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

You're trying to figure out the next 12 months for Kelly Services, Inc., and frankly, the competitive picture is messy right now. As a former BlackRock analyst, I can tell you the pressure is coming from everywhere: customers are squeezing hard, evidenced by demand cuts from major clients slashing Q3 revenue by about 8%, while talent shortages mean suppliers are demanding more pay. The industry rivalry is intense, contributing to that 9.9% year-over-year revenue decline in Q3 2025, and don't forget AI and automation are poised to substitute up to 30% of traditional screening work. The staffing world is definitely not for the faint of heart. Keep reading below for the full, force-by-force breakdown to map out your next strategic move for Kelly Services, Inc.

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

You're looking at the talent supply chain for Kelly Services, Inc. (KELYB), and honestly, the power dynamic is shifting toward the suppliers-the people who actually do the work. In late 2025, the pressure on wages is a primary driver here, especially as the broader U.S. staffing market is expected to grow by 5% to reach $198.17 billion USD in 2025, suggesting demand for labor is outpacing supply in many areas.

Talent shortages are definitely hitting the specialized segments hard. For the Science, Engineering & Technology (SET) segment, which is crucial for Kelly Services, Inc.'s higher-margin business, organic revenue was down 8.5% in Q2 2025, yet the company must still compete for scarce technical talent. To be fair, the Education segment is showing more resilience, with organic growth of 5.3% in Q2 2025, but this segment operates on a much tighter margin structure, making it highly sensitive to supplier wage demands. If onboarding takes 14+ days, churn risk rises.

Here's a quick look at how the segments stacked up in Q2 2025, which shows you where the cost pressure is most acute:

The general labor market is signaling higher costs; the Bureau of Labor Statistics (BLS) projects a 3.5% annual increase in wages across various industries for 2025. Kelly Services, Inc. has to match or beat this to keep its pool of qualified professionals engaged, especially when you consider the Education segment's lower 14.4% gross profit margin in Q2 2025.

The threat from direct sourcing by clients is real, as gig economy platforms allow skilled professionals to bypass Kelly Services defintely. We know that 42% of people picking up temporary work take on at least two gigs per week, indicating a strong preference for flexible, direct arrangements that cut out the middleman. Furthermore, alternative work arrangements like freelance platforms are cited as a reason the overall US staffing industry saw a 10% decline in 2024, despite solid GDP performance.

Substitute teachers, a core Education segment supply, command higher pay and incentives because the demand for flexible, immediate educational support remains high. Kelly Services, Inc. must offer competitive rates to attract and retain specialized talent across the board. This necessity is reflected in the company's focus on expense optimization, as evidenced by the 9.7% decline in adjusted Selling, General, and Administrative (SG&A) expenses in Q3 2025, driven by structural initiatives. Still, the company reported near-term margin pressure in the SET and ETM segments in Q3 2025.

• The general wage expectation for 2025 is a projected 3.5% annual increase.
• 42% of temporary workers manage at least two gigs weekly.
• SET segment gross margin was 25.6% in Q2 2025, while Education was 14.4%.
• Q3 2025 saw a 9.7% decline in adjusted SG&A due to optimization.

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

You're assessing Kelly Services, Inc.'s (KELYB) position, and the power held by its customers is definitely a near-term headwind you need to model. When clients can easily shift volume or reduce spend, it directly impacts your top line and margin stability. For Kelly Services, Inc., this force is clearly elevated right now.

We saw this pressure materialize sharply in the third quarter of 2025. Specifically, demand reductions from U.S. federal contractors and three discrete large customers collectively cut Q3 2025 revenue by approximately 8%. This single factor drove a significant portion of the total year-over-year revenue decrease of 9.9%, which brought Q3 revenue down to $935.0 million.

To be fair, the CEO noted that the operating environment is evolving due to macroeconomic shifts and the AI boom, which translates directly into customer caution. Customers are actively delaying projects and scrutinizing staffing partner value propositions more intensely. This scrutiny is a direct exercise of their bargaining power, forcing Kelly Services, Inc. to defend its pricing and service delivery.

This power dynamic was evident even earlier in the year. In the second quarter of 2025, large customers in the Enterprise Talent Management (ETM) and Science, Engineering & Technology (SET) segments exerted significant pressure. This pressure, combined with federal contractor slowdowns, contributed to the overall organic revenue decline of 3.3% for Q2 2025. The ETM segment, in particular, saw its organic revenue fall by 5.1%, with a 3.5% impact attributed to a few large ETM customers decreasing demand due to internal cost-cutting initiatives.

The ease with which clients can move business signals low switching costs, which encourages them to use multiple staffing vendors simultaneously to manage risk and leverage competitive pricing. While we don't have a direct switching cost percentage for Kelly Services, Inc., the market context shows alternatives are robust. For instance, platforms like Upwork handled over $4.14 billion in freelance work in 2023, representing a modern, project-based alternative that clients can deploy with less commitment than a traditional staffing contract.

Here's a quick look at the quantified impact of customer behavior on Kelly Services, Inc.'s recent performance:

The company is actively managing this by optimizing expenses, with Q3 adjusted SG&A declining by 9.7% year-over-year, showing a direct response to revenue pressure. Still, the power of the buyer base means Kelly Services, Inc. must continually prove its value proposition against competitors and alternative sourcing models.

