Labor Ready, Inc. History

Address:

1016 South 28th Street
Tacoma, Washington 98409
U.S.A.

Telephone: (253) 383-9101
Fax: (253) 383-9311

Public Company
Incorporated: 1985
Employees: 1,238
Sales: $606.9 million (1998)
Stock Exchanges: New York
Ticker Symbol: LRW
NAIC: 56132 Temporary Help Services

Company Perspectives:

Labor Ready, Inc. is the nation's leading provider of temporary manual labor to the light industrial and small business markets. Based in Tacoma, Washington, Labor Ready was founded in 1989 by Chairman, CEO, and President Glenn Welstad. Labor Ready operates 650 offices in 46 states, Puerto Rico, and Canada. Labor Ready currently provides workers for over 195,000 customers, up from 70,000 in 1997. The "Work Today, Cash Today" mission gives Labor Ready a competitive advantage when attracting workers for temporary manual labor. If a customer decides to hire a Labor Ready worker for a full time position, no fee is charged to either party. Labor Ready filled more than 4.8 million work orders, issued over 6.5 million paychecks, and processed 533,000 W-2's in 1998.

Company History:

The fastest growing temporary staffing company in the world, Labor Ready, Inc. supplies temporary manual laborers to construction, light industrial, and small business customers in the United States, Canada, and Puerto Rico. Unlike many other temporary help firms, Labor Ready focuses exclusively on providing manual laborers to its customers, a segment of the market without any national competitors during the late 1990s. The process of recruiting laborers and matching them with customers in need of temporary, unskilled workers is conducted by the company's network of dispatch offices, which has increased from one outlet in 1989 to more than 650 within a decade. To its client companies, Labor Ready promises "Satisfaction Guaranteed," and to its legions of day laborers, the company offers a policy of "Work Today, Paid Today." Labor Ready provides basic equipment to workers, free of charge, and pays workers at the end of each day, either with a check or a voucher to be redeemed at a cash dispensing machine, installed in every dispatch office.

Founded in 1989

When Glenn A. Welstad founded Labor Ready, he was beginning a second career. In 1969 he and two business partners had started Northwest Management Corporation, a restaurant holding company that occupied Welstad's attention for the next 15 years. When Welstad sold his stake in the company, Northwest Management controlled eight Hardee's restaurants and more than a dozen pizza and Mexican restaurants scattered throughout a five-state territory. His expansion of the company, he believed, represented his life's work, but within five years his assessment changed. "Stepping into retirement at age 40," Welstad later wrote, "led to boredom and the realization that my finances were not as originally thought." Consequently, Welstad decided, in 1989, to try his luck as an entrepreneur again. It was a decision that aside from alleviating boredom also turned Welstad into a multimillionaire and Labor Ready into one of the notable business success stories of the 1990s.

As he had with Northwest Management, Welstad enlisted the help of two associates to start Labor Ready in 1989, using a $50,000 bankroll to get the company started. The company started with an office in Kent, Washington, where Welstad provided day laborers for companies in need of temporary assistance. Welstad entered the market by signing a contract with Action Temporary Services, but by 1991 the business relationship had turned litigious. Welstad attempted to sever the ties connecting the two companies, which led to a number of lawsuits filed by each party. Welstad eventually gained his independence and Action Temporary Services eventually fell on hard times, filing for bankruptcy in 1994. Against the backdrop of legal salvos, however, Labor Ready was quietly building a foundation for what later promised to be a $1 billion business. Unknown to many at the time, and perhaps even to himself, Welstad governed a company in 1991 that possessed a formula capable of realizing enormous success. The fuel that would ignite the company's potential was expansion on a national scale, but in 1991 Labor Ready comprised only eight offices--dispatch centers that served as matchmakers for the unemployed and the construction, light industrial, and small business clients that needed temporary help. When expansion on a national scale began in earnest, the efficiency and strategy bred under Welstad's leadership unleashed the prolific financial strength of Labor Ready.

Before stock analysts and industry experts began trumpeting the success of Labor Ready, the company was a regional supplier of manual labor, providing its services in a modern, efficient, yet old-fashioned way. Labor Ready offices operated much like union halls. To get daily employment, prospective workers arrived at a Labor Ready office by 5:30 in the morning. If the applicant had never sought employment through Labor Ready before, he or she was interviewed by a branch office employee and the applicant's skills were stored on a computer database. Background checks and drug screening were performed on a voluntary basis, necessary only when the applicant desired to work for a company with such requirements. If the skills matched the needs of the client company, Labor Ready dispatched the applicant to the work site and charged the client company generally 30 percent more than the worker's hourly wage. In return, the Labor Ready office provided the recruitment of the daily laborer and the financial and administrative services associated with the day laborer's employment, including payroll and workers' compensation premiums. The day laborer received, if needed, the basic equipment needed for the work, such as hard hats, boots, back braces, eye protection, and gloves, free of charge, and transportation to the work site for a small fee. Perhaps most important to the Labor Ready laborer was the company's policy of "Work Today, Paid Today." At the end of a day's work, Labor Ready provided its workers with a check, an enticing service that kept Labor Ready offices generally inundated with hopeful workers each morning.

The type of labor performed by Ready Labor-provided workers was generally strenuous, sometimes dirty work, the type of manual labor required of a blue-collar worker of the lowest rank. Accordingly, many of the applicants who gathered in Labor Ready offices each morning represented the fringe of society, those who found steady employment difficult to obtain because of substance abuse problems or criminal records. There were others, however, without glaring employment liabilities, individuals who, for various reasons, needed the employment assistance provided by Labor Ready and were attracted by the "Work Today, Paid Today" policy. Within this large, itinerant labor pool were people who had just moved to a new area without employment contacts, those who preferred the variety of a different job each day, and others who used Labor Ready to gain the experience needed to secure a full-time job.

