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It seems hard to believe that the initial Covid-19 restrictions, enacted by the Federal Government and the respective state governments, came into effect only three weeks ago.

Normal life, as we knew it, already seems a distant memory. It’s hard to contemplate how we might be feeling this time in June if the current restrictions remain in place.

Agency recruitment being conducted remotely by individuals who are physically alone in their respective homes is a massive contrast to the norm of offices full of noisy, young extroverts, working together in the frenzied pursuit of successfully aligning the interests of candidates and clients to make placements.

I suspect the many hours, then many days, then many weeks of the current reality would be more than many recruiters could cope with.

Unfortunately many of these recruiters will never return to their offices because their employer won’t be able to afford to continue operating. Their employer will shut the doors permanently or the company will be liquidated.

The early indicators make for very sobering reading.

US staffing industry revenue this year is projected to be USD 119.4 billion, down from projected 2019 revenue of USD 151.8 billion. (7 April)

Michael Page reports Q1 Asia Pacific gross profit decline of 17.7%, compared to Q1 2019. (8 April)

Permanent placements and temp billings in the UK both fell at the steepest rates since 2009 (8 April)

Robert Walters group net fee income was down 11% for Q1 2020, compared to Q1 2019. Asia Pacific same period decline was 5% (8 April)

Unemployment is set to soar to its highest rate in almost three decades, with 1.4 million Australians expected to be out of work. Jobless rate forecast to double in the June quarter from 5.1% to 10%, all but confirming Australia will enter a recession (13 April)

35 staff at Constructive lose their jobs as the company enters administration (14 April)

Page Group cuts 104 fee earners and 28 operational support staff globally in the first quarter and plans to make 250 headcount cuts in April (15 April)

This week’s analysis of local job ads (by Indeed) shows exactly how suddenly the recruitment industry has been stopped in its tracks. The total job ad volume is approximately half of what it was compared to this time last year.

By category of job:

  • Driving                            (-25%)
  • Industrial engineering (-32%)
  • Nursing                           (-32%)
  • Accounting                     (-51%)
  • Electrical engineering  (-52%)
  • Retail                               (-52%)
  • Education                       (-69%)
  • Sports                              (-77%)
  • Childcare                         (-79%)
  • Hospitality & tourism   (-82%)

The ABS Labour Force March 2020 data, released today (compiled from data collected from the first two weeks of the month), reveals nothing of the subsequent labour market carnage that followed the commencement of restrictions on 21 March.

Official unemployment ticked up 0.1 percentage points to 5.2 per cent, reflecting an increase in total unemployment of just over 20,000 workers. The April results, released on 14 May, will almost certainly provide official confirmation that Australia has just suffered its most dramatic-ever monthly increase in unemployment.

Who really knows what’s ahead but there’s a handful of things I am willing to speculate on:

  • Internal recruiters, suddenly idle as recruitment freezes are implemented, will find themselves just as quickly unemployed.
  • Resourcers and para-consultants become luxuries very agencies can afford as 360 degree recruitment becomes the only possibility a consultant has of keeping their job and an owner has of banking a profit
  • Consultants that attempt to hunt outside their existing niche and client base will become demoralised as they unsuccessfully attempt to fill jobs from a candidate pool that they are not an expert at fishing in. Meanwhile their existing clients and candidate pool become closer to competitors who do the smart thing and stick close to their existing relationships and strengthen them even more.
  • Agencies lacking at least six months of cashflow in reserve have little chance of getting to the other side if gross profit drops by 50 per cent (or more).
  • Agencies who can most effectively highlight their candidates’ skills (and home-office capacity) relevant to a longer-term remote-working role, will have a much better chance of filling any relevant vacancies.
  • A strong temp base will provide a basis for morale, optimism and cash.

Unfortunately it is inevitable that around 25 per cent of recruitment agencies operating in March 2020 will not be in business by March 2021.

Although that might seem a bold (and negative) prediction I do so based on the key profitability data point from Staffing Industry Metrics. This data point shows a whopping 27 per cent year-on-year average profit decline (per staff member) when the 2019 financial year is compared to to the 2018 financial year.