Finance: Re-run the DCF model assuming the Q4 2025 revenue guidance of a 12% to 14% decline holds, factoring in the persistent 8% impact from federal contractors and large customers.

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

You're looking at a staffing market where winning business means fighting for every contract, and frankly, the environment in late 2025 is showing real strain. The competitive rivalry facing Kelly Services, Inc. is fierce, driven by a slowing labor market and the constant need to prove value against a wide array of competitors. Consider this: as of September 2025, US employers' hiring plans were at their lowest year-to-date level since 2009. This contraction in demand forces firms like Kelly Services to fight harder for shrinking opportunities, which is why the company announced in October 2025 that it was cutting about 2% of its corporate workforce, affecting roughly 100 employees, just to meet the evolving needs of its client portfolio. This action signals a highly competitive environment where operational efficiency is non-negotiable for survival.

Kelly Services competes directly with large, diversified firms across all its key segments, meaning there is rarely a space where they operate without a major player nearby. This rivalry is evident in the overall top-line performance. For the third quarter of 2025, Kelly Services reported revenue of $935.0 million, a significant decline of 9.9% year-over-year. Even when you strip out the discrete impacts from reduced demand from U.S. federal government contractors and a few large private sector customers-which accounted for approximately 8% of that year-over-year decline-the underlying revenue was still down about 2.0%. This indicates broad market pressure, not just isolated contract losses.

To give you a clearer picture of where the pressure is hitting hardest across the business, look at the segment performance from Q2 and Q3 2025. The table below shows the reported revenue change and the organic change where available, illustrating the varied competitive response:

The Education segment stands out as a key differentiator, showing resilience where others struggle. While Q2 2025 organic growth hit 5.3%, it still managed modest reported growth of 0.9% in the more challenging Q3 2025 environment. This segment is definitely a bright spot in a tough market.

However, the overall competitive intensity is clearly eroding profitability, which is a major concern when you are fighting for market share. Here are the hard numbers reflecting that margin compression and the resulting financial strain:

• Adjusted EBITDA for Q3 2025 was $16.5 million, a sharp decrease of 36.7% from the prior year period.
• The Adjusted EBITDA margin compressed to 1.8% in Q3 2025, a 70 basis point decline year-over-year.
• The operating loss for Q3 2025 was $102.1 million, heavily influenced by a $102.0 million non-cash goodwill impairment charge.
• The gross profit rate also fell to 20.8% in Q3 2025, down 60 basis points from the prior year quarter.

The fact that the ETM segment saw the steepest reported revenue decline at 13.1% in Q3 2025 shows that competition is particularly brutal in those broader talent solution areas. You need to watch how Kelly Services defends its Education niche while aggressively driving structural efficiencies, as evidenced by the 9.7% decline in adjusted SG&A in Q3 2025, to counter this intense rivalry. Finance: draft a scenario analysis on margin recovery if underlying revenue decline stabilizes at 2.0% by end of Q1 2026.

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

You're looking at the competitive landscape for Kelly Services, Inc. (KELYB) as of late 2025, and the threat of substitutes is definitely intensifying. This force isn't about direct competitors like other staffing agencies; it's about clients choosing not to use an agency at all. Kelly Services' own Q3 2025 results showed a revenue of $935 million, down 9.9% year-over-year, which tells you that clients are finding alternative ways to source talent, or perhaps they just need less talent overall due to efficiency gains elsewhere.

The most direct bypass for Kelly Services, especially in the light industrial and lower-wage segments where they have historically been strong, is clients deciding to build out their own internal hiring functions. When a client decides to hire directly for light industrial or low-wage roles, they cut out the middleman entirely. This move is often driven by a desire for greater control over the onboarding process and long-term retention, effectively eliminating the need for Kelly Services' transactional staffing model for those specific needs.

Technology is a massive substitute driver, particularly in screening and sourcing. While Kelly Services is integrating AI, their clients are doing the same, which reduces the perceived value of the traditional staffing function. Industry estimates suggest that AI and automation tools could reduce client reliance on external staffing for initial screening and sourcing by up to 30% in certain administrative or high-volume entry-level roles. This is a significant erosion of the service scope that staffing firms traditionally offered.

Here's a quick look at how AI adoption is reshaping the staffing ecosystem as of mid-2025:

The fact that 61% of staffing firms already use AI in 2025, up from 48% in 2024, shows this isn't a future risk; it's a present reality impacting service demand. Still, 32% of current AI users report they haven't seen measurable impact yet, which offers a small window for Kelly Services to prove their value-add beyond basic automation.

For professional roles that Kelly Services services through segments like Enterprise Talent Management (ETM), offshoring and nearshoring present a compelling cost-based substitute. When clients need IT or accounting talent, the cost differential is stark. Offshore labor costs for IT professionals can be 40-70% lower than onshore rates in the U.S./Western Europe, and specialized offshore accounting services often promise cost savings exceeding 50% compared to domestic costs. Nearshoring offers a middle ground, but the cost advantage over domestic hiring remains substantial, often 2-3x cheaper than onshore rates for developers.

