BusinessTN

Few industries are afforded as unobstructed a perch overlooking the general economy as staffing. Whether businesses are increasing or cutting their temporary workforces, or growing more or less inclined to make permanent hires of their temporary staff, staffing firms witness firsthand the slightest movements in these leading and coincident economic indicators.

BusinessTN conducted a roundtable discussion with four industry leaders representing diverse niches of Tennessee’s staffing industry. During the 45-minute conversation, some voiced concerns about expected difficulties in finding enough skilled employees to meet demand. Others shared their thoughts about profit margin trends, the effect of workers compensation reform in the state, and the pros and cons of government contracting.

What emerges are valuable observations on the industry that can serve as sensitive gauges on the rest of the economy. The staffing industry experts on this month’s roundtable include:

David Bartholomew, Nashville-based CEO of Staffmark, which operates in 25 states, and first vice chairman of the American Staffing Association
Pat Carter, owner of Olympic Staffing in Memphis
Melissa Miller Feinbaum, president of LBMC Strategic Staffing in Knoxville, focusing on accounting and financial placements
Glenn Zahn, president of Staff I.T., a technology staffing firm with offices in Oak Ridge and Chattanooga

BusinessTN: Melissa, how’s business?
Melissa Miller Feinbaum: 2003 was one of the softer years I’ve experienced, and I’ve been in the business for just over ten years now. Things are looking a little brighter. I’m hearing from my clients that they are going to increase some of their hiring in 2005. As far as the accounting and financial kinds of placements, two or three years ago, the accounting student numbers here at the University of Tennessee were fairly significantly down. So there were fewer people going through the accounting school. Now it’s a challenge to find that three-year kind of an individual, that mid-level staff person looking to move into management. The other thing that impacted our business quite a bit was the Enron scandal and the implementation of Sarbanes-Oxley.
Glenn Zahn: That’s affected us, too.
Feinbaum: When Enron happened, everyone was fearful that “Oh, my gosh, no one is going to want to get into accounting.” In fact, now it’s kind of seen as a little more of a glamorous type job, and the responsibility that goes with being an accountant is a little more in the limelight these days. Companies have been forced to add either staff or consultants to take care of their needs in that regard.

BTN: Glenn, how’s the technology sector?
Zahn: The tech area has taken a beating in the last few years. We as a company have continued to experience growth, but many of our competitors have dropped off. We see the same thing that Melissa is seeing with employment coming back where we’ve got more job orders open right now than we had this time last year. And companies are much more open to bringing on new people. Back in 2002 and 2003, the outlook of IT directors and CIOs about bringing on new personnel into the technology team wasn’t too positive. The attitude and outlook have greatly improved.

BTN: Pat, what do you think about your area?
Pat Carter: In Memphis, we are really all over the board. We do a little bit of everything from medical to a little IT, and quite a bit of clerical, which will make up probably 50 to 60% of our business. A few years ago, we found that we didn’t need as many people working to make the same amount of money. The 2002-2003 period was awfully soft, but I see some comeback now. We’re looking at orders that are coming in much faster. In fact, recently for two weeks we actually had 30 data entry people just to make the entry of the people that were going to vote because so many were trying to register in this area.

BTN: That’s clever. David, I know you have some pretty diverse services at Staffmark. How are your areas doing?
David Bartholomew: We’re about 35% above last year, through September. Tennessee is like 90% over the prior year. Where we’ve seen all the growth has been in the industrial area. About two years ago, we were about 50-50 between clerical-admin-office support and logistics/distribution-warehouse-light industrial. Today, we’re probably more like 75% light industrial-distribution-logistics. Our logistics business has exploded. If you look at what the American Staffing Association tracks, the distribution/logistics business has been the fastest growing sector within the staffing industry.

BTN: I see. Why don’t we talk a little bit about your ability to find qualified workers?
Carter: I found a year ago that I had more workers than opportunities, but now I’m finding that I’ve got just as many or a few more opportunities than I have people. The tough thing about it when you have more people than opportunities—you know right away if you can’t do anything with them that you’re going to lose them, so we had many people in 2002-2003 that we didn’t do anything with, and that wasn’t good. We’ve been able to do some additional things to enhance what we’re doing. We just partnered with a major company to do a pretty big project that is going to run continuously with Manpower, so we’re looking at some opportunities that we did not have and we’ll be growing in those areas.

BTN: Glenn, your thoughts on your ability right now to find qualified people?
Zahn: We’re a little different. With the IT market getting softer in 2002 and 2003, and just now coming back, there are still many IT workers out there who have been looking for employment for quite some time. It has been an employer’s market for quite a while, and so, when we get a job order, there is never a question that we can find really good talent to fill it. There could be other obstacles in the way, but in terms of finding the right talent in IT, we don’t see that issue. Now granted, we’re in a very technical area. Being close to the Oak Ridge National Lab and U.T., this is a very technically rich area. So we just don’t have the hard time in finding the right kind of folks for our clients in East Tennessee, primarily Knoxville and Chattanooga.

