A business-to-business (B2B) endeavor that serves different industries usually benefits from a market segmentation strategy that classifies the types of businesses it supplies. Even if all targets are from one industry, each customer’s needs are examined to ensure they are provided with the proper product/service mix. When a B2B operation has identified enough prospects with enough like needs it can serve, it’s found a fertile market.
Linen suppliers with 100 percent healthcare work, for example, serve only one industry, but it consists of inpatient (mostly hospitals and nursing homes) and outpatient (medical offices, clinics, labs, etc.) segments. Each requires varying amounts and types of bed linen, garments, uniforms, mats, mops, wipers and so on. Frequency of deliveries varies, too. Historically, linen suppliers have made the greatest inroads in healthcare, as well as food services and drinking places, on the strength of a business model that capitalizes on high-volume production capabilities serving facilities with large numbers of bulk (non-personalized) items.
This contrasts with industrial launderers and uniform distributors/manufacturers, who have benefited most from providing customized uniforms to a variety of industries, notably manufacturing, construction, wholesale/retail trade, transportation/warehousing and other services. Strategies have emerged for serving customers within these broad classifications, often resulting in sharp focus on certain segments and less attention to others whose needs for uniforms and other reusable textiles aren’t substantial enough to achieve production economies necessary to profit from serving them.
For many B2B uniform providers, reassessing segmentation strategy is a steady exercise. Do you recognize which segments are not as lucrative to you as they once were? Is it time to consider devoting resources to developing others? What information sources will you use to strategize?
Considering that a new year is dawning, now might be a good time, and for an initial reading of the uniform market, it might behoove you to examine federal labor statistics. They indicate that another strong year for the industrial uniform market appears to be in the offing. As 2018 drew to a close, payrolls continued to increase in more substantial labor market segments associated with uniform-wearing, which showed their strongest gains in several years.
Investment analyst Robert W. Baird & Co. (Milwaukee) noted that these segments are growing faster than the labor market as a whole. They jumped about 2 percent year-over-year (YOY) as the fall began, compared with roughly 1.7 percent across the economy. In addition, while this spread previously narrowed, recent months had seen it expand, although it’s now dropped below twice the rate of full-labor-market growth.
Baird’s Add-Stop Index tracks these segments through the federal Labor Department’s monthly Employment Situation report. It’s usually released on the first Friday of each month, generating headlines in consumer media on the previous month’s overarching labor statistics, such as the number of jobs created across the economy and unemployment and labor force participation rates. News reports often also include stats from industries that drove the month-to-month change (growth) in total employment.
Baird’s index covers 13 segments that have been targets of industrial launderers for almost as long as uniform service has existed—except for the largest two in terms of employment: food services and drinking places (a traditional linen supply market) and specialty trade contractors, a segment that grew more in recent decades as providers of building services (including plumbing, electrical, pest control) to homes and businesses recognized the image benefits of custom uniforms.
Table 1 shows year-over-year (YOY) employment growth in the segments in Baird’s Add-Stop Index and for the nonfarm labor force as a whole. Note that about half the segments are leading and half are lagging the overall job growth rate. Also consider the absence of industries your business may currently serve. The table accounts for less than 25 percent of all U.S. jobs.
Healthcare jobs surpassed 20 million jobs in 2018, up 2.2 percent YOY. Accommodation (hotels) accounts for 2 million, bigger than half of the Baird Add-Stop segments, although up only 1.3 percent.
Some segments are difficult for Baird to include because uniform-wearing jobs don’t represent a significant percentage a segment’s workforce. In aggregate, though, such workers may abound. Government, with more than 22 million employees, has millions of wearers. The same goes for the professional and business services category (21 million), which is loaded with office jobs, but includes investigation/security, waste management/remediation, and services to buildings/dwellings.
Baird doesn’t portray the Add-Stop list as a comprehensive measure of all wearers available to the industry. It’s more of a trend tracker for the types of work associated with rental uniforms. If your business provides rental or direct sale uniforms, the entire labor force is worth investigating. Especially if you agree with the often-repeated observation of Cintas Corp. founder Dick Farmer, who found it difficult to imagine any business that couldn’t use some type of uniform.
Trends point to continued strength for traditional rental uniform providers. Readings from the Institute for Supply Management (ISM) Manufacturing Employment Index remained in expansionary territory in September and strengthened further. ISM’s Purchasing Managers Index tracks sequential employment improvement: a score of 50 or higher indicates expansion; less than 5, contraction. At the time of this writing, the index neared 60. This statistic has been in positive territory since fall 2016 after flat to negative readings in much of that year as well as 2015.
Initial jobless claims continued to remain at very low levels and remained near a 49-year low in October (210,000). The low number of claims remained below historical levels associated with net job growth (375,000-400,000). These are very low absolute levels even though the population is larger today. Typically, initial jobless claims begin to increase ahead of recessions and the series is a traditional leading economic indicator. No evidence exists today of such a downturn.
Continuing jobless claims (a coincident indicator to slightly lagging overall employment levels) continued to fall, dropping to 1.64 million. They’re at their lowest level since August 1973. Similar to its review of initial jobless claims data, Baird sees no fundamental evidence of divergence in this series that would suggest any incremental deterioration in the U.S. labor market.
Despite these favorable indicators, economic forecasters look to 2019 with some trepidation. As 2018 drew to a close, Wall Street wasn’t sending positive signals. Wage inflation remains a focal point for investors (both in the macroeconomic sense as well as specific to the cost structure for the uniform rental sector). Still, Baird points out that this rise is consistent with expectations and only modestly elevated relative to recent years’ rate of labor inflation.
Reassessing markets is part of preparing for the eventuality that the current rising economic tide (“lifting all boats”) is bound to recede at some point. Economist Bill Conerly, who’s had a 30-year career helping companies adapt to changing economic conditions, believes it’s time for every business to adapt a new contingency plan.
Writing for Forbes, he noted, “Some industries are always very cyclical, such as construction and capital goods production, while others are fairly stable, such as health care and many other services.” That comment is reminiscent of uniform services’ tendency in tougher times to gravitate toward stable industries (food and beverage, healthcare) or pivoting to customers that remain healthy as a result of others receding (auto service vs. auto manufacturing). A recession contingency plan doesn’t mean a total shift from business as usual, Conerly notes. Reassessing your market mix fits into maintaining your core values and long-run strategy.
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