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Purplebricks will go down in history as the biggest flop in estate agency, after agreeing to sell to rival Strike for just a pound (and even that was too much, in my opinion).
If this online model has failed with its multi millions of pounds of investment over the past decade, I can’t see it working any time soon. The fact that an agency with an equally flawed business model has chosen to buy Purplebricks comes as no surprise. It’s surely an astute move to ensure that no-one else gets their hands on the Purplebricks brand.
But at what cost? Paying off the debts? Paying for the staff – for whom I have great sympathy right now, considering the uncertainty they’re facing. What are the other liabilities they’re taking on? The legal action from their former self-employed staff? Their lettings compliance issues?
Strike backer Charles Dunstone needs really deep pockets, and I estimate he would need at least £20m-£30m to pick up the pieces following Purplebricks’ fire sale. But then what? A focus on tech? But we all know that you need good people backed by tech in order to thrive in this industry.
So where did it all go wrong? Quite simply, the low-cost model does not work. How do I know? I was one of the first people to try it with iSold back in 2010. Many others have tried and failed, including House Network, Tepilo, Emoov (later purchased by Mashroom), Hatched – which Connells said was not a commercially viable model, and Doorsteps. How long before Yopa follows suit?
Why doesn’t it work? Quite simply, because it’s a costly business. Paying for marketing, through Google Ads and expensive TV ads to maintain brand awareness, runs into multi millions for brands that want to reach into all corners of the UK.
Moreover, the gatekeeper to the online market is Rightmove, and if you can’t afford their extortionate fees, which continue to rise, you’ll never get through the gate.
Add to this rising staff costs, energy and fuel bills and inflation right across every element of the supply chain, legislation that is challenging, and a 40% downturn in transactions across the housing market, and you have a recipe for disaster. Even if you’re not paying for branch costs, you still need to add sufficient margin in order to make a profit, rather than relying on the goodwill of investors.
This notion that our industry could be ‘disrupted’ in the same way as Uber or Deliveroo, focusing on cheapness when you’re selling people’s most expensive asset, is just nonsense. It’s all about trust. How can you trust something that doesn’t provide a quality service?
Plus add in to the equation the lack of estate agency knowledge at the top of Purplebricks and you could see the car crash happening in slow motion, it was just a question of when and how hard the impact would be.
How I’d like to be a fly on the wall of Axel Springer’s offices right now, having invested around £178m since April 2018, eventually become the largest shareholder with 27% of the shares. They must be ruing the day they got involved.
Strike will be looking to pull something out of the bag, but what, precisely? Unless the war with Ukraine ends tomorrow, energy and fuel prices right themselves, no-one demands pay rises and the economy bounces back, there is no immediate end in sight to the bottomless money pit that comes with running an estate agency business.
We saw that Purplebricks had very left in the bank, I suspect they were one month from going under, at the end. Pouring more millions in isn’t going to solve the problems that exist.
My prediction is that the ‘new Purplebricks’ will go the same way as the old. Another brick in the wall, yes, but on crumbling foundations.
Paul Smith is chief executive officer of Spicerhaart
EYE NEWSFLASH: Purplebricks selling to Strike for £1
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