The Business of Relocation: Not Good

The recession and real estate bust transformed services - and specialists' jobs.

By Eric Krell Aug 1, 2010

August coverIn the wake of the U.S. real estate bust and massive corporate cost cutting during the past 18 months, the domestic relocation services industry continues to qualify, unmistakably, as a buyers’ market. So much so that buyers should beware.

Aram Minnetian, president of Weichert Relocation Resources Inc., describes the financial condition of the household goods shipment and real estate services companies that make up the provider market as the "single biggest risk to the health of the mobility industry.

"The industry did not exist during the Great Depression," Minnetian reflects, "so this recession has probably been the most challenging economic environment that the industry has ever seen."

How bad is it? The two relocation companies that held roughly 40 percent of the market share of all outsourced moves in the United States during 2009 each confronted serious financial problems in the past two years. One, SIRVA Inc., entered a prepackaged bankruptcy in 2008 to reduce its debt load; the other, industry behemoth Cartus Corp., is part of a now private-equity-owned corporation that, as of April, struggled to meet the terms of its credit agreement. In addition, several small franchised moving companies and agents of larger moving companies closed their doors over the past 18 months.

Is the industry in peril? No. In fact, there may be cause for what Atlas Van Lines President and Chief Operating Officer Jack Griffin qualifies as "guarded optimism," due to signs of growth in corporate relocation budgets as well as healthier relocation activity overseas. In Asia, for example, the larger companies, including SIRVA Inc. and Cartus, have fared comparatively well in the past two years.

However, most industry experts expect some of the smallest relocation vendors—those serving local and some regional markets—to go out of business in coming months. While economic indicators suggest that troubling market conditions are dissipating, the industry’s trials are prompting relocation and mobility managers to understand the current state of the market—and the complicated structure of the industry. Most important, relocation managers and other mobility professionals should ratchet up their due diligence when selecting vendors.

"There is going to be a significant—or, in some cases, renewed—interest by corporations in supply chain risk management, which until recently has been lacking," predicts Minnetian, who recommends greater scrutiny of the financial and credit quality of relocation companies and their downstream suppliers, even for ongoing contracts. He says relocation contracts typically range in length from three to five years.

Structural Complexity

Obtaining a clear picture of the relocation industry is difficult following the recession: The market remains highly fragmented, and the ownership structures qualify as complex, private or both. Some companies and businesses are nestled within large, privately owned corporations such as SIRVA Inc., and leaders of the private companies don’t have to share bad news. In addition, the public conglomerates often don’t release information on the performance of some relocation business units. This explains why relocation professionals pack industry conferences and rely on professional networks and industry researchers to keep abreast of changing conditions.

Many relocation and mobility managers discover this complexity as they try to gain control of each cost element in the relocation supply chain and try to figure out where to prune costs. "Gaining clear insight into total relocation costs can be challenging," admits Debbie Balli, president of global relocation services for SIRVA Relocation, one of SIRVA Inc.’s brands. "In many cases, 97 percent of total relocation costs are typically not visible to clients. Only service fees and rebates—which usually total less than 3 percent—are completely transparent." SIRVA Relocation recently created a tool to help specialists identify and itemize relocation cost components.

William Glusman, principal of consulting and research firm The Relocation Intelligencer LLC, closely tracks the industry. He lists more than 50 U.S. relocation management companies; however, most are small and may serve only one or two corporate clients. The five largest full-service providers—Cartus, SIRVA Inc., Weichert, Prudential Real Estate and Relocation Services, and Graebel Cos.—make up roughly 60 percent of the industry’s U.S. market share.

They typically offer "soup to nuts" relocation services: administration, management and payment of employees’ move-related travel costs and other expenses, and real estate broker and settlement services. They also move household goods, manage international assignments and compensation, and offer destination services frequently associated with international or domestic VIP moves. Many offer financing.

Beyond the big five, other vendors focus on components of the process. These vendors include moving and storage companies, real estate brokers, mortgage companies, real estate appraisers and title companies.

