‘Aldi of real estate’ quits Australia
ONLINE real estate agent Purplebricks is quitting the Australian market, two and half years after entering it with a promise to shake things up.
The UK fixed-fee company also said founder Michael Bruce would step down as chief executive immediately and it would review its US business.
The company said it would remain committed to its current Australian customers but would not accept new business.
"During the two and a half years that Purplebricks has been operating in Australia, market conditions have become increasingly challenging," the company said in a trading update.
"This, combined with some execution errors, has resulted in the business not delivering the progress the Board expected."
"With hindsight, our rate of geographic expansion was too rapid and as a result the quality of execution has suffered," chairman Paul Pindar said, as he apologised to shareholders for disappointing performance over the last year.
A challenging market in Britain caught up to it and the company was forced to issue a revenue warning in February.
Purplebricks saw its stock slumping more than 64 per cent last year and nearly 9 per cent so far this year.
The company first came to Australia in August 2016 after huge success in the UK.
Launched in the UK in 2014, the online agency charged homeowners a flat fee of $4500 to sell their property.
The company claimed on average, Aussie homeowners could save $11,500 under its model.
Purplebricks spent $17.4 million over the past two years to set itself up in Australia.
Speaking to news.com.au in 2016, Mr Bruce initially had high hopes for the Australian market.
"We believe the Australian market can grow quickly because we believe our flat-fee model will get into the hearts and minds of Aussie homeowners quickly" he said.
"We talked to thousands of people across Australia and we found Aussies were far more vocal about the need for change. They've been paying far too much, for too long, for too little, and want a credible alternative."
A report from 2016, from economist Stephen Koukoulas of Market Economics and commissioned by Purplebricks found Australians could save $5.75 billion by the company's flat fee of $4500.
"Over the past 30 years the average Australian house price has risen by almost 600 per cent from just under $90,000 to around $614,000," the report said.
"The real estate agent's commission, at 2.2 per cent of the sale price, has risen from $1,970 to over $13,500.
"Average wages in Australia have risen by around 215 per cent from $19,000 a year to $60,000 a year. This means that the average real estate agent commission paid by a home seller has doubled from just above 10 per cent of average annual wages to 23 per cent of annual income."
Mr Koukoulas said the increase in low-cost or flat-fee agents could have the same effect on the real estate agent industry as Aussie Home Loans had on the mortgage market, or that Aldi and Costco had on Coles and Woolworths.
"I wouldn't be surprised at all if over the course of time you see real estate agents discounting their commission fees to maintain their competitive edge," he said.