At the heart of Labor Ready's operations was the company's network of dispatch offices, each managed by a branch manager who was assisted by several support personnel. Each office was responsible for its own sales and marketing, customer relations, accounts receivable collection, budget controls, and recruitment of day laborers, giving the company a highly decentralized structure. Profitability hinged on the efficiency of each dispatch office and its ability to minimize workers' compensation claims. Safety classes were held to reduce injuries, while operational efficiency was honed over time as the company expanded the number of its branch offices.

The characteristic that set Labor Ready apart from other competitors was the exclusive market niche it occupied. There were other companies that supplied manual laborers on a regional basis and there were temporary staffing companies that provided white collar employees nationally, but as Labor Ready embarked on a decade of prodigious expansion, there were no national companies concentrating exclusively on supplying temporary manual laborers. Further, this market niche--the industrial segment of the temporary staffing market place--registered explosive growth during the 1990s, expanding as Labor Ready itself expanded. Between 1991 and 1997, the industrial temporary staffing industry grew from a $5-billion-a-year business to a $13-billion-a-year business. Labor Ready moved headlong into this fast-growing market segment, positioning itself as the only national competitor. Between 1991 and 1997, the company increased its number of dispatch offices from eight to 316, fueling annual revenue growth from less than $10 million to $335 million.

Mid-1990s Expansion

The company's rapid expansion did not gather speed until the mid-1990s. By the end of 1994, there were 51 dispatch offices, including four in Canada, but Welstad had not yet penetrated any markets in the Northeast and the Atlantic, and it maintained only a small presence in the Southeast with one branch office. To accelerate expansion, the company experimented with franchising the Labor Ready concept in 1994, licensing one franchisee in Minnesota who eventually opened five branch offices, but the company's franchising efforts stopped there, prompting Welstad to search for an alternative method to finance expansion. The logical alternative was an offering of stock to investors, which Labor Ready did in June 1996. Prior to the company's initial public offering (IPO), it had increased the number of its branch offices to 106 by the end of 1995, a year during which the first Labor Ready office was established in the Northeast. With the proceeds gained from the IPO, expansion plans became decidedly more ambitious. The company operated 200 branch offices by the end of 1996, including outlets in the Atlantic region for the first time, and by the end of 1997, the total had swelled to 316.

By this point in its history, Labor Ready had developed considerable skill in opening branch offices, using a process that had become standardized over time to blanket a market and achieve predictable results. Each new office cost approximately $50,000 to establish, generally taking no more than six months to realize a profit. On average, a Labor Ready office required $12,000 in business per week to show a profit. In 1997 a Labor Ready office averaged $27,000 in revenue per week, spurring Welstad to accelerate his expansion plans for the future. His expansion efforts in 1998, which included the establishment of 170 new Labor Ready offices, produced even greater results than the company-owned branches produced in 1997. In 1998 Labor Ready outlets averaged $31,000 in business per week, helping the company to record astounding financial totals for the year. Companywide revenue was up 81 percent to $607 million. Net income recorded a more prolific leap, increasing 184 percent to $19.8 million.

Along with the robust financial and physical growth recorded in 1998, Labor Ready also celebrated the introduction of a new service for its day laborers during the year, a service Welstad heralded as "a wonderful recruiting tool." Beginning in April 1998, the company installed cash dispensing machines (CDMs) in its dispatch offices, which gave its workers the choice of receiving cash at the end of the day's work instead of a check. Instead of "Work Today, Paid Today," the company could proclaim "Work Today, Cash Today," by distributing vouchers that could be redeemed at a Labor Ready CDM. For the workers, more than half of whom lacked a bank account, the approximately $1.50 fee charged by the CDM was a welcome alternative to the check-cashing fee charged by banks to individuals without bank accounts, which was generally $3 per transaction. For Labor Ready, the financial benefits of installing CDMs were also attractive. The company saved money by not having to process checks and it generated revenue from the CDMs as the recipient of the transaction fee charged to the worker. By the end of 1998, Labor Ready had collected $3.6 million in CDM fees.

$1 Billion in Revenue by 2000

By this point in the company's history, few could ignore the aggressive expansion and the impressive financial results achieved by Welstad. In five years, the number of Labor Ready offices had increased from 51 to 486, as annual revenues increased from $38 million to $606 million. "They're going in after a market niche with almost no competition on a [national] scale," one analyst remarked in 1998. Welstad, well aware of the enviable position his company occupied, was intent on tightening Labor Ready's grip on markets, both large and small, nationwide. He announced, at the end of 1998, that Labor Ready would open 200 offices in the United States in each of the next two years, giving the company a projected 875 offices and $1 billion in revenues by the end of 2000. Welstad intended to saturate every viable market in the country, an objective the company's time-tested business formula appeared capable of fulfilling.

Labor Ready celebrated the beginning of its tenth anniversary by completing the most prodigious expansion in it history. During the first four months of 1999, the company opened 166 new dispatch offices, nearly reaching its goal of opening 200 offices during the first half of the year. "The faster we can get offices opening and running early in the year," Welstad explained, "the greater the opportunity for better sales in the third and fourth quarters, traditionally the company's busiest time of the year." With this record-setting work completed, the company marshaled its forces for the addition of more than 200 new offices in the ensuing year, well positioned for reaching $1 billion in revenues by the beginning of the 21st century.

Labor Ready, Inc. History

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