Fundamental Shift: How the recession is changing the cleaning industry
Building service contractors saw it coming, this recession. The writing was on the wall as many as two or three years ago in sectors such as industrial and retail, which began to see a drop in business and had to cut back on cleaning services. Now, nearly all sectors have been affected by the slump in consumer spending and the tightening of the credit market.
But few might have predicted that the economy and customers on the whole would be so hard-hit — shaken to the core in some cases — changing budgetary discretion, spending priorities and cleaning expectations perhaps for good.
“I think this recession is certainly deeper and much more widespread than any other I’ve seen and I’ve been here for 30 years, and I’ve lived through at least four, maybe five, and there are certain things that change after each recession,” says Guy Mingo, president of Marsden Holding LLC in St. Paul, Minn. “This one’s more widespread, really, across the whole economy, not just one sector — not just banking, not just real estate, but everybody was affected.”
Suffering sectors such as finance and banking, the auto industry, construction and real estate may stand out as the most volatile, but regardless of the sector, customer budgets throughout a contractor’s portfolio are shrinking. This has BSCs scrambling to meet demands for price decreases and service reductions.
At a time when customers have less money to work with, they are eliminating some daily cleaning frequencies, reducing routine services and rewriting specs. Though those changes are a temporary fix during a financial crunch, BSCs fear they will remain permanent long after the economy recovers.
“What I’m afraid of and what others are afraid of, is that this will be the new standard,” says Taylor Bruce, president of IH Services in Greenville, S.C. “Nobody a year from now, two years from now, is going to all of a sudden have 25 percent more budget than they’ve got now. It doesn’t work like that. Once it’s gone, it’s gone.”
Cleaning services are an easy target for financial decision-makers within customer entities. A cleaning contract may rank as important as other big-ticket utility and outsourcing costs, says T.J. Barnes, vice president of Manhattan Maintenance in Fairfield, N.J., but customers can’t cut electricity, and they won’t cut security, so cleaning services — typically perceived as a commodity rather than a necessity — have to take one for the team, so to speak.
Most reductions vary in percentage between 10 and 30 percent, say BSCs.
“The first thing they all say is, ‘We want to cut this price and we don’t want any change in service.’ That’s always the first thing out of somebody’s mouth. And of course you can’t do that,” Bruce says. “None of us in today’s world make margins to be able to do something like that.”
BSCs can either do the best they can to make the cuts required, or agree to reduce specifications, he says. But they can’t afford to say no in such a volatile business environment. As it is, most BSCs are experiencing an increased number of customers going out to bid to secure more competitive bids.
“There’s a lot of fast-moving parts out there today,” Mingo says. “We have accounts that have bid twice in a 12-month cycle. Because they’ve had management changes, and companies have come back and said they need to have a round of cuts. Their projections didn’t turn out to be as good as they thought.”
The first daily services to be reduced are the basic cleaning services, including dusting, vacuuming and even trash pickup. Services performed weekly are now being shifted to once or twice a month, and those performed quarterly are being performed twice a year. But the daily services that are considered most important — the cleaning of common areas such as lobbies and break rooms, restrooms, entrances and anywhere that is a high-traffic area — are still valued.
Where many BSCs are feeling it are in their periodic, add-on services such as floor and carpet care and window washing.
“I think that the periodic services are the first ones to get cut, and I’ve seen a slow deterioration in those, not just in my properties but also in day-to-day things like when I go to the supermarket or a friend’s apartment building.” says Barnes. “Being in this business, you always have your eye on seeing what other people are doing. You see the cutback in services just about every place you go.”
The cutbacks aren’t always just a temporary fix; they’re permanently changed, in writing, in the specifications. Some companies will offer up new specs in a rebid situation, while others will work with contractors on new specs that fit their financial limitations.
“In a lot of cases, they’re working with us to reduce specs and in most scenarios we’re able to avoid an RFP,” says Marc Collings, director of strategic management for Varsity Contractors in Boise, Idaho. “In many other cases, they’re just going out to bid, and a big trend is going towards reverse auctions.”
In extreme cases, customers are closing out BSC contracts for good as organizations attempt to bring cleaning operations in-house.
As workloads are eliminated or reduced, employees are inevitably affected.
BSCs usually have a mix of full- and part-time positions, based on their clientele’s needs. For many contractors, the ability to offer full-time work is dwindling because of the recent contract cutbacks — and that is having a negative impact on contractors that use hours and pay as incentive to reduce turnover and hang on to good employees.
