Kelly Services, Inc. (KELYA): 5 FORCES Analysis [Nov-2025 Updated]

You're assessing Kelly Services' competitive footing as we head into late 2025, and frankly, the pressure is mounting from all sides. We're seeing customers wield significant power, contributing to that 9.9% Q3 revenue drop, while specialized talent shortages empower suppliers with leverage. This tight squeeze is visible in the industry's low 3.4% adjusted EBITDA margin from Q2 2025, signaling a fierce battle against global rivals and new tech-enabled entrants. To make your next investment or strategic call, you need to see exactly where these five forces-from customer centralization to AI substitution-are hitting the hardest right now.

Kelly Services, Inc. (KELYA) - Porter's Five Forces: Bargaining power of suppliers

You're trying to staff a critical engineering role, and the market is telling you the talent holds the cards. That's the reality for Kelly Services, Inc. when dealing with its primary suppliers: the contingent workforce and specialized talent pools. The power these suppliers wield is directly tied to the scarcity of specific, in-demand skills, which often forces Kelly Services' hand on pricing and terms.

Talent shortages increase skilled labor's leverage. While the broader U.S. labor market showed signs of cooling in late 2025, with August job growth stalling at just 22,000 jobs added (far below the 75,000 expected), and for the first time since 2021, more unemployed Americans at 7.2 million than job openings at 7.18 million, this masks acute shortages in critical areas. For instance, projections indicate the U.S. needs over half a million new construction workers, and at least 2 million manufacturing jobs are projected to remain unfilled by 2030. Furthermore, 80% of executives admitted in November 2025 that AI implementation was stalling due to a lack of team expertise, directly increasing the leverage of those workers who do possess the necessary digital skills. The Bureau of Labor Statistics projected a 3.5% annual increase in wages across various industries, reflecting this underlying pressure on compensation.

Specialized talent in SET and Education segments commands premium rates. Kelly Services, Inc.'s own segment results from mid-2025 illustrate where the talent supply is tightest and where cost pressures manifest. The Science, Engineering & Technology (SET) segment, which includes professional staffing like engineering, saw its gross profit (GP) rate decline by 80 basis points in Q3 2025, suggesting higher assignment costs relative to revenue, even as the Education segment's GP rate increased by 20 basis points. The Education segment, however, showed resilience, achieving a 90% fill rate overall in Q3 2025 for the first time, indicating strong, albeit perhaps more costly, access to that specific supply pool. The disparity in margin performance between segments is a direct reflection of supplier power dynamics.

Here's a quick look at the segment performance dynamics in mid-2025:

Gig economy platforms offer alternative, direct channels for workers. This trend directly challenges the traditional supplier relationship Kelly Services, Inc. maintains with its talent pool. The gig economy is expanding at a rate estimated to be three times faster than the overall U.S. workforce. Projections suggest the number of U.S. gig workers will grow from 73.3 million in 2023 to an expected 86.5 million by 2027. This shift means a significant portion of the available workforce now has direct-to-client channels, bypassing staffing firms entirely, which inherently weakens Kelly Services, Inc.'s control over talent sourcing and pricing. Freelancers contributed an estimated $1.21 trillion to the U.S. economy, showing the sheer scale of this alternative supply.

High demand for niche skills limits Kelly Services' pricing control. The rise of highly skilled gig work in areas like IT, finance, and marketing means that specialized contractors are less reliant on traditional staffing agencies for placement. When clients seek expertise for project-based needs, they can often engage these high-value independent workers directly through specialized platforms. This competition from direct-access platforms, coupled with the high demand for AI-related expertise, compresses the margin Kelly Services, Inc. can achieve on placements, as the cost of securing that talent rises. The pressure is clear: if Kelly Services, Inc. cannot secure talent at a competitive rate, the client will look elsewhere, either to a competitor or to a direct gig platform.

• Talent supply is increasingly fragmented across direct platforms.
• Skilled trades and IT roles remain in critically short supply.
• Workers expect competitive compensation and flexibility.
• The cost of securing specialized talent is rising faster than general wages.

Finance: Review Q3 2025 assignment cost variance against Q2 2025 for SET and ETM by Friday.

Kelly Services, Inc. (KELYA) - Porter's Five Forces: Bargaining power of customers

You're analyzing Kelly Services, Inc. (KELYA) right now, and the customer side of the equation is clearly exerting significant pressure. When your largest buyers can easily dictate terms or pull back volume, your pricing power erodes fast. Honestly, the Q3 2025 results make this dynamic painfully clear.

