What a tumultuous year 2018 was.
It has left our industry weakened by Brexit uncertainty, and shocked by online agents Emoov and Tepilo going into administration, the closure of Hatched, and witnessing the slow death of Countrywide.
Today I reflect on the predictions I made for 2018 www.propertyindustryeye.com/the-paul-smith-column-platt-to-leave-countryslide and I future gaze towards this year.
At the beginning of 2018 I predicted that the Countywide board would struggle to turn the super-tanker around in the wake of former CEO Alison Platt’s exit.
Shares had then tumbled from £6 to £1. They’re now hovering around the 9p mark!
Bringing back its team of old timers to restore it to its glory days and going back to basics simply isn’t working and I predict it will limp on through 2019 until its credit facility matures in 2022.
The big question, then, is how is it going to pay the money back? I said heads should roll at board level and Countrywide lost a non-exec director after a shareholder revolt over directors’ remuneration.
Its losses are growing and I predict it will have to close hundreds of offices so that it can invest heavily in the business, leaving just one brand in the towns where it operates, instead of 53 different brands nationwide.
This might give it a chance to invest in technology and reduce ad spend by promoting fewer brands.
Even as far back as September 2017 I had warned that the only way forward was to break up the business and sell off its component parts.
Certainly if I were a shareholder, I’d want to get some money back before it’s too late.
They’d get good money for Bridgfords, Slater Hogg, Taylors and Hamptons as well as its financial services – although that has reduced in size significantly in the last three years – plus its surveying and legal businesses. I’d bid for them!
I fear, though, the writing is on the wall and it’s just a matter of time before this super-tanker goes aground and everyone jumps ship.
I feel very sorry for those Countrywide soldiers at the coalface – they are working hard and trying to get some traction on the basics, but you need the generals to be investing in technology, digital marketing and people, and, alas, I don’t see that happening.
The generals are not leading the charge!
I had predicted that Tepilo would part company with Sarah Beeny.
I don’t think any of us could have foreseen that Emoov would have bought out Tepilo and Urban and then gone into administration in such a quick and dramatic way, or that Connells would ditch Hatched so quickly.
I did, however, query whether it was wise for Emoov to spend so much money on awful rebranding.
I have also constantly warned that the online agents won’t be able to survive if they charge so little.
I predict that the Purplebricks’ share price, down 62% last year and now sitting at 140p (compared to its all-time high of 513p), will continue to slide as the market faces another quiet year amid Brexit uncertainty.
In its recent trading statement, it showed a loss of £25.5m, having spent an obscene £39m on marketing. With that sort of spend they should have 20%-30% of the market but they haven’t.
As soon as Purplebricks stop the huge spend, where does that leave them?
The spend is not sustainable. It will constantly need that huge pool of investment if it wants to splash the cash on advertising and propping up its struggling businesses in the US, Australia and Canada. Investors aren’t going to get their money back for some time to come.
As for the other online agents, I had predicted that HouseSimple will waste lots of money trying to chase Purplebricks, which it has, and that it would join forces with Yopa, which it hasn’t – though I haven’t ruled that out in the future!
It needs to dig a lot deeper and spend at least £1m a month on TV and the same on online advertising. With a no sale, no fee model, it’s got a long wait for pay day.
I predict that online and hybrid agents will have no choice but to put up their prices if they are to make any money – which evens the playing field with high street agents who offer a far better service.
At this point, I’d like to reinforce the importance of branding in 2019. Those with prominent brands are going to do far better than those with little online or high street presence.
It’s interesting to see Purplebricks spend yet another small fortune of investors’ cash on changing its branding – to something very staid and ‘establishment’.
So much for being a challenger, disruptor brand. Is it really the right time to become traditional?
As for easyProperty, a brand associated with ‘cheap’, would you feel you’re getting a cheap service because of the cheap price, and doesn’t it cheapen the value of your property?
I think keeping the Easy brand was a faux pas. But then many of the online or hybrid agents have plumped for unattractive names – I associate Tepilo with tepid, Yopa with a yoghurt drink, while EweMove should be put out to pasture!
Regarding branch closures, I predicted there would be 18% fewer agents this year and more consolidation in the market. I don’t know the exact figures but we could have been closer to that mark if Countrywide had cut their losses a lot sooner.
I still think we have 20% too many agents for the market and it’s therefore inevitable we’re going to lose a number of businesses in 2019 with the fallout from Brexit and the ban on tenancy fees.
I get approached every week by independent owners looking for a buyer for their business.
RICS has said average stocks are at record lows and new instructions in November were at their lowest for almost two-and-a-half years. RICS is expecting further declines in the months to come.
Foxtons and Sequence
Foxtons has moved back to its old model and consolidated six closures.
I predict Foxtons in 2019 will close more branches. I also said Connells/Sequence would have a number of poor-performing branches.
I can’t see either of these brands holding on to non-profitable branches with high-cost rents and I predict there will be more closures to come.
This business will produce substantially fewer profits than in previous years is my prediction.
The American model
I also believe in 2019 that those agents trying to follow the American model here in the UK will struggle.
As Purplebricks has discovered, the US model is very different to the UK.
Research from the National Association of Realtors says there are 1.3m estate agents in the US and only 3% of them sell 25 homes or more a year.
Many estate agents have a second job to make ends meet. Their average fee is 5% in the US, while ours is 1.2% in the UK.
Will the likes of Keller Williams, RE/MAX and Century 21 really make any inroads in an already saturated market which is struggling with sales? I doubt it. They’ve come and gone in the UK before.
I warned that portals would put up their prices in 2018 despite agents struggling with costs – and I was right because portal prices only ever go one way!
It is inevitable, therefore, that increasing numbers of agents will move over to OnTheMarket, which I believe will vie for second position behind Rightmove within two years and will consolidate that position within five.
It has already doubled the number of branches listed to 12,000 since floating on the AIM market in February 2018.
It only takes one big agent to take a leap of faith and move away from the current dominant portals and others will follow.
However, as long as agents think that portals are their umbilical cord, nothing will change.
Precisely for this reason, I predicted we’d see an increase in estate agencies becoming their own media companies, investing more in social media, search engine marketing and digital advertising, using big data, propensity modelling and artificial intelligence.
I thought individual estate agents would become their own brand on Facebook, making their mark and raising their profiles in their local communities.
But it’s not happening!
I thought we’d see a lot more content marketing, ratings and reviews, and a real shift in the way that agents marketed to people online.
There’s a real gap in skills, technology, funding and desire here, with lots of agents burying their heads in the sand, stuck in the old way of doing things and not wanting to change.
Do I think this will be any different in 2019? Not a cat in hell’s chance. Has GDPR scuppered everything for us? Not really.
Agents who embrace search engine optimisation and use up-to-date data will survive.
Those who live for today and don’t face the future are missing out on the most cost-effective ways of reaching the market. There appears to be a lack of investment and innovation right across the industry right now due to lack of funding, which ultimately will impact the speed of sale and customer experience.
I predict in 2019 that all the best local independents that have no or little reliance on lettings will be the ones that not only survive but will thrive.
I even wonder if Brexit will have the same impact on agency that the millennium bug had? That is, no impact whatsoever and we were all worried about nothing!
A final note for all those people working for Emoov: I do genuinely hope you can look forward to this year with some optimism.
There is room in the market for people who are ambitious and forward-thinking, for those who are prepared to move with the times.
I wish you – and all our industry colleagues – better times ahead and a prosperous 2019.
- Paul Smith is CEO of Spicerhaart