The largest vendors own several different relocation subsidiaries or business units. SIRVA Inc., for example, owns various brands that provide mortgages, settlement services and title searches. It also owns Allied Van Lines Inc., Global Van Lines Inc., North American Van Lines Inc. and other moving companies.

Some of the largest moving companies own relocation subsidiaries. Atlas World Group owns Atlas Van Lines Inc., one of the country’s largest domestic moving companies; Cornerstone Relocation Group, a smaller provider; Atlas Van Lines Canada, the largest provider in Canada; an international freight-forwarding group; a logistics group; a full-service travel agency; and a recently acquired container shipping company called Smart Move Transportation that gives Atlas a stake in the do-it-yourself market.

Consolidation occurred during the real estate bust and slowdown in corporate spending. Cartus acquired Primacy, another top provider, in January. The sixth largest provider, Brookfield Global Relocation Services, acquired GMAC Home Services in November 2008. GMAC offers relocation management, real estate and mortgage services.

Five to 10 years ago, Glusman points out, large HR outsourcing companies were keen to add relocation to their portfolios and bought relocation vendors to make that happen. Some of those same vendors have since been spun off again. The reason: Most consultancies found relocation to be a special field with few synergies to other HR functions. For example, in 2004, ReloAction, a full-service relocation company, was purchased by Hewitt Associates LLC, an HR consultancy. In 2009, the company was purchased back by its original owner and renamed NuCompass Mobility. (Hewlett-Packard’s ExcellerateHRO—an HR outsourcing business with relocation services—serves as an exception.)

Glusman and other industry experts expect some consolidation as vendors within the industry buy other vendors during the next 12 months. "You will see some consolidation, but you’ll probably see more companies going out of business," notes Jim Mallozzi, chairman and chief executive officer of Prudential Real Estate and Relocation Services.

Guarded Optimism

The financial stress Mallozzi mentions stems from an across-the-board 50 percent decline in corporate relocation in the past two years, in response to rising unemployment and corporate cost cutting. The dramatic decline in volume drove down relocation vendors’ revenues 35 percent to 60 percent, according to several industry sources, The Relocation Intelligencer and Worldwide ERC, a professional association of relocation and mobility managers and vendors.

And, the popping of the housing market bubble "dramatically increased relocation expenses, as transferees who own homes expect to be compensated for the money lost on the value of their homes at the time of sale, not to mention the cost of maintaining a home for the weeks or months that it takes to sell," Glusman explains.

The average cost to relocate an employee homeowner within the United States was $76,000 in 2007, a 20 percent increase compared with the amount in 2004, according to Worldwide ERC. And from 2002 to 2007, the average cost of shipping household goods increased by 21 percent to $11,658, the association says.

Not surprisingly, corporate leaders became less willing to transfer employees who own homes—and many homeowners simply could not afford to leave their properties. Furthermore, managers have begun paying greater attention to "pre-decision services." This process qualifies who is selected for moves, often in conjunction with talent management. It provides individuals and managers with the pros and cons of a move in terms of corporate strategy and personal development and identifies more-precise estimates of costs.

Peggy Smith, CEO of Worldwide ERC, says the aggressive corporate cost cutting that slashed relocation budgets as well as vendors’ cost structures may have reached its limit: Vendors are getting to "the point where they’ve not only cut into muscle, they’ve severed some bone," she notes. "If they cut any more out, you might as well hire three guys and a U-Haul."

Industry survey data support Smith’s point—and Griffin’s optimism: Atlas’ 2010 corporate relocation survey of 274 HR professionals with relocation responsibilities found that one in five respondents expect their relocation volume to increase this year. In 2009, no one expected relocation volume to increase, Griffin asserts. "There are encouraging signs."

Avoid Horrible Surprises

Nevertheless, continued volatility makes a risky process even riskier for those with relocation and mobility responsibilities.

"There is probably no aspect of HR that can get an HR professional into more trouble faster than relocation," Glusman asserts. HR professionals need "solid vendors they can choose to protect them from horrible surprises."

