It is hard to think of any other estate agency firm in living memory that has elicited greater industry debate and heated disagreement than Purplebricks. Are they really a true game changing disrupter or merely an unproven upstart? Well I suspect we are nearing that moment of truth, and all will no doubt be revealed over the coming months.
For the purposes of this article, I do not intend to regurgitate much of the reportage regarding PB’s recent collapse in share price and subsequent loss of CEO, as I would rather focus on the key issues for PB’s up to this point and in the future. So, by way of explanation I would ask you to please consider the following points;
Firstly, can a UK estate agency business make reasonable profits by charging their clients under £1,000, even if they are an on-line operator taking payment in advance of a sale? Interestingly, Russell Quirk (ex- CEO of now defunct Emoov) recently conceded that the true average cost of selling property at Emoov (once all operational costs have been levied) was much closer to an average of £2,000. Which raises in my mind at least two quite fundamental questions? The first being, the ultimate durability of PB’s business model if there is a decline in consumers willing to “gamble” £849 + Vat or more in an up- front payment with no guarantee of success? And second, if PB’s were forced to substantially raise their fees in order to make a profit and pay dividends, would this not equivocally undermine their principal USP as a low- cost service provider?
Secondly, whilst directors of PB’s no doubt see their business in the same category as Amazon, Just Eat and Booking.com, I would beg to differ. As I believe that the moment the decision was made to employ “feet on the ground” by way of an extensive network of local property experts, it ceased to have the low- cost structure and scalability of a true on-line business. Put simply, surely PB’s business model is much closer to that of a budget service provider, and therefore should be developed quite simply as a “hybrid” business.
Lastly, I believe that the Board’s decision to expand PB’s overseas was recklessly premature, as its management should have primarily focused its efforts on building a profitable business here in the UK, thus essentially proving that their business model actually works in the first instance. By effectively running before they can walk, PB’s has now become a hostage to fortune by continuing to spend tens of millions of pounds of investors cash on loss making campaigns in both Australia and North America.
So, what can be done? Well, despite current turmoil, I believe that there is indeed a platform for a decent business here in the UK, as PB’s continues to list tens of thousands of properties every year, with anticipated revenues this year alone of between £130 – 140M. However, Michael Bruce must take heed of that old business mantra “turnover is vanity, profit is sanity, and cash is reality” or ultimately expect to follow the same path as ex on-line competitor Emoov.
Drastic action is required by cutting its overseas exposure (and losses), whilst re-focusing its efforts on expanding market share here in the UK. In addition, the business needs to be managed to some greater level of maturity before major expansion, after all, it is still in its infancy as a start- up (it should be noted that it took Amazon more than 14 years to make the huge profits that it does today)
In addition, PB’s problems are also compounded by relying on the ready flow of investor cash, which quite naturally can (more often than not) lead start up management teams into a false sense of augmented reality – until of course the loans stop unexpectedly, due to a loss in investor confidence.
So, in conclusion, my message to Michael Bruce and his fellow Board members is simply to be brave and admit your mistakes, refocus on your core business here in the UK and accept PB’s limitations as global business – at least for the moment. However, from the outside at least it appears that Mr Bruce and his team have set course for world domination, so I for one will not be holding my breath expectant of a change in direction any time soon.