Labor Ready Carves Niche Temporary Employment Company Poised For Growth Spurt

Labor Ready Inc. is beginning to flex its muscles.

The Tacoma-based temporary employment company has extended its chain of more than 100 outlets into the Midwest, with plans to double that number this year.

Revenues are multiplying rapidly, but not as fast as the value of the company’s stock, which was available for as little as 20 cents less than three years ago.

Today’s price, after a three-for-two split: $14.

Many of the fortunate shareholders are from Spokane. They, perhaps unwittingly, ventured into temporary labor just as downsizing and other corporate restructuring increased demand for workers who could be moved in or out as need dictated.

National leaders like Manpower boomed. Locally, Humanix and other home-grown firms have thrived.

Labor Ready created a niche in light-industrial work like landscaping and moving freight. Last Monday, many of those dispatched out of the Spokane office on North Lee were shoveling snow.

Workers are paid $5 an hour unless the job calls for special skills. No benefits, but if they are hired on by Labor Ready’s client there’s no charge to either party.

The business is a long way from that envisioned by the company’s founders 11 years ago.

At that time, the Spokane investors bought into what was to be a restaurant franchising operation spun off by Dick’s Hamburgers, the city’s fast-food Mecca.

Burgers didn’t fly. Four years after its start, the company had but two restaurants, in Tempe, Ariz., and Fresno, Calif.

Newly appointed President Glenn Welstad quickly shut them down. In August 1989, he summoned the shareholders to the Farm Credit Bank Building in Spokane to consider a proposal that would reposition the company.

The plan: An alliance with Floridabased Action Temporary Services Inc., which set itself apart from most companies in the field by paying its workers at the end of each day.

Action would receive 1.5 million shares of stock in the renamed company, to which it would grant 75 percent of the royalties from its 22 franchises in the West.

Officials estimated Dick’s, reincarnated as Labor Ready, would receive about $400,000 a year from those outlets.

If not approved, the proxy warned then, “the company will cease all operations.”

Their backs against the wall, the shareholders voted by a two-thirds majority to forever hold the burgers.

The deal with Action later soured. But by then, Welstad, who received a 1.5 million-share finders fee for bringing the companies together, and who remains the largest shareholder, had Labor Ready on its way.

His resume already included ownership of several Hardee’s restaurants, tanning salons, direct-mail operations and check verification and recovery. The last, WIO Services Inc., was based in Spokane.

In March 1989, he had also opened a Kent office for Action.

Welstad said he found his fast-food background applied well to temporary labor. He added more hiring halls in the Puget Sound area as well as others in California, Colorado and Arizona.

Revenues were $4.7 million in 1990, but the company lost $212,000. The growth continued in 1991 - sales reached $6 million - as did the hemorrhaging.

The loss: $715,000.

But as hall openings and sales accelerated in 1992, Labor Ready inched into the black. The company earned $882,000 on sales of $38.9 million in 1994.

For 1995, revenues hit $94.3 million, and the 106th hall was opened.

Welstad said Labor Ready has outdistanced competitors by refining the formula for operating a successful site, carefully recruiting managers, and closely monitoring results with a state-of-the-art computer system.

Although relatively small, Labor Ready’s computers generated about 100,000 W-2 forms last year, and statements to more than 30,000 customers.

Also, he said, newcomers have difficulty - as Labor Ready did - financing receivables. With cash going out the door every day, there can be a lag of weeks before accounts are settled.

Welstad said Labor Ready’s tight controls keep losses from those accounts to 1 percent. “We stay pretty close to our credit,” he said.

Labor Ready squeezed through early cash shortages using personal loans from the officers and lines of credit. Those credits have been expanded to $9 million and, coupled with a $10 million private debenture placement last year, should be enough to support company growth into the foreseeable future, he said.

Worker’s compensation costs are another ally. Premiums and claims for the mostly blue-collar positions Labor Ready fills are high.

Many of the main-line temporary companies do not want the aggravation or risk they entail, Welstad said.

But by the end of this year, he said, Labor Ready will have created an offshore insurance company that will allow it to self-insure and significantly reduce those costs.

Labor Ready can open an office for $35,000. Welstad said they become profitable within four months.

The company usually identifies new locations in one of two ways, he said.

Labor Ready has established a substantial clientele of customers with operations across the country. Waste Management and Browning-Ferris Industries, as well as the six largest home builders in the country, are among them.

“If they have a need for us, we will be there,” Welstad said.

In addition, he said, the company’s computers crunch Census Bureau statistics in a process called information mapping.

Labor Ready will open several halls in Chicago this year based on those maps, Welstad said. “I personally went and looked at those and it’s real exciting.”

With capital problems a thing of the past, he said Labor Ready’s biggest challenge is recruiting enough managers for all the halls the company would like to open in the next few years.

“We do a lot of screening before we select people,” Welstad said.

Candidates are trained at Labor Ready University in Tacoma, where they receive classroom as well as hands-on training at the dispatch center there.

They’re also familiarized with the company’s corporate operations, which recently moved into a new headquarters building.

In three months, they’re ready to open a new shop. Only one location has ever folded, Welstad noted.

The stock, meanwhile, reappeared on the radar screen after disappearing for two years.

Market maker Tom Mackenroth, a broker at National Securities, recalled a time he still couldn’t give the shares away at 37 cents apiece.

Now, he said, institutional investors are nibbling at the company, rare attention for a company whose stock is traded only on the electronic bulletin board of the National Association of Securities Dealers.

An upgrade to the supplemental listings, or even the main NASDAQ exchange, is expected by year-end, he said.

Mackenroth said sales should reach $200 million this year and $350 million in 1997. Using a rule of thumb that correlates price per share to revenues, he estimates the stock could sell for as high as $30 by the end of the year.

“Their growth is ungodly,” Mackenroth said.

“It all comes down to management,” added James Caplan, a Santa Barbara, Calif., consultant who helped Labor Ready with its financing. He said he was introduced to Labor Ready by Mackenroth, and was taken by the company’s potential to expand in a niche others in the fast-growing temporary labor market were overlooking, or did not want to deal with.

“I was very impressed with their entrepreneurship,” Caplan said.

He’s not the only one. An analysis done in September for a Portland-based newsletter, “The Red-Chip Review,” said the company was growing like a weed.

Prospects are solid, the author said, if the company can continue to generate the funds needed for expansion.

Welstad said he has been approached by potential partners in Europe, where employers use temporaries more often than U.S. companies.

“We’re not quite ready for that yet,” Welstad said. “We’ve got plenty of fish to fry.”

In five years, he said, revenues could reach $850 million from 1,000 locations. The elements are in place.

“The economy and the times have been on our side,” he said.

, DataTimes ILLUSTRATION: Color Photo Graphic: Temporary workers