Mary Lynn Jackowicz, manager of relocation services for Cleveland-based law firm Jones Day, has dodged these surprises—although she has gleaned real-life accounts from peers. She recently heard of an instance where a moving company went out of business mid-move, leaving a transferred employee’s household belongings stranded in an unknown warehouse for weeks.

Mallozzi identifies warning signs that a horrible surprise may be coming:

  • A sudden or dramatic halt to a relocation management company’s willingness to finance the cost of moves.
  • A vendor’s reluctance to share its current state of working capital, and a highly leveraged balance sheet.
  • Rock-bottom prices.

"If you’re getting a deal that seems too good to be true, it probably is," Mallozzi adds. Some providers "will do anything for volume. But if they are not making any money, this approach is probably not a good core strategy."

Despite the allure of saving money through lower fees, a growing number of relocation professionals appear to prioritize value above price. Most of the moves Jackowicz arranges involve new hires fresh out of law school. These moves primarily consist of the firm covering the new hires’ packing, moving, storage and transportation costs.

"The companies who operate these trucks need to have moves that are not going to undercut them so much that it’s hardly worth the gas," she points out. "I want vendors to be willing to do my moves. We have not asked for discounts, but I’ve had companies looking for business that say they can give me a better rate." The short-term cost savings that come from vendors competing solely on price, Jackowicz says, may be trumped by much higher costs associated with shoddy service.

Despite bruising market conditions, Shelly Giles, director of relocation, travel and meeting services for Tenet Healthcare in Dallas, is not concerned about the fiscal health of her vendors. They include real estate brokers around the country and four national moving companies. "I get calls from salespeople from one third-party vendor or another every week," she reports. "Typically, the minute I tell them that we have an in-house program with a broker, that pretty much puts an end to the call. They can’t top that in terms of cost savings."

That’s because Tenet, through its in-house broker, keeps the referral fees that fuel most relocation revenue—and that largely fund Tenet’s program. Giles emphasizes that her staff of 2.5 full-time equivalent employees handles 400 to 500 moves annually, thanks to contacts and networks they have developed in nearly 75 years of combined experience. About 75 to 100 of Tenet’s annual relocations involve home buyouts.

Like Jackowicz, Giles expresses reluctance to take advantage of the buyers’ market by hammering vendors to lower prices.

They’re not alone, Smith says: "People are realizing that no one who participates in this industry is expected to be a nonprofit." In fact, she observed more consultative and constructive relationships among buyers and sellers at Worldwide ERC’s annual conference in May. "More of our corporate members are saying, ‘I need my provider to stay in business.’ And suppliers are saying, ‘Hey, guys, I’ve laid off staff and made other cuts and now I’m wondering how I can service you the way you want. Let’s work on this together.’ "

Mallozzi agrees, and echoes that value should not be confused with price. Relocation companies "that can transcend pure price and offer more advocacy," he explains, "can use their resources to help their HR partners drive down costs through other means."

Lasting Impact

As industry surveys suggest, HR professionals with relocation responsibilities are employing a range of means to support corporate mobility while keeping a lid on costs.

Although the relocation process and industry will continue to exist into the foreseeable future, the financial stress inflicted on the discipline during 2008-09 will likely leave a lasting impact on the profession: The traditional relocation manager’s days may be numbered, for good reason.

"I’m not seeing as many ‘relocation manager’ titles," Smith says. Prior to joining Worldwide ERC in May, she managed Microsoft’s mobility center. Her staff helped with more than 5,000 moves worldwide each year. Smith sees the relocation function moving toward "mobility," a more expansive process that covers short-term assignments and occupies a higher rung on the strategic ladder, one that frequently integrates with talent management.

"Our job descriptions are morphing," Smith adds. "Our roles are becoming less about the actual relocation exclusively, which remains a given, and more about the overall implications—compensation, benefits, talent management and corporate strategy—we need to think about concerning mobile employees."

The author is a business writer based in Austin, Texas, who covers human resource and finance issues.

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