Online property giants Purplebricks and Rightmove have this week made significant moves to secure their long-term survival. Purplebricks will furlough staff and take advantage of the UK government’s offer the pay wages and avoid job losses. Rightmove on the other hand is currently battling with estate agent clients who are looking for significant fee reductions and/or payment holidays. While both of these companies are relatively cash liquid at the moment, they will feel some pressure as property activities effectively grind to a halt in the days and weeks ahead.
The property giant is currently in dispute with estate agents having initially offered payment deferrals of up to £275 a month for the next six months. As the average estate agent spends just over £1000 a month this was seen as a poor first offer. The company has now announced the option for estate agents to take a 75% discount per month on fees for the next four months. However, a serious backlash is building against the company and further discounts/deferrals appear certain to follow.
The company is however extremely confident of riding out the storm of the coronavirus pandemic. Rightmove has no debt, is cash generative, operates on high margins and is relatively capital light. The problem is how many estate agents will be left after the pandemic is over?
At this moment in time Purplebricks has around £35 million in cash reserves which they believe will see the company through the current coronavirus turmoil. The plan to furlough staff will likely progress further in the next few days with the company determined to take advantage of the government’s offer to cover 80% of staff wages rather than see significant redundancies. The company has already begun pushing out virtual viewings and valuations although it does expect to take a hit to revenues in the short term.
When you consider that estate agents have been told to close, homeowners advised not to complete at the moment and the banks are putting pressure on private and commercial property investment, these moves are no surprise.
Benefits of the online model
While Purplebricks and Rightmove are very different companies working on very different business models, they do to a certain extent show the benefits of online operations. The ability to immediately slash advertising/staffing costs and create leaner meaner fighting machines should see both through the ongoing troubles. The issues going forward will revolve more round the estate agent sector, property prices and when the market will return to normal. It is all good and well reducing your online costs and becoming a leaner operation but both companies need markets to return to some degree of “normality” in the short term.
Nowhere to hide
It will be interesting to see how the UK property sector, estate agent industry and online property portals emerge after the coronavirus pandemic is finally brought under control. As we touched on above, it is all good and well reducing already limited online operating costs but what about customers and agents? The property sector and all its offshoots will look very different after the pandemic is over compared to just a few weeks ago.