Resources Connection, Inc. (RGP): 5 FORCES Analysis [Nov-2025 Updated]

You're looking at a professional services firm, RGP, clearly feeling the pinch of a tough economy right now. Honestly, seeing a $551.3 million revenue drop and a $191.8 million net loss in fiscal 2025 tells you this isn't just a minor headwind; it's a real fight for market share. To figure out exactly where the pressure is coming from-whether it's demanding clients, hungry rivals, or cheaper alternatives-we need to break down the battlefield using Michael Porter's Five Forces. Below, I map out the exact leverage points for RGP's suppliers and customers, the intensity of competition, and the real threats from substitutes and new players, giving you the precise, data-backed view you need to assess their next move.

Resources Connection, Inc. (RGP) - Porter's Five Forces: Bargaining power of suppliers

When analyzing the bargaining power of suppliers for Resources Connection, Inc. (RGP), we are primarily looking at the independent consultants and specialized talent that form the core of their service delivery model. The leverage these suppliers hold is highly dependent on market conditions for niche skills.

High leverage for specialized talent in areas like Digital, Data, and Cloud.

The market for high-demand skills, such as those needed for Digital Transformation and data modernization programs, gives suppliers significant leverage. RGP is actively pursuing these higher-value engagements, as evidenced by the enterprise-wide average bill rate increasing to $125 constant currency in Q4 Fiscal 2025, up from $120 a year prior. This pricing power suggests that for the most sought-after experts, RGP must meet supplier price expectations to secure the talent needed for these strategic projects.

Power is mitigated by lower utilization of salaried consultants in fiscal 2025.

When overall demand softens, the power dynamic shifts somewhat toward Resources Connection, Inc. (RGP), particularly concerning their salaried consultants. The financial results for fiscal year 2025 clearly show this effect. The full-year gross margin settled at 37.6%, down from 38.9% the prior year, which was attributed in part to the lower utilization of salaried consultants. This trend was visible across multiple quarters:

• Q3 Fiscal 2025 gross margin of 35.1% was impacted by lower utilization of salaried consultants.
• Q2 Fiscal 2025 gross margin of 38.5% was negatively affected by lower utilization of salaried consultants.

When utilization drops, the fixed cost of salaried talent weighs more heavily on margins, temporarily reducing the suppliers' leverage in cost negotiation.

Less talent movement across employers makes sourcing new on-demand experts harder.

While the search results don't directly quantify talent movement, the pressure on Resource Connection, Inc. (RGP)'s cost structure suggests that sourcing remains competitive. For instance, in Q1 Fiscal 2025, the pay/bill ratio increased by 60 basis points year-over-year, indicating that the cost to secure on-demand experts rose relative to what RGP could bill for them during that period of revenue decline. This cost pressure suggests that even in a choppy demand environment, securing the right on-demand talent requires competitive compensation.

RGP's consistent pay/bill ratio shows controlled cost transfer to consultants.

Cost control related to consultant compensation is a key focus, though the data shows quarterly variability. For the full fiscal 2025 year, the pay/bill ratio 'remained consistent year over year'. However, looking closer at the quarters reveals a more nuanced picture of cost management:

The full-year consistency suggests Resource Connection, Inc. (RGP) successfully managed to pass through most consultant cost increases to clients, or that cost savings elsewhere offset the pressure, but quarterly data shows that when revenue declines (e.g., Q1 FY2025 revenue was $136.9 million, down 19.5% year-over-year), the pay/bill ratio can increase, indicating suppliers are gaining leverage in that specific period.

Resources Connection, Inc. (RGP) - Porter's Five Forces: Bargaining power of customers

The bargaining power of Resources Connection, Inc. (RGP)'s customers is a significant factor shaping its operational and financial performance, driven by the size and sophistication of its client base.

• - Extremely high, due to serving 88% of the Fortune 100, which are large, sophisticated buyers as of May 2025.
• - Power is evident in the 12.9% revenue drop and lengthened client decision cycles in FY2025.
• - Low switching costs exist; clients can easily pivot to Big Four or other consulting firms.
• - Customer focus on cost reduction increases pressure to negotiate lower bill rates.

You see this power play out directly in the financial results when demand softens. When clients hold back spending, the impact on Resources Connection, Inc. (RGP)'s top line is immediate and material. For the full Fiscal Year 2025, the company saw its annual revenue fall to $551.3 million from $632.8 million the prior year, a year-over-year decrease of 12.9%. This environment forced clients to take longer to commit to projects.