The power customers hold is evident in the top-line performance. For the third quarter of 2025, Kelly Services reported revenue of $935.0 million, which was a 9.9% decrease year-over-year. This isn't just a general market slowdown; management explicitly called out discrete impacts from key buyers.

Here's a quick look at how concentrated customer pressure translated into the Q3 2025 revenue miss:

The reliance on a few major accounts means that when they reduce demand, the effect is immediate and material. For instance, the run-off of one large contact center customer alone caused outcome-based revenues to drop by 17.2% in the quarter. That's a huge chunk of business walking out the door, showing how little switching costs some clients face when they decide to consolidate or change vendors.

The push toward centralized procurement models, like Managed Service Provider (MSP) and Recruitment Process Outsourcing (RPO) solutions, is a structural factor that empowers buyers to negotiate harder. While KellyOCG® continues to secure high rankings, such as being named a Leader on Everest Group's 2025 PEAK Matrix® for MSP, the underlying trend in some areas is downward pressure. Talent solutions revenue overall decreased 1.4%, reflecting reduced customer volumes in Recruitment Process Outsourcing (RPO) alongside new MSP customer wins.

You can see the customer leverage in the segment performance, too. The Enterprise Talent Management (ETM) segment revenue declined 13.1% year-over-year, driven by lower demand across its offerings, including MSP and RPO. Still, the Education segment managed growth, which suggests that more fragmented, less centralized customer bases offer better pricing stability for Kelly Services.

Here are the key indicators of customer power you need to track:

• Reduced demand from three large private sector customers.
• Anticipated Q4 2025 revenue decline includes an 8% negative impact from discrete customers.
• The ETM segment, which includes MSP/RPO, saw revenue fall 13.1%.
• Underlying revenue decline of 2.0% in Q3 2025, excluding major client impacts.
• The company expects a total revenue decline of 12% to 14% for Q4 2025.

To be fair, Kelly Services is fighting back by focusing on structural expense optimization, with Q3 adjusted SG&A declining 9.7%. Finance: draft 13-week cash view by Friday.

Kelly Services, Inc. (KELYA) - Porter's Five Forces: Competitive rivalry

You're looking at a market where the biggest players have massive scale, so competitive rivalry for Kelly Services, Inc. (KELYA) is definitely intense. This isn't a niche game; you are competing directly against global giants who set the pace for the entire industry.

The pressure is clear when you look at the top-tier competition. Randstad, Adecco Group, and ManpowerGroup are entrenched leaders. Globally, Randstad remains the largest staffing firm, but the European market shows consolidation, with The Adecco Group overtaking Randstad as Europe's largest in 2024. Even with this consolidation, the broader global recruitment market remains fiercely competitive and highly fragmented, where the leading four companies collectively account for about one-fifth of the total industry revenues.

This rivalry directly translates into pricing and margin pressure, which you see reflected in Kelly Services' recent top-line performance. For the second quarter of 2025, Kelly Services reported that its organic revenue declined by 3.3% year-over-year. This decline shows that winning market share or even maintaining volume against aggressive competitors is a constant fight, especially when facing headwinds like reduced demand from U.S. federal contractors.

The financial results underscore this competitive environment. Kelly Services' adjusted EBITDA margin for Q2 2025 was 3.4%. This low margin level signals that the industry structure forces companies to operate on thin operating spreads, a classic sign of high rivalry where price competition erodes profitability.

However, the rivalry isn't uniform across all areas, and Kelly Services is using specialization as a countermeasure. Focusing on resilient, specialized segments is key to outperforming the overall market trend. For instance, the Education segment was a clear bright spot in Q2 2025, showing reported revenue growth of 5.6% year-over-year, with organic growth also strong at 5.6%. This segment's performance is a direct result of focusing on stable demand, like K-12 staffing.

To give you a clearer picture of how these segments perform internally, which impacts how they compete, here is a comparison of the Q2 2025 adjusted EBITDA margins for Kelly Services' key areas:

The margin disparity is telling. The SET segment, which includes specialized telecom and engineering solutions, commands a higher adjusted EBITDA margin of 6.2%. In contrast, the ETM segment, facing cost actions from large customers, saw its margin dip to 2.3%. This shows that in a highly competitive market, the ability to pivot toward less commoditized, higher-skill areas-where the barrier to entry for competitors is higher-is critical for margin defense.

