Yahoo Finance Why the founder of Carphone Warehouse bought Purplebricks for £1
The entrepreneur who bought Purplebricks believes it can become the “Aldi or Ryanair” of property after saving the business from collapse in a £1 rescue deal.
Sir Charles Dunstone vowed to take the property portal back to its disruptive roots as he promised to shake-up its business model to revive performance.
Purplebricks’ up-front £1,000 fee for listing properties will be scrapped and replaced with a pay-as-you-go model, he said.
Sir Charles said he believed Purplebricks can still compete thanks to its well-known brand, despite recent woes that have seen it only narrowly avoid collapse.
“The founders of Purplebricks really disrupted the market, but the business has lost its way a bit,” Sir Charles told The Telegraph. “We’ve got the opportunity to get it right and to complete that journey.”
Sir Charles, who founded Carphone Warehouse and now runs TalkTalk, is a major backer of rival online property portal Strike. He plans to fold the two businesses together under the Purplebricks name in a bid to compete in the online listings market.
The combined business will offer a low-cost listings model for people looking to sell their properties online, charging for services rather than a commission based on the value of the home.
“Our position in the market is that of an Aldi or Ryanair,” Sir Charles said. “In a high interest rate environment and during a cost of living crisis, a business like Purplebricks is where people should turn.”
Strike on Wednesday acquired Purplebricks for a token £1, assuming “substantially all” of the company’s debts.
Purplebricks employs 750 people but Sir Charles warned that jobs could be cut unless performance improves rapidly.
Sir Charles said: “Purplebricks’ listings have shrunk in the last few years. It was too big a business for such few listings. Now either we get more listings or we shrink the business.”
New listings on the platform nearly halved in the final few months of 2022 as the company’s financial woes mounted. Purplebricks received instructions on just 5,672 new properties in the final three months of last year, compared to 10,964 during the same period in 2021.
Sir Charles added: “For now it’s continuing as normal and there is business continuity for our existing customers.”
Improving performance could be a struggle given the property market is in the midst of one of its worst slumps in years, triggered by rising interest rates and the fallout from Liz Truss' mini-Budget last September.
However, Sir Charles said: “The property sector is healthier than it was. And we seem to have gotten over Trussonomics.”
Purplebricks was launched in 2014 by brothers Michael and Kenny Bruce and at the time promised to change the way houses would be bought and sold across the UK.
The company promised to sell properties for a flat fee of £1,000 paid in advance, rather than taking a percentage fee from the final sale price. Homeowners paid the fee regardless of whether the property was sold.
Purplebricks grew rapidly in its early years, fuelled by a buoyant housing market, and made its founders and many early backers millionaires when it listed on the London Stock Exchange in a £240m float in 2015.
The start-up became a household name thanks to millions spent on TV advertising and its market value peaked at £1.4bn in 2017.
However, fortunes began to worsen after a costly international expansion including launching in the US. The company also expanded into the rental market and ended up involved in a scandal over tenancy laws. The misstep ultimately cost the company £9m.
Finally, some sellers began to become frustrated with the up-front fee model given there was no guarantee a property would sell.
Shares in Purplebricks have fallen 94pc in the past 12 months alone.
Sir Charles said: “The organisation became too big and cumbersome.”
“They were not differentiating themselves from traditional agents and it became hard for them to compete because their prices were too high.”
Rival online estate agents have launched since Purplebricks’ creation, including Yopa which offers a no sale, no fee model.
Purplebricks first put itself up for sale in February, later speeding up the sale process after it warned it could run out of cash.
Strike’s £1 bid rescue bid was described as a “solvent outcome” for the company by chief executive Helena Marston, who said the deal brought an end to a “challenging and uncertain time”.
Strike hopes to complete its takeover of Purplebricks in the next fortnight and Ms Marston will step down once the sale goes through. Sam Mitchell, the chief executive of Strike, is expected to take charge of the combined business.
Mr Mitchell told The Telegraph earlier this week: “We’re not going to dwell on Purplebricks’ past. We’ve had our eye on the company for a while. We haven’t seen a brand burst on the scene like Purplebricks - particularly in the early days.”
Purplebricks will adopt Strike’s business model once the deal is complete, Sir Charles said.
Strike does not charge commission and instead charges for services. These include having photographs of the property taken, improving visibility on online portals such as Rightmove and Zoopla, or having someone come and conduct viewings for the property.
Strike began life as online estate agent Housesimple but was rebranded in 2020 when Sir Charles backed it through his investment vehicle, Freston Ventures.
Sir Charles hopes that the Purplebricks' brand will help take the Strike business national. Currently the start-up’s presence is limited to the North of England and the Midlands.
An online model where users can choose which parts of the services they require will be attractive to buyers and sellers at a time where high street agents are considered “the least trusted line of work - taking too much money for not doing enough," Sir Charles said.
“This business will empower buyers and sellers,” he added. “The traditional estate agency model is outdated and needs to become more efficient.”