If that data point is a reflection of the financial management capability of the average Australian recruitment agency owner in strong economic conditions then what realistic chance does a sizeable minority of owners have of surviving the worst jobs environment this side of World War 2?

Owners who haven’t (or don’t) plan for things to get worse before they get better will almost certainly make up a large majority of those owners who will be forced out of business in the next twelve months.

Buckle up people; we have a very bumpy ride ahead of us.

11 Comments

  1. gj. on 16/04/2020 at 5:40 pm

    Feeling lucky to be a retired recruiter. Volume of candidates and missing in-house recruiters could be an opportunity going forward.

  2. Phil Isard on 17/04/2020 at 9:43 am

    Always enjoying reading the odd blog Ross, can’t say I enjoyed this one. As brutal as your opinion is, as always it’s based on the facts, and most likely on the money.

    The interesting comment I hear in environments like this is “We’ll be ok, but I’m worried about everyone else.” Regardless of cash position, one has (my business included), who really knows how long this goes, what businesses go under owing you money, what client stops hiring overnight or stops through you? While Cash is King, it’s only King if you have it and can manage it flowing in and out (hopefully more in than out).

    Thanks Ross.

    • Ross Clennett on 25/04/2020 at 10:47 am

      So true, Phil. Debtors owing are one thing; cash in the bank is another. Many owners have already said that payments due are already slowing down.

  3. Joseph Merz on 17/04/2020 at 10:12 am

    Great post, Ross. As always.

    I agree on all points bar one – if your current client base isn’t hiring and you’ve covered them off, there’s no harm chasing new clients that are more likely to be hiring. Just don’t drop the ball on current clients or change specialisms.

    Hope you are well.

    • Ross Clennett on 25/04/2020 at 10:49 am

      It’s trying to fill work in a new niche that concerns me most, Joseph. “A little bit of knowledge is a dangerous thing” is applied in that context.

  4. Mandy Morgan on 17/04/2020 at 12:59 pm

    Thanks Ross. Couldn’t agree more. Would like to add in my two cents worth. Having been in recruitment a VERY long time and worked through 2 recessions (1975 and 1982), I remember the following which may apply today once things settle down and recruitment gets back on track.

    Employers will expect more from external recruiters as they rightly assume there will be a larger candidate pool to draw upon. The task for recruiters will be to focus on the QUALITY of their candidates as they know that it doesn’t matter what the economic circumstances, quality candidates are always difficult to find. Managers who have trained staff in ‘quality over quantity’ principles will be better prepared than the ones who don’t operate in this way.

    Quality candidates will be harder to ‘shift’ away from their current employment as they become more concerned about job security over career progression. Training staff now in how to handle this potential problem may be useful.

    Employers will try and recruit themselves to save costs. However, as they become increasingly overwhelmed with the sheer number of applications to process, many will revert to using agencies, trying to negotiate fee reductions. Better for agencies to be prepared now for these type of conversations and train staff in how to manage fee discussions.

    Candidates who are becoming increasingly desperate for work, will try inventive ways to contact recruiters and some can be difficult. Being prepared on how to handle increasing candidate interactions professionally, with respect and in a timely fashion, will be useful training to implement now.

    Just a few thoughts!

    • Stephen Moir on 23/04/2020 at 12:32 pm

      Well written Ross and Mandy. I think you are both very accurate with your views. I think this is going to get a lot worse before it gets better. However if businesses prepare for the worst then it will be okay in my view.

    • Tosh on 24/04/2020 at 6:23 pm

      Great post, Ross, and also a nice succinct addendum to the article Mandy!

    • Ross Clennett on 25/04/2020 at 10:51 am

      A agree entirely with your points, Mandy. I am sure many recruiters are already experiencing what you have outlined and it’s only going to become more prevalent over the next few months.

  5. Craig Colvin on 21/04/2020 at 5:44 pm

    Nailed it Ross. thanks for sharing. finally someone is brave enough to use the facts and write what some of us are thinking and too afraid to admit.

  6. Ross Clennett on 25/04/2020 at 10:52 am

    Cheers, Craig; appreciate your feedback.

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