Date: December 2007

Published By: Staffing Industry Analysts, Inc.

Page Count: 61

Order Code: R745-7

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Description

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Fallen star
Once a booming segment of temporary staffing — indeed, a segment that helped spearhead the expansion of temporary employment generally — office/clerical is now a mature, slower-growing market. Over the last eight years, compound annual growth has been just 2.4%, not much more than inflation and about half the growth rate of temporary employment as a whole. We project it will continue to under-perform on both a short- and long-term basis. Additionally, while firms in this business do make money, bottom-line returns at least over the last year have been subpar.

Highly competitive space
Of the roughly 9,500 temporary staffing firms currently in business, the vast majority — 8,000 — operate at least to some degree in the office/clerical segment, though there is a slight trend of firms leaving this segment. The largest staffing firm in this business is Kelly Services Inc., with an estimated $1.5 billion in U.S. office/clerical sales. Together, the top 13 firms make up about 51% of the $17.1 billion office/clerical temporary staffing market.

Well-accepted usage
On the plus side, office/clerical temporary help usage is very well-accepted in the marketplace. No one has to explain to buyers the concept of a temporary office/clerical worker; that job was done long ago. Entry into this market is therefore relatively easy. Overall, 2.9% of office/clerical workers currently work on a temporary basis, roughly half again as large a proportion as the 1.9% of temporary help penetration for the U.S. workforce generally. And in some individual office/clerical occupations, penetration is 8% and more.

What differentiates winners in this segment
Of the 47 private staffing companies that made up our America's Fastest-Growing Private Staffing Companies 2007 list, about half have operations in the office/clerical staffing segment. It's notable, however, that none of these firms sell office/clerical alone and only 8% sell office/clerical with industrial only. Ninety-two percent of the fastest-growing purveyors of office/clerical skills sell them in combination with one or more of the following: IT, finance/accounting and/or direct hire. Likewise, among the big players in this market, Robert Half's Office Team division has seen revenue growth well in excess of industry average; Office Team's allied divisions too sell IT, finance/accounting and direct hire. These observations comport with our staffing buyer survey result that contingent staffing buyers of office/clerical, IT and finance/accounting skills are often one and the same. In particular, 64% of companies purchasing contingent IT skills also count office/clerical among top purchases; 32% of companies purchasing finance/accounting also count office/clerical among top purchases. Selling one helps to sell the other due to opportunities in cross-marketing.

The importance of targeting
While overall prospective growth in this segment is on the low side, there are occupational sub-segments that are seeing strong growth. The most notable of these is customer service representatives, a $1.8 billion dollar temporary staffing market that is projected to see the greatest temporary staffing growth of all office/clerical skills over the next decade and is among those currently seeing the fastest growth. Temporary help penetration in this market is about 3.2%, indicating a high degree of buyer acceptance and therefore a relatively easy sale. Separately, it's also worth keeping in mind the top industry-level markets. Finance/insurance and retail/consumer rank among the largest employers of office/clerical workers, and contingent staffing buyers in these industries are more likely to buy office/clerical staffing services than buyers in other industries.

Technology: friend and foe
The post-World War II boom in office/clerical employment was stimulated in part by the spread of advanced office/clerical equipment that required operation by trained workers. But more recently, advances in cheap and productive computer technology have moderated demand for traditional office/clerical workers. Technology remains a damper for growth, as labor-saving software and automation are ever-improving. Another potential threat is offshoring.

No place for average performers
Over the last year, relatively pure players in the office/clerical segment have averaged EBITDA/revenue ratios of 2%, about half the 4.4% return for staffing firms generally. At the same time, growth in this segment — historical, current and prospective — is below average for the industry. Nonetheless, we believe firms can prosper here, particularly if they sell office/clerical skills as part of a broader suite of head-office offerings — in combination with IT and finance/accounting — and by intelligent market targeting. Of course, in mature markets it's often the low-cost provider that wins. That may help here too, but not if it comes at the expense of quality. Office/clerical contingent staffing buyers cite quality as the No. 1 criteria with regard to both hiring and firing staffing firms.

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