The competitive dynamics are further illustrated by the immediate outlook, which suggests rivals are still facing similar demand issues, but Kelly Services is actively managing its cost base to improve profitability despite revenue softness:

• Organic revenue declined 3.3% in Q2 2025.
• Federal contractor demand caused approximately 1.4% of the organic revenue decline.
• The Education segment grew organically by 5.6% in Q2 2025.
• Overall adjusted EBITDA margin was 3.4% in Q2 2025.
• Management expects Q3 adjusted EBITDA margin expansion of 80 to 90 basis points.

Finance: draft the Q3 cash flow forecast incorporating the expected margin expansion by next Tuesday.

Kelly Services, Inc. (KELYA) - Porter's Five Forces: Threat of substitutes

You're analyzing the competitive landscape for Kelly Services, Inc. (KELYA) and need to quantify the external pressures that could lead clients to choose an alternative to your traditional staffing services. The threat of substitutes is significant because technology and evolving client preferences have created viable, often more direct, ways for companies to source talent and manage projects. Let's look at the hard numbers driving these alternatives as of late 2025.

Direct hiring and in-house recruitment teams are a growing alternative.

The push for internal control and building proprietary talent pools is making direct sourcing a real substitute for relying on external agencies. While this approach has been slow to mature, the intent to adopt is clear. According to Staffing Industry Analysts (SIA) research, only 16% of surveyed contingent programs strongly agree that direct sourcing is effectively implemented today. However, this is set to change rapidly; an additional 23% of programs expect to have direct sourcing effectively in place within two years. Furthermore, 60% of organizations expect to explore the direct sourcing approach within the next two years. This signals a direct challenge to the traditional agency model by empowering in-house teams. To be fair, 80% of large enterprises are adopting hybrid workforce strategies by 2025, blending internal staff with external talent, which necessitates better direct sourcing capabilities.

Freelance and talent platforms bypass traditional staffing models.

The gig economy platforms are a massive, growing substitute, offering speed and variable cost structures that appeal directly to budget-conscious buyers. The global freelance platforms market size stands at approximately USD 7.65 billion or USD 9.8 billion in 2025, depending on the market scope, and is projected to grow at a Compound Annual Growth Rate (CAGR) between 12.8% and 16.66% through 2030. This isn't a niche trend; freelancers now constitute 46.6% of the global workforce as of 2025. The adoption by corporate clients is high, with 72% of HR Managers using these freelance platforms to source talent. This direct connection bypasses the intermediary role Kelly Services plays in traditional contingent labor placement.

Automation and AI reduce need for transactional staffing services.

The internal efficiency gains from technology mean clients may need fewer transactional placements from staffing firms for high-volume, routine roles. AI adoption within the staffing industry itself shows how quickly technology is changing the game, which clients benefit from indirectly. As of mid-2025, 61% of staffing firms already use AI, and 74% of non-users plan to adopt it this year, aiming for 75% industry-wide use by year-end. For the transactional work that remains, AI is delivering measurable results, with 32% of current AI users reporting a reduced time-to-fill metric. Robotic Process Automation (RPA) bots are handling data entry and initial resume screening, tasks that previously required significant manual effort from staffing professionals.

Statement-of-Work (SOW) contracts replace contingent labor projects.

Clients are increasingly shifting from hiring individual contingent staff (staff augmentation) to procuring entire project outcomes via Statement-of-Work (SOW) contracts, which directly competes with Kelly Services' outcome-based or project-based offerings. The sheer scale of this segment is staggering. The value of SOW projects in the Americas totaled nearly $3.33 trillion in 2024, with the US portion alone exceeding $2.81 trillion. Furthermore, industry consultants at Everest Group anticipate that services procurement spend, which is heavily SOW-driven, will see a compound annual growth of over 20% between 2023 and 2028. Since 40-60% of all contingent workforce spending is for these professional services, this SOW shift represents a major substitution threat away from traditional time-and-materials staffing arrangements.

Kelly Services reported Q2 2025 revenue of $1.1 billion, and its trailing twelve months (TTM) revenue as of late 2025 was reported around C$6.18 Billion. The company must navigate these structural shifts where clients can build their own talent pools or buy project outcomes directly, rather than relying on Kelly Services for staff augmentation.