“I’ve lost staff because of the people that decide to cut services. And I’ve tried to reduce some of those staff to lesser hours but of course they have families just like everybody else so they have to find full-time work,” says Lonnie Williams, president of L&J Building Maintenance in Topeka, Kan.
Barnes has even gone so far as to stop trying for contracts that have cut down to three days a week or less.
“You’re not making any money on it and you’re spending a considerable amount of time running around and dealing with three-day-a-week services and finding people that do them, and then you’ll have a higher turnover rate,” Barnes says.
Whether a market is union-saturated also influences reductions. Smart property managers that know how unions justify staffing are reducing on-site jobs to meet budget demands. Contractors that negotiate with unions are seeing reductions in the scope of work, specifically targeted to eliminate head count, Barnes says.
While there is more contract flexibility in non-union markets, there hasn’t been a huge change from full-time staff to part-time staff, Mingo says, but there have been head count reductions. Other BSCs have had to reduce full-time staff, as they simply don’t have the work to fill a week for employees anymore.
Even though turnover is down for most contractors because of the economy and the need for employees to keep their jobs, it can be hard to fill positions in markets that traditionally offer part-time, daily jobs that do not offer good part-time hours.
“It’s tough because in order to get people gainful employment, they don’t necessarily want to work only two or three days a week, especially with banks,” says Jamie Van Vuren, president of Bee Line Building Service and Supply in Schaumberg, Ill. “A lot of times they’re just working one or two hours anyway, and you try and give people numerous banks to fill it, otherwise you’re paying people much higher dollar hourly wage. So it’s harder to fill those positions.”
While each BSC experiences these economic times differently, and many are making up for losses in these areas for sales and growth in new ones, most agree that this leaning-down period for customers may permanently change the way cleaning is done. With a focus on prices rather than cleanliness, customers are barely maintaining facilities, let alone investing in them.
“It’s like they’ve all gotten to a maintenance situation instead of an upgrade situation,” Bruce says.
The customers that cut down their cleaning frequencies may never go back to five-day-a-week service, especially if BSCs are doing a good job of cleaning at two or three days a week.
“I think it’s a game-changer,” Mingo says. “I think the industry has lost a portion of its revenue base and it’s going to have to replace it through expansion, taking on more customers, in different territories or increasing or adding vertical sales — probably both — in order to offset that revenue loss that I don’t think will come back.”
A reduction in frequencies opens the door for more maintenance and periodic work in the future to make up for the cleaning that is falling through the cracks. Also, the fact that so many customers are going out to bid is giving contractors the chance to snatch up new customers.
Despite the gloomy economy and volatile markets, savvy BSCs see any alterations in the markets they serve as an opportunity for new business as well. Some markets, after all, aren’t doing poorly. So far this year, the economic situation has kept BSCs busy, challenging them to think creatively, make smart strategic decisions and invest boldly. For many, it’s paying off.
Market-By-Market: A Closer Look
Commercial Office Space
Office buildings have experienced a rise in vacancies due to the recession, but where BSCs are really feeling the pinch are in reduced cleaning frequencies. The cleaning, dusting and vacuuming of offices and cubicles is being de-prioritized because they are out of sight of most visitors. Also, BSCs servicing office buildings managed by third-party firms say they’ve been fielding requests to reduce prices without reducing the scope of services.
Healthcare is one of the few sectors that seems to be holding up despite the economic situation. BSCs report that medical facilities have not been cutting back on services, except in rare cases in which the organization has had to cut jobs or close locations.
Banks and other financial institutions have been some of the hardest hit by the economic crisis, and this is one of the worst markets to be servicing. BSCs with bank customers report cleaning frequency cuts from five times a week to as little as once a week, or the end of contracts as chains close down or are acquired by other banks.
Many times, industrial customers are among the first wave of those who take a financial hit when the economy is heading downhill. Industrial customers have been cutting back for the past year or two, giving contractors a head start on the recession.
That educational budgets are being slashed in districts and colleges across the country is opening a door for many BSCs to submit bids as outsourcing cleaning services is becoming a more popular option. This is a chance for contractors to expand their customer base if it doesn’t already include schools. However, those that already service school districts are contending with those tight budgets, and increased competition as contracts go out to bid.
Government contracts may be the one sector in which BSCs report an uptick in request for services, particularly specialty periodic services. The push to go green in public facilities and the influx of federal stimulus money means there will continue to be opportunity for contractors to secure some lucrative contracts.