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Sizing up Corporate Mobility

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By John B. Sculley, SCRP

While the residential marketplace is finally showing real traction in its recovery, the relocation segment of the market has been the focus of much debate. The volume of employer-sponsored moves dropped precipitously during the housing collapse and recessionary years. Will we see a return to business as usual for traditional relocation services? Or has this segment morphed irrevocably, calling for different brokerage models for mobility services?

From the perspective of our relocation-focused consulting practice, we know that corporate relocation business used to be a thoroughbred money maker in many brokers’ stables. While we don’t expect full recovery of direct client/broker relationships or referral volume, we think that corporate relocation and business-level relationships can still be harnessed to plow much worthwhile revenue for adaptive relocation directors and their firms.

We’ve pieced together the limited hard data on corporate mobility from Worldwide ERC to reconstruct volume trends. We estimate that from its peak volume in 2006, corporate relocation volume declined at least 28 percent by 2010, and even this bleak result may be understated. Employers cited hiring freezes and transfer reluctance as new-hire moves declined to only ¼ of all relocations. Considering that WERC membership is weighted toward larger and more sophisticated mobility programs, we suspect that smaller and less efficient companies likely reduced hiring and relocations even more sharply.

Anecdotally among service providers, we have heard estimates of 30-50 percent volume shrinkage over this period, which we can neither prove nor disprove but intuitively accept.

Looking back at the impacts of the relocation collapse is very sobering. As employers sharply curtailed their transfer volumes and new hiring, the first victims of declining moves were the relocation management companies. They had become so dependent on real estate referral fees as their primary revenue stream that they were hurt disproportionately because when volume dropped, fewer homeowners would or could sell, and extended marketing times strained cash flow and staff resources.

This earnings impact has accelerated consolidation of the relocation management industry, with some leading firms absorbed through mergers and acquisitions and others driven to restructure their ownership. We see this wave continuing for several more years in the aftermath of this overcapacity period.

Of course, brokerage-based relocation directors have been seriously challenged by these events, too. Shortfalls in referral volume and declining home sale prices have caused many brokers to scramble into repurposing their relocation departments, often into REO/distressed property services or other corporate/institutional-type services. Finding the right strategy for a recovering market is on the minds of many relocation directors.

Is the recovery real? Is the relocation segment still viable for brokers? Worldwide ERC’s latest Transfer Volume and Cost Survey (published 2012) reports a total of 184,433 moves by its corporate members, characterized by:

• 40 percent new hires and 60 percent current employees

• 41 percent homeowners and 59 percent renters

• Total spend of $9.3 billion

Considering that substantial corporate sponsored moves also occur outside WERC circles, it would seem that corporate mobility is once again a worthwhile revenue target, but relocation directors may need to lessen the accustomed dependence on buyer and seller referrals to create more fee-based services that will attract a changing customer base and address emerging corporate staffing issues and policy variations.

Next month we’ll illustrate these fresh opportunities for growing relocation business in a brokerage setting, in our feature “Beyond Referral Fees” by my colleague Peg Guinta.

John B. Sculley, SCRP, is the vice president – managing director of RIS Consulting Group

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