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.
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)
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.