BTN: David, with the additional insight from your position with the American Staffing Association, what are your big-picture, longer-term thoughts about the availability of talented workers?
Bartholomew: Up until recently, the workforce has been out there to fill the needs that we’ve had. Two things that we’ve seen happen is if somebody comes in and gets into your database, if you don’t put them to work pretty quick you lose them, which tells me that recruitment is going to be a huge issue—if you can’t find them a job, they’re getting one somewhere else real quick. The second thing is that for the first time I’m starting to see pay rates inch up, which is the best reflection of a recruitment need. We’ve had more clients who we’ve had to sit down and talk to about the fact that they’re not competitive with some of their pay rates. Our company has started to put its resources more into what can we do to find people as opposed to what are we doing to go out and sell new opportunities. We’re quickly turning from a sales organization trying to get new business to taking that same infrastructure and turning our attention to recruiting people. If you’ve got people, there’s work available. I’ll bet everybody here is going to have a more difficult time in 2005 finding people than they did in 2004.

BTN: Let’s shift gears to workers’ compensation. The staffing industry in Tennessee was one of the lead industries hurt by the problems with pricing and availability of insurance in that area. What are your takes on the new workers’ comp reform plan and its effects on business?
Carter: I’ll tell you what it has done for my business. My workers’ comp for the last four or five years has been with AIG. They sent me a letter the first of last month and told me that they weren’t going to insure me any longer. They said that because of what happened in the state of Tennessee, they weren’t going to be covering it. So I’m looking around now for someone new.

BTN: Did they give you further explanation?
Carter: They didn’t go into much detail. First, they told me they had some good news and some bad news. [laughter from the panelists] They said the good news was that Tennessee workers’ comp was changing, but because of that change, they wouldn’t be able to cover me. [more laughter]
Bartholomew: This is a huge issue, and is probably the single biggest issue that the ASA is dealing with right now. What’s driving it is there are only about three or four carriers out there writing workers’ comp insurance. So the smaller [staffing] companies with just two or three branches or in only a certain part of the state are the ones that are getting hit the hardest because they don’t have the opportunity for coverage that the bigger companies do. We’ve lost a lot of competitors because they can’t get workers’ comp insurance. They’re having to go into the assigned risk pool.

BTN: What’s going on now with profit margins in the staffing business?
Carter: Currently, you can increase a little bit on the profit margin because with the recent growth, if the margin is not where it should be, there’s enough out there now for you to turn that job down. Whereas in 2003 or end of 2002, we took some margins that I wouldn’t take right now, but when we took those margins, we took them with the understanding with the client that we were going to grow that margin as we moved forward—that if we did a good job, we wanted to have the ability to increase it.

BTN: Have you been able to do that?
Carter: Yes. We’ve had several clients, like the university, which said, “We don’t want to pay but so much.” And we said, “Well, we can’t get a qualified person to do this job.” Now, we would take business only with a margin that is acceptable to us.
Bartholomew: At Staffmark, while our top line is up 35% year-over-year through September, our margins are not able to grow at that rate. There’s much more margin pressure than there is revenue growth pressure. I think clients have become more knowledgeable. We’re having to really, really work hard for it.
Feinbaum: Over the years, our margins have gone down, and I think that it is probably what David said, that companies are a little more educated now on the idea of margins and they talk about margins with you. When I first got into this business, they didn’t really.
Zahn: We haven’t had to take a dip in margins since all of our customers are regular commercial corporations that pay the margins that are industry standard. It’s funny, being a stone’s throw from the Oak Ridge National Lab, we’ve never done any business with the lab or with any government contractors because the margins are shaved so low it’s not worth doing.

BTN: Are there staffing companies that do have a focus on government contracting work?
Zahn: Yes. Many of those companies are what they call 8(a) firms. They’re minority-owned and get set-aside business that I’m not eligible to get. The other thing, too, is I think you need to have a history of being ingrained in the government and know all the ins and outs and how that engine runs, and I never have been in that in my entire career.
Carter: I used to be in the service station business—I had nine of those—and then I owned a Pontiac dealership for ten years, and then we did security work at the international airport for twelve and a half years. I’ve found that the people that I do business with are people that I know, and I’ve never really tried to do business with the government. Normally, there are so many other hurdles you’ve got to cover, you’ve got to wait for your money and then you have all these people you have to call, and you get passed from one to another, and nobody seems to want to know what is going on.

BTN: Many view the staffing industry as a good leading or coincident indicator of the general economy. Anyone have a forward-looking economic forecast?
Zahn: I’m seeing a better attitude. They’ll bring in a contractor and keep them for a while and then maybe convert them to a direct hire employee. Whereas a year or two ago, it took a whole lot more work to pry the money out of their budget.
Bartholomew: I think we are a leading indicator, and the staffing businesses all being up this year shows that the economy is improving. All the people I’ve talked to say things look really good for 2005 and 2006. But the thing that I’m most happy about is, I’ve been looking at how many people we’ve been losing to our clients, and not only is our business up, but our clients are using staffing firms to add to their own permanent employees. By year-end, we’re probably going to lose well over 50% of our workforce to our client base.

BTN: And that’s a good thing?
Bartholomew: I think that’s a great thing! Temporary help is a bridge to a permanent job. Everybody knows that. And when our clients are using us to add to their workforce, I think that’s the most telling sign of a booming economy. It means that their business is growing and they need help, and they’re using a temporary help company or staffing firm to help find their permanent employees.
Feinbaum: When I’ve ridden these waves up, they typically last two and a half to three years, so I’m hopeful we’re headed down that road. Based on what I hear from my clients about their 2005 budgets, it is looking good.

BTN: We hope they’re right. Thanks.