The rise of the gig economy, facilitated by freelancer platforms, directly substitutes for contract staffing engagements. These platforms connect talent directly to clients, bypassing the agency markup for project-based or short-term needs. The market dynamics are clear:

• Freelance Platform Market Size (2025 Est.): $8.39 billion
• U.S. Freelance Platform Market CAGR (Forecast): 13.5%
• Employers Planning to Hire Freelancers (2025 Est.): Over 99%
• Fortune 500 Companies Using Freelance Platforms (2022): 48%

This direct connection means that for project work, clients can access specialized talent without the administrative overhead associated with traditional staffing firms. If onboarding takes 14+ days, churn risk rises, and platforms offering instant access look much better. Finance: draft 13-week cash view by Friday.

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

You're looking at how easy it is for a new staffing firm to pop up and steal market share from Kelly Services, Inc. (KELYB). The threat here is definitely nuanced; some doors are wider open than before, while others remain firmly shut.

Technology-driven platforms lower the barrier to entry for niche staffing providers

The rise of sophisticated, often cloud-based, technology platforms is a major factor changing the entry landscape. New entrants don't need to build massive, proprietary Applicant Tracking Systems (ATS) or payroll infrastructure from scratch anymore. They can subscribe to Software-as-a-Service (SaaS) solutions, which drastically cuts down on initial capital expenditure and time to market.

For instance, AI-driven tools are now foundational, not optional, in the staffing world as we move through 2025. These technologies automate what used to take significant human hours, which is key for a leaner startup. Firms using AI for tasks like résumé screening have seen a reported 30% improvement in time-to-hire compared to traditional methods. Furthermore, AI-powered platforms can analyze more than just resumes, looking at social media activity and communication styles for smarter candidate matching. This tech democratization means a small, focused firm can operate with the efficiency of a much larger one in specific, targeted areas.

• AI reduces resume screening time by 50%.
• Automation streamlines time capture and invoicing.
• Virtual interviews are now standard practice.

New firms can focus on high-margin specialty areas like Kelly Services' SET segment

A new entrant doesn't have to compete head-to-head with Kelly Services across all verticals. They can target the high-margin, specialized niches where Kelly Services, Inc. has historically sought growth, like its Science, Engineering & Technology (SET) segment. While Kelly Services' SET segment saw a consistent rate of decline in Q3 2025, specific specialties within it, like telecom and engineering, are noted as growth areas.

A startup can launch with a hyper-focus on, say, specialized AI engineering talent, using modern sourcing tools to find candidates faster than a generalist firm might. This specialization allows them to command higher margins on placements, even if their overall volume is small. To be fair, Kelly Services is also feeling pressure here; its SET segment organic revenue declined by 8.5% in Q2 2025, suggesting that even established specialty areas are facing competitive or demand headwinds that a nimble newcomer might exploit.

Here's a quick look at Kelly Services' segment focus as of late 2025:

The need for significant working capital for payroll remains a high barrier for small firms

This is where the barrier to entry for new firms gets significantly higher. Staffing is a cash-intensive business because you pay your temporary workers weekly, but your corporate clients often pay you on 30-day, 60-day, or even 75-day terms. A new firm must secure enough working capital to cover payroll for several cycles before the first client invoice is paid. While the average gross margin for US staffing firms is around 22.7%, this margin must cover all overhead, not just the immediate payroll float.

For a small firm, this means they need enough cash on hand to fund a minimum of 4-6 payrolls before revenue starts flowing in reliably. If a new entrant lands a large contract, the working capital requirement scales up immediately, potentially requiring millions in short-term funding. While specialty financing facilities exist, sometimes ranging up to $250 million, securing this initial funding without established receivables or a proven track record is a major hurdle that stops many potential competitors before they start.

Kelly Services' scale and MSP/RPO capabilities create a barrier for smaller, non-specialty entrants

Kelly Services, Inc.'s sheer scale provides a significant moat against generalist competitors. The company reported total revenue of $3.2 billion for the first nine months of 2025 (including acquisitions). This scale translates into better purchasing power for insurance, better technology licensing rates, and the ability to absorb operational shocks, like the Q3 2025 operating loss of $102.1 million which included $102.0 million in non-cash goodwill impairment charges. A startup simply cannot absorb that kind of non-recurring charge.

Moreover, Kelly Services has deep capabilities in Managed Service Provider (MSP) and Recruitment Process Outsourcing (RPO) solutions. These are long-term, complex service contracts that require robust compliance, technology integration (like with Vendor Management Systems, or VMS), and established trust. Clients seeking these comprehensive solutions look for proven scale and stability. For example, firms using workforce management platforms report a 25% increase in client retention. Smaller, non-specialty entrants struggle to offer this level of integrated, end-to-end service, which is a core offering for established players like Kelly Services, Inc. The market is increasingly favoring these 'one-source solutions'.

• Q1 2025 revenue was $1.16 billion.
• Adjusted SG&A expenses declined by 9.7% in Q3 2025 due to efficiency initiatives.
• The company has maintained its quarterly cash dividend of $0.075 per share.