• Direct Sourcing Implementation Expectation: 23% within two years.
• AI Adoption Goal: Reaching 75% industry-wide use by year-end.
• SOW Share of Contingent Spend: 40-60% is professional services.
• Contingent Workforce Growth: Expected to be 50% of the U.S. labor market by 2050.

Finance: draft 13-week cash view by Friday.

Kelly Services, Inc. (KELYA) - Porter's Five Forces: Threat of new entrants

You're assessing the competitive landscape for Kelly Services, Inc. (KELYA) and the ease with which a new player can set up shop. The barrier to entry here is a mixed bag, leaning toward lower for the very small, but high for those aiming for Kelly Services' scale.

Low Capital Required for Small, Niche, Tech-Enabled Firms

Honestly, the initial capital outlay for a lean, niche staffing operation can be surprisingly low, which keeps the threat of small entrants present. For a bootstrapped, DIY staffing agency, startup costs can range from as little as $3,000 to $10,000. Even for a more structured approach, the average startup cost for a staffing firm generally falls between $60,000 and $130,000 to cover initial registration, basic software, and operating capital before significant revenue hits. To put that in perspective against the established players, Kelly Services reported a TTM revenue of $4.39B as of late 2025, showing the massive scale difference a new entrant starts with.

The threat is amplified because the industry itself is fragmented, with over 41,000 staffing agencies in the US alone, according to IbisWorld data. If you look at the franchise route, the initial investment is significantly higher, ranging from $153,500 to $210,500 for one specific franchise example, but the low-end DIY option definitely keeps the door ajar for nimble startups.

AI Tools Lower Barriers for New Recruitment Automation Platforms

The rise of generative AI is definitely changing the math on what it takes to compete in process efficiency. AI tools streamline candidate screening and initial outreach, which can reduce the need for large initial recruiting teams. We see evidence of this shift in the job seeker market: 79% of recent US and UK graduates surveyed in late 2025 believe AI could be reducing the number of entry-level jobs in their field, suggesting automation is already a major factor in the labor supply side. For a new entrant, leveraging modern, low-cost, web-based recruitment software means they can automate CV screening and candidate communication almost immediately, bypassing the need for the massive legacy infrastructure Kelly Services maintains. This democratization of process efficiency helps new firms compete on speed, even if they lack the brand recognition.

Established Brand and Global Network of Kelly Services is a Strong Barrier

This is where Kelly Services, Inc. pushes back hard. The established brand and deep network act as a significant moat. As of late 2025, Kelly Services reports having 5935 active competitors, yet it remains a prominent player. In 2024, Kelly placed more than 400,000 workers with customers globally across the Americas, Europe, and Asia-Pacific. That scale translates into established client relationships and supplier contracts that are not easily replicated. Furthermore, Kelly Services' recent financial struggles, such as the Q3 2025 revenue decline of 9.9% YoY and the resulting $102.0 million goodwill impairment charge, show the high cost of maintaining global operations and legacy structures when demand softens, a cost a lean startup avoids.

Here is a snapshot comparing Kelly Services' scale to the entry-level cost:

Regulatory Complexity in Global Markets Creates High Compliance Costs

While a small domestic firm might start lean, any new entrant aiming to replicate Kelly Services' global footprint immediately faces steep regulatory hurdles. Operating across the Americas, Europe, and Asia-Pacific means navigating varying labor laws, tax structures, and compliance standards for contingent workers. These compliance costs-covering items like statutory payments, worker classification, and data privacy regulations-require specialized legal and administrative overhead that a small, tech-enabled firm focused on a single US state might defer. Kelly Services, by operating globally, absorbs these costs constantly, which acts as a barrier to any new entrant attempting to scale internationally without significant upfront legal investment.

The immediate threat remains concentrated in low-barrier, niche digital segments, but the established infrastructure and global reach of Kelly Services, despite recent financial pressures like the Q3 2025 loss from operations of $102.1 million, still deter large-scale, immediate competition.

• Kelly Services reported $269 million in cash at the end of Q3 2025.
• The company's Market Cap stood at $304.9M as of November 2025.
• The Education segment showed modest growth of 0.9% YoY in Q3 2025.
• Kelly expects a Q4 2025 revenue decline of 12% to 14% YoY.

Finance: draft 13-week cash view by Friday.