COVID-19 has altered how the green industry is approaching 2020.
With numerous states issuing shelter-in-place orders that include provisions for businesses to shut down unless they are labeled as being “essential,” it has left many contractors questionings their finances for the year.
While health and safety from the disease itself remains at the forefront for most, there remains the discussion about the economic impacts and future consequences.
Undoubtedly, the looming question on everyone’s mind, when is this going to end and what’s it going to look like when it does?
Based on various data points and the general fluidity of the situation, president and founder of the Aspire Software Company Kevin Kehoe’s forecast projection is that hopefully the green industry would be back to work again in some greater capacity by the end of April, although certainly not at 100 percent.
"Given the nature of what's happened before, the recovery is not going to be immediate it's going to be slow," Kehoe said.
With over 30 years of experience in the landscaping industry and having conducted interviews of multiple CEOs in recent days, he was confident in offering an assessment during a recent Aspire Software webinar.
His forecast of the current situation is based on the anticipated duration of the government’s role in terms of the shelter-in-place orders, the underlying fundamentals of the economy and a comparison to other scenarios and situations that have previously occurred such as the 2008 recession.
Comparing the current scenario to 2008, Kehoe said if the economy was a patient, then it was on the operating table facing an operation, and a long recovery. Today, the patient has been sent to their bedroom without dinner and forced to be locked down for a while.
“The underlying economic fundamentals in terms of capital availability, low interest rates, consumer confidence at least up to this point, demand for services and spending have all been good,” he said, noting that none of that was true in 2008.
“Our best consensus is that within the next 30 days we'll get back working to some extent but that the 2020 fiscal year is going to be significantly affected really to the end,” Kehoe stated.
At What Cost
Kehoe projected that contract maintenance revenue would be down 10 to 15 percent for most, which differs from 2008 when contracts were more often outright cancelled, and pricing was an issue. “Really what's happening is a cutting out and reducing of scope and that reduction of scope is very specific to the segment,” he said.
Comparatively, he said enhancement revenue is projected to be down 20 to 40 percent.
“Some of that's going to be a function of the segment, in which you're operating from a maintenance point of view,” Kehoe noted.
The big differences on the construction side of things is commercial and residential and spring and fall seasons.
Kehoe pointed out that the bidding cycle and work cycle on commercial work can be six months to a year apart. With residential, projects are being bid in March for projects in April.
“That means spring is going to be super tough for residential as the phone’s simply not ringing,” he said. For the residential build projects, businesses will have to focus on fall work. Kehoe stressed that he was not suggesting owners give up on spring.
On the commercial side, there is a fair amount work being done because it started or has continued from 2019 through 2020. Kehoe said what's more concerning is the commercial construction in the fall and whether the work that's being bid will be pushed into 2021?
“Timing for us in this industry is like Black Friday is for a retailer,” Kehoe said. “If a retailer misses Black Friday after Thanksgiving, you wait till next year to pick it up. For landscapers, there is a lot of similarities, especially when you look at cutting scope on contracts for something like mulch or spring color. That's not coming back. There's no way to recover that so there's going to be some timing impacts, which are probably going to affect the rest of the year.”
This is Going to Hurt
What landscapers want to know is where the segments are going to be impacted and why?
Kehoe suggested that why is typically, is it an optic or pain. “A pain is very specific, indicating that the client does not have the money, because their operations have been financially affected,” he said. “Optics is, it doesn't look good for us to spend money on things when we are cutting back on other things.”
Some of the most negatively impacted pain scenarios, are in the residential, retail/restaurant, resort and hotel segments.
Kehoe said based on the information he has collected, HOA and commercial segments fall more into the middle in terms of pain. “Some account managers I've spoken to say they simply can't get decisions out of boards for HOAs because they're not meeting in the same room,” he said.
Commercial, office park or warehouse type jobs also are less likely to be impacted. “Some of that impact on those segments is less likely, at least that's the consensus, and more, not because they lacked the money but because the optics, they don't spend it. If you're 100% in office park or warehouse industrial work, your contracts may not be affected terribly much. It doesn't mean they won't, it just says it's less likely.”
More Money?
“People get a little bit sloppy in their discipline about watching labor hours about buying about estimating about managing overhead costs,” Kehoe noted. “None of that obviously works in a downturn, but part of it is changing the mentality from, we were a little bit sloppy because revenue solved a lot of problems to, we can't really be sloppy at all and discipline is really going to be required regardless of how much the government helps.”
There are only a few places to make reductions to maintain the profit margin.
"We're going to have choices between cutting costs, people or paperclips,” he admitted. For most businesses, people take up a significant portion of the overhead. As difficult as it is, depending on an individual situation, cutting employees may be the best solution
Kehoe said there is some discretionary spending to be cut.
“I think there's probably some of that in marketing but most people's marketing budgets aren't that great and most of that other overhead that's not people or shop and equipment is rent, utilities, insurance premiums, things of that nature which are relatively fixed,” he said. “It doesn't mean there are not places to manage or cut, but you have to consider managing the big dollars in an overhead forecast potentially significantly.”
Either way, Kehoe believes owners will be dealing with overhead in some fashion, if nothing else for survival or to simply get back to some level of discipline.
A People Problem
Labor is still a top concern within the green industry. However, as it relates to COVID-19, Kehoe said what he has heard is that the labor supply is not a primary concern right now.
“What becomes more critical, at least according to the CEOs I spoke with is retaining some of your key talent, depending on how bad your revenue decline gets,” he said. "I don't want to get rid of those folks because when things come back I'm going to want them and keep them plus there is an element of loyalty and I'm a big loyalty person also about keeping key people so I think that's a critical thing to look at.”
Also, he said, there is a matter of efficiency. Kehoe said that ties back to having the software to manage everything from the estimate through the work ticket schedules down to payroll.
Lastly, in terms of labor, is government compliance requirements, such as having to limit to one or two people per truck and ensuring overall safety precautions are taken.
“There are a number of other things that are going to have an impact,” Kehoe said, noting that labor seems to be less critical than overhead or revenue.
Overall, it all comes back to the duration.
“I’ll go back to our consensus that we’re back working to some extent by late April into May,” he said. “2020 is going to be impacted the way I'm talking about right now that's not going to change. It's not going to magically get better.”
