Purplebricks says ‘not possible’ to run online agent alongside high street model

Purplebricks is set to be the first online agent to launch on the stock market, and has no branches.

But before launching their business, the Bruce brothers considered running it alongside a traditional high street model.

In an interview with EYE yesterday, Michael Bruce revealed that having considered the idea, they dismissed it as impossible.

He said: “It would have been a question of credibility. You would have had employees competing against each other for the same instruction and offering different prices, and all from the same company – it would have been an enormous difficulty.”

Bruce said that the chief executives of large traditional firms such as Countrywide and LSL would be faced with exactly the same challenge if they want to have an online offering.

He said: “The only thing they can do is to build a tech-based alternative to their own models, but for every pound you put into building that alternative, you damage your existing business.”

Purplebricks is set to start trading on the AIM stock market on December 17 with a likely market capitalisation of £240.3m.

A year ago, the company was worth £7m.

Bruce said the leap in value was a reflection of confidence in the company’s growth.

He said: “We have invested in building our teams, marketing and technology. We launched in April 2014 in just one area, the Meridian region, before taking a view to accelerate growth. Between February and July this year, we expanded to cover the whole country, culminating in a launch in Scotland just a few weeks ago.

“We have also built a lettings operation, and we will be launching a new app in January. So we are still very much in growth mode.”

A document released yesterday in connection with the forthcoming flotation says that Purplebricks’s revenue in September was ten times greater than the previous year.

But has Purplebricks yet made a profit?

Bruce said that he was unable to discuss financials under stock market listing rules but said that with such heavy investment in the firm’s development and growth, “we did not expect to be making enormous sums of money” at the moment.

Asked about the Treasury’s new paper, which specifically cites online-only estate agents, Bruce said: “I find it very encouraging that online agents should be openly promoted by the Chancellor.”

Do traditional estate agents have a future?

Bruce – who with his brother Kenny ran high street chain Burchell Edwards until selling it to Connells – said: “Ultimately, it will be the consumer who decides. I do think that some traditional models will become more boutique.” He also forecasts a growth in hybrid models.

He said that Purplebricks had not been affected by a shortage of stock: “We have not seen it, reflecting our growth mode.”

Bruce also said that Purplebricks is selling houses – and more quickly than its online rivals.

He said: “When we go on a valuation, we rarely come up against other online agents. Instead, we come up against high street agents, but unlike them, we don’t get any churn of customers.”

According to yesterday’s document, Purplebricks has the fourth highest number of fee-paying customers of any estate agent in the UK, and has 60% market share among online agents. It currently has around 4,300 properties for sale, over twice that of the next largest online agency.

It charges an average of £1,080 per sale and currently has a network of 165 local property experts, who are paid a fixed fee per instruction plus commission for the sale of other products – for example, an EPC, Rightmove premium listing, or accompanied viewings. A total of 55 local property experts have engaged sub-licensees in their business.

Bruce said: “The business model is disruptive and has allowed us to establish Purplebricks as a nationwide agency at a lower investment than a traditional agency, with a more flexible cost structure which supports the sustainability of our pricing strategy.

“The IPO will represent a major milestone in the rapid development of Purplebricks, which is already the fourth largest estate agency in the UK based on a monthly run rate of the company’s transaction numbers.”

A beneficiary of the flotation will be fund manager Neil Woodford, who has a 28.7% stake in the company, which will be worth around £73m. He first invested in the company in August 2014, buying a 30% stake. He reportedly invested further this summer when the firm was valued at £100m.

Michael Bruce

Originally posted here.

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