Purplebricks Group Plc (LON:PURP) CEO Michael Bruce chats with DirectorsTalk about the Purplebricks model, provides a background, talks about its market share and tells us how the IPO money raised will be used.
Michael Bruce, Chief Executive of Purplebricks Group plc, said: “Purplebricks’ successful listing on AIM today represents a major milestone in the evolution of the business over the last four and a half years and is testament to the team’s hard work and commitment. The funds raised will allow us to further deepen our presence across the UK through additional investment in people, technology, infrastructure and marketing to deliver our ambitious growth plans as well as value for all of our shareholders.”
Strategy
It is estimated that annual UK estate agency fees amount to over £4.4bn. Purplebricks’ strategy is to build upon its market leading online proposition and increase Purplebricks’ share of the UK estate agency market for both sales and lettings.
The attainment of the strategy is based on the following key pillars of the Purplebricks’ offer:
Superior value – Traditional estate agents charge a fee on sales typically within the range of 1 to 3% on the sale price and average at over £4,000 (inc. VAT). By contrast, the average Purplebricks’ fee is £1,080 (inc VAT).
Local experts, personal service – Purplebricks is not an online estate agent, it is a hybrid estate agent that has a growing number of LPEs (165 as at 18 November 2015). The LPEs have detailed knowledge of their respective areas, visit the properties and provide valuations. Once instructed the LPEs provide support, advice and assistance throughout the sales process and customers can speak to an expert 24 hours a day.
LPEs are paid a fixed fee for each instruction and will also receive additional income for the sale of other products and services. Importantly to the LPEs an LPE can employ or contract sub-licensees to assist their growth within their region. To date 55 LPEs have already engaged sub licensees in their business. Accordingly, as they grow their business, increasing their employees and sub licensees an LPE can build capital value in their business as part of their licence agreement with Purplebricks. The LPE can, subject to the terms of their agreement which includes an approval by Purplebricks, sell their licence to an acceptable third party. The LPE is therefore motivated, engaged and rewarded for building their business within a culture of personal and professional integrity.
24/7 customer service – The technology enables interaction 24 hours a day. Approximately 70% of Purplebricks’ customer traffic happens when traditional agents are closed. Customers can instantly know what is happening with their property, they can book valuations, arrange viewings, see feedback from viewings, offers can be made and sales can be agreed, customers can get performance reports and can contact Purplebricks 24 hours per day.
Focus on technology – Purplebricks has spent four and a half years developing and building its technology and has a team of developers who work on new features, maintenance and security. Purplebricks intends to continue to develop its offering, introducing new versions of its platform and assessing new and improved ways of accessing and operating the process of selling, buying and letting property.
High profile marketing strategy – The differentiated marketing strategy is based upon a consistent presence on the media, including TV to drive customer traffic to the website, complemented by extensive use of radio, Pay Per Click (PPC), social networking, retargeting and portal advertising.
Brand awareness and customer engagement – Purplebricks aims to increase brand awareness among UK homeowners, landlords, buyers and sellers as a trusted and effective alternative to high street agents and online competitors. Customer satisfaction and referral is a fundamental part of the Purplebricks service. Purplebricks is rated excellent by independent review website Trustpilot (rated 9.4) with over 3,000 reviews from customers.
The business model
Instructions convert quickly to cash
Purplebricks has a competitive and transparent, flat fee pricing structure of £798 (inc. VAT) for a sale anywhere in the UK other than certain defined London postcodes, where there is a charge of £1,158 (inc. VAT). There are additional charges if the customer wants Purplebricks to undertake the viewings on their behalf, if they require an energy performance certificate, or a Rightmove premium display. The Company’s additional sources of revenue currently comprise fees from conveyancing, mortgage referrals and insurance.
The average Purplebricks’ fee including all other sources of income is £1,080 (inc. VAT).
The customer can choose to pay upfront on instruction or they can delay the payment (at no additional cost) until the earlier of the sale of the property or ten months from instruction. The deferred payment is financed by Close Brothers. Purplebricks is paid by Close Brothers the next working day. If a customer wishes to defer payment, they are required to use Purplebricks’ conveyancing services for the sale.
Low and flexible cost base
The cost structure of the business is different to that of a traditional estate agent. First, the hybrid model does not require the overheads of a high street estate agency business, with extensive, leased branches. Secondly, the LPEs typically operate under licence (89%) with fees payable upon instruction, rather than as an employee (11%). As a result gross margins are substantial, reaching 59.2% for the year ended 30 April 2015. The marketing budget is in alignment with the strategy of consistent presence in the media such as television, and aims not only to build awareness but also to help maintain and extend the Company’s position as the market leader in the online sector.
Current trading and prospects
Since the Company’s 30 April 2015 year end, Purplebricks has continued to see an encouraging growth in recognition of its brand and service offering with consistent progress across its key performance indicators in numbers of valuations and instructions and market share.
In November 2015, Purplebricks completed its national footprint with its launch into Scotland. Purplebricks expects to build on its progress to date through the remainder of the current financial year ending 30 April 2016 by filling out its national footprint through increasing numbers of LPEs, by introducing new technological features for its software, including an App to offer customers more choice and convenience, and through the evolution of its advertising and marketing strategy to raise brand awareness.
The Company’s aims are to continue to build its lettings business, grow its mortgage business and optimise the significant and growing traffic visiting its website. Purplebricks approaches the key trading period of the first quarter of the new calendar year with confidence and, in the Directors’ opinion, with the Purplebricks hybrid model set to continue to change the way that houses are sold and let.
Footnote
1 Purplebricks figure is based on annualised number of instructions received in September 2015, which is higher than the actual number of instructions received over the year to September 2015. Competitor data has been obtained from publicly available information or estimated by management, may represent different 12 month periods and is based on completed sales numbers