The evidence of this customer leverage is clear when you look at the full-year metrics for Fiscal Year 2025:

The fact that the average bill rate remained essentially flat for the full fiscal year, despite the company's value-based pricing initiatives, shows that customers are successfully pushing back on rate increases when volume is low. This dynamic is typical when clients are focused on internal cost control; they have the leverage to demand better pricing on the services they do buy. For instance, in the fourth quarter of fiscal 2025, same-day constant currency revenue was down 11.4% year-over-year, which management directly attributed to the challenging demand environment and those lengthened decision cycles.

Resources Connection, Inc. (RGP)'s deep penetration into the largest corporate segment-serving 88% of the Fortune 100 as of May 2025-means its customer base is highly informed about market rates and alternatives. These buyers are not easily swayed by simple promises; they demand demonstrable value, which translates to intense negotiation over bill rates and project scope. This concentration of large buyers inherently elevates their power in pricing discussions.

Furthermore, the professional services market is fragmented, meaning switching from Resources Connection, Inc. (RGP) to a Big Four firm or another specialized consultancy often involves minimal friction for the client, especially for project-based work. This ease of substitution keeps the pressure on Resources Connection, Inc. (RGP) to maintain competitive pricing and high service quality. Finance: draft a sensitivity analysis on a 100 basis point drop in average bill rate for Q1 2026 by Friday.

Resources Connection, Inc. (RGP) - Porter's Five Forces: Competitive rivalry

You're looking at the competitive intensity in the professional services space, and frankly, it's a grind. Resources Connection, Inc. (RGP) operates in a market that is defintely fragmented, facing off against the massive global consultancies and smaller, specialized firms all vying for the same project dollars. This dynamic puts constant pressure on pricing and utilization.

RGP's stated focus, particularly within the Office of the CFO, places it directly in the crosshairs of much larger, more entrenched players who have deeper bench strength and broader service offerings. The market signals from fiscal year 2025 clearly show this rivalry is biting into top-line activity.

Here's the quick math on utilization, which is a direct proxy for how much work you are winning versus your competitors:

• Billable hours for Resources Connection, Inc. (RGP) decreased by 13.5% in the full fiscal year 2025 compared to fiscal year 2024.
• For the first quarter of fiscal 2026 (ending August 2025), billable hours were down 14.3% year-over-year, signaling continued demand softness or market share loss.
• In the same first quarter of fiscal 2026, the Consulting segment saw billable hours drop by 28.4%.

The forecast growth trajectory underscores the challenge. Resources Connection, Inc. (RGP)'s own forecast annual revenue growth rate of 1.16% lags significantly behind the US Consulting Services industry's average forecast revenue growth rate of 5.98%. That gap suggests rivals are capturing a larger slice of the expanding market pie, or that RGP's specific service mix is underperforming the broader sector.

To put the competitive positioning into perspective, look at how the market values Resources Connection, Inc. (RGP) relative to its peers and the industry at large based on recent data:

The Price-To-Sales Ratio of 0.3x for Resources Connection, Inc. (RGP) compared to the industry average of 1.3x is a stark indicator of how the market perceives its growth prospects or stability versus competitors. Also, while Resources Connection, Inc. (RGP) served 88% of the Fortune 100 as of May 2025, suggesting strong top-tier client access, the declining billable hours show that access isn't automatically translating into sustained utilization against aggressive competition.

You see pricing pressure in the data, too. While the average bill rate improved in some quarters due to value-based pricing initiatives, the first quarter of fiscal 2025 saw the average bill rate decline by 5.0% year-over-year, which management attributed to a more competitive pricing environment.

Finance: draft 13-week cash view by Friday.

Resources Connection, Inc. (RGP) - Porter's Five Forces: Threat of substitutes

You're looking at the competitive landscape for Resources Connection, Inc. (RGP) as of late 2025, and the threat of substitutes is definitely a major factor, especially in the more transactional parts of the business. The data from the recently completed fiscal year 2025 and the first quarter of fiscal 2026 clearly shows where the pressure is coming from.

The core of this threat comes from clients choosing to build internal capacity or use alternative sourcing methods rather than engaging RGP for interim support. This is most visible in the On-Demand Talent segment. For the full fiscal year ending May 31, 2025, revenue in this segment plummeted by 24.4% to $205.9 million. This trend continued into the start of fiscal 2026; for the first quarter ended August 30, 2025, On-Demand Talent revenue was $44.4 million, representing a year-over-year decrease of 16.4% on a constant currency basis. Management noted that demand for this interim support was challenged in the third quarter of fiscal 2025 due in part to a labor market trend with less talent movement across employers, which historically fuels this demand. This suggests clients are either holding onto existing staff longer or finding alternatives for short-term gaps.

