What now for Purplebricks?
It would be fair to say Purplebricks has enjoyed better weeks.
Last week’s announcement that the online estate agency wouldn’t hit its revenue targets wiped 30 per cent off its share price and saw both the US and UK CEOs depart the business.
‘Purplebricks share price tanks’ and ‘Profit warning from Purplebricks’ screamed the media headlines.
The reaction on message boards and social media platforms was even more damning. I received several tweets from people complaining about poor customer service and an over reliance on technology.
It’s a far cry from the halcyon days in July 2017 when the company was valued at £1.5bn.
So what went wrong at Purplebricks and what does it mean for the future of online estate agencies?
To understand that we need to remind ourselves of the meteoric rise of Purplebricks, which was formed in 2012.
Outside of the industry few people had probably even heard of the online real estate platform when it floated at the end of 2015 with a market cap of £240m.
Purplebricks co-founder Michael Bruce told BusinessCloud in 2016 that technology was shaking up a traditional industry that was ripe for disruption.
“You can do anything from arranging a valuation instantly, to checking contact details, dates and times from your phone,” he said. “You can arrange a viewing at any time 24 hours a day, make an offer or agree a sale at 7pm, or change the price online on a beach somewhere, and instantly all of the property portals change and you can be on the market in 45 minutes.
“What our tech does is allow the whole process to happen 24 hours a day on any device wherever you are in the world and the minute you do anything, things just happen.
“What we’ve done is try to break down all the barriers, all the things people are concerned about the process and provide the technology to make that work and guarantee that works, or experts to assist and support with the stuff that people can’t get via tech.”
When I was researching this story I invited comments on social media and the reaction was far from favourable.
In an industry that averages a 16% profit margin, whilst some efficiencies can be achieved, not enough can be to undercut the market, fund an epic marketing campaign & be financially viable.— Kristjan Byfield (@KristjanByfield) February 21, 2019
Sarah Edmundson tweeted: “Technology and cheap price is not enough.” Kristjan Byfield posted: “In an industry that averages a 16 per cent profit margin, whilst some efficiencies can be achieved, not enough can be to undercut the market, fund an epic marketing campaign and be financially viable.” Someone calling themselves Diana G wrote: “I’ve tried to make appointments to view a few times and never managed it due to lack of human beings!”
In their statement to the City in February, Purplebricks said they were reducing its revenue guidance for the current year by £35m caused by its underperforming operations in the United States and Australia. It now expects to hit between £130m-£140m.
Bruce hasn’t yet responded to my requests for an interview but one man who knows better than most the challenges of running an online estate agency business is Russell Quirk.
He launched eMoov in 2009, growing it to become the second biggest online estate agency behind Purplebricks.
At its peak eMoov was listing 10,000 properties a year and employing 140 people. Customers could pay an initial flat rate fee of £895 or £1,995 on completion.
In 2015 the company raised £2.6m via Crowdcube - only for eMoov to go into administration in 2018.
Explaining what went wrong, Quirk recalls: “We decided as a board to go for it in terms of growth. We spent a lot of money on advertising. We effectively ran out of money for a number of reasons.”
Quirk says the uncertainty over Brexit combined with its main rival Purplebricks witnessing a big share drop created a “collision of circumstances” which meant they couldn’t raise the £10m they needed.
The entrepreneur said the problems at Purplebricks are different but highlighted its rapid international expansion as significant.
“Before you’ve got your UK house in order to be expanding into Australia, USA, Canada and Germany was ambitious, perhaps over-ambitious,” he says.
“I’ve tracked Purplebricks' progress from day one. When they announced in 2016 they were going to expand in the US they were listed and the value went through the £1bn mark. The story that they could conquer the US appealed to investors.
“Purplebricks understand marketing but the US commercial landscape is littered with gravestones of UK businesses that haven’t succeeded.
“Purplebricks underestimated the challenge in the US. They haven’t got traction. They expanded too quickly.”
Quirk gets no satisfaction from Purplebricks’ current troubles but predicts some consolidation in the sector, pointing out that the 10 “meaningful players” in the online estate agency industry only command seven per cent of the market.
“Purplebricks could be a global real estate player but they need to take a step back and slow down,” he says. “They will now need to raise money and when investors smell blood in the water they tend to react quite aggressively.”
Phillip Nunn is the CEO and founder of real estate investment house The Blackmore Group.
“The Blackmore Group has worked with Purplebricks and they are very efficient,” he says. “What might happen for Purplebricks is that this situation may open the doors for one of the older more established estate agents or bigger brands, be it UK or global, to come in and acquire them.”
Chris Wood is a director of Cornwall-based PDQ Estates and has written extensively about Purplebricks, especially on the exact number of houses they sell and the reliability of the reviews they receive.
He says traditional estate agents will charge a percentage of the sale price on completion of the sale but Purplebricks charge a flat rate fee of between £899- £1,399 which is payable irrespective of the sale.
“Purplebricks works for customers who sell their property but not for those who don’t,” he says. “Technology should be an aid to a good estate agent but it can’t replace it.”
Purplebricks say they have a sales completion rate of 81 per cent but Wood believes the actual figure is less than that.
Purplebricks say they have more than 650 local property experts around the UK, who usually have at least three years’ experience.
The company say they employ hundreds of people at their Solihull-based call centre, which is open round the clock, so buyers and sellers can always talk or webchat any time of the day or night.
Purplebricks insist their Trustpilot reviews are reliable and say they’ve challenged twice as many three, four and five star reviews as we they have one and two star reviews in the last 12 months.