The rise of technology, specifically automation and Artificial Intelligence (AI), is substituting for what used to be basic project work across the industry. While specific RGP internal figures on AI substitution aren't public, the broader consulting market context is telling. For instance, major consulting giants are rapidly integrating AI; McKinsey is forecasting that 40% of its business will soon be AI-related. This signals that the baseline expectation for efficiency is rising, meaning RGP's more routine project work faces substitution pressure from both in-house AI tools and technology-enabled competitors.

Clients have a growing menu of options to source talent outside of traditional professional services firms like Resources Connection, Inc. (RGP). Independent contractors sourced through online platforms represent a direct substitute for the On-Demand Talent offering. News reports in late 2025 mentioned platforms like Upwork reinventing their business over the last three years, indicating these platforms are becoming more sophisticated substitutes for project-based staffing needs. Furthermore, the general sentiment is that ''More balance' will define hiring next year,' which often translates to a greater reliance on direct hires or flexible talent pools managed internally.

Resources Connection, Inc. (RGP) is actively countering this substitution threat by strategically pivoting toward higher-value, stickier engagements. The focus is shifting to the Consulting Teams and Outsourced Services offerings, which are less susceptible to simple talent replacement. The company is increasingly engaging with clients on larger transformations. The results show this strategic push: while On-Demand Talent revenue fell 24.4% in FY2025, the Outsourced Services segment actually saw revenue increase by 3.9% in FY2025 to $39.6 million. This positive trend continued into Q1 FY2026, where Outsourced Services revenue grew by 3.7% on a constant currency basis to $10.0 million. The Consulting segment, while also facing headwinds with revenue down 21.7% in Q1 FY2026 constant currency, is targeted for deeper expansion, with the enterprise-wide average bill rate increasing to $120 in Q1 FY2026, up from $118 previously.

Here is a look at the segment performance contrast, highlighting the strategic shift:

The overall market context for consulting remains large, with the Consulting Service Market projected to reach $447.72 billion by 2029, growing at a Compound Annual Growth Rate (CAGR) of 4.81%. RGP's action is to capture more of that growth through its higher-margin, integrated offerings, which is a clear response to the substitution threat facing its legacy On-Demand model.

Finance: review the Q2 FY2026 pipeline conversion rates for the Consulting segment by Friday.

Resources Connection, Inc. (RGP) - Porter's Five Forces: Threat of new entrants

You're looking at the ease with which new players can jump into the professional services arena where Resources Connection, Inc. (RGP) competes. Honestly, the threat level isn't uniform; it depends entirely on the service you're trying to offer.

For small, specialized consulting firms focusing on a narrow, in-demand technology skill-say, a specific cloud migration or a niche regulatory compliance area-the barrier to entry is definitely lower. These boutique operations don't need RGP's scale; they just need a few experts and a good marketing push. Still, RGP's overall annual revenue for the full fiscal year ending May 31, 2025, was $551.3 million, showing the sheer size of the established players they are competing against for larger mandates.

However, when a new entrant tries to challenge RGP on large-scale enterprise transformation projects, the barrier shoots up. RGP's CEO noted progress in driving larger average deal sizes and engaging on bigger transformations, like system migrations, which suggests deep, established relationships with major clients. New firms struggle to replicate the access RGP maintains, especially with clients who rely on established providers for complex, multi-year initiatives.

Building the necessary brand trust and achieving global scale presents a significant hurdle for any newcomer. While RGP's revenue declined year-over-year in the first quarter of fiscal 2026 to $120.2 million, the company still commands significant market presence. New entrants must overcome the perception that only firms with a long track record and broad geographic footprint can handle mission-critical work.

The most potent threat often comes not from other traditional consultancies, but from technology vendors moving into the services space-this is forward integration. Major tech players, like those investing over $200 billion collectively in AI technologies, are increasingly offering implementation and advisory services directly. This blurs the lines, as these vendors can bundle their software with the necessary implementation expertise, effectively undercutting the pure-play consultant.

Here's a quick look at how RGP's core segments performed in the most recent reported quarter, which gives you a sense of the competitive pressure they are facing:

The double-digit revenue declines in both the Consulting segment (down 21.7% in Q1 FY2026) and On-Demand Talent segment (down 16.4% in Q1 FY2026) show that RGP is feeling the pinch from both established rivals and these new, specialized or integrated threats. The market is clearly favoring agility and deep tech integration, which new entrants can sometimes offer more quickly than a large incumbent.