Purplebricks isn’t the first UK company to fail to crack overseas markets, and it won’t be the last

Overseas markets, particularly the US, have proved tough for UK companies to crack, just ask Tesco, Next, Sainsbury’s and many others…

purplebricks for sale
Analysts think Purplebricks looked abroad a little too early in its life cycle

Purplebricks Group PLC (LON:PURP) isn’t the first UK company to cock up its overseas expansion plans, and it likely won’t be the last.

The online estate agent – sorry, ‘hybrid’ estate agent – shocked the market this morning (Tuesday) when it announced chief executive and founder Michael Bruce had resigned.

READ: Purplebricks tanks as it announces CEO departure, US strategic review and Oz exit

Purplebricks has helped to re-shape the industry, but Bruce and his team have overseen a woeful performance over the past 18 months, during which time the stock has last almost three-quarters of its value.

Investors have pulled out for a number of reasons, but most of them have been left disappointed by the botched move into Australia and the US, while Brexit has certainly weighed on the core UK business.

Bruce described launching in the US as the “single biggest moment” in the company’s history, but less than two years on, it may well be considered the single biggest regret. The launch in Australia certainly should be.

The plan was that Purplebricks would expand seamlessly into new territories, which would help to bring in more money and boost the bottom line, taking a small disruptor to the top of the international game.

Difficult market conditions

Things haven’t quite panned out like that, though. Now the company is closing down its Australian business altogether, while the US arm looks set to be massively scaled back.

As Markets.com analyst Neil Wilson explains: “The UK housing market has softened, prices are falling in Australia and cracking the US is proving very difficult.”

AJ Bell’s investment director Russ Mould added that the decision to pull out of Oz and scale back in the States is “catastrophic for Purplebricks’ reputation”.

“These two regions were the main engines of its overseas growth plan and today’s announcement is effectively an admission of failure,” he said.

Almost all of the City’s chin scratchers agree that Purplebricks got ahead of itself, looking for rapid expansion when it had yet to fully prove up its model in the UK.

The company had its fans over on this side of the pond, mainly home sellers who liked the idea of a low, upfront fee rather than the commission taken by traditional agents.

Yet to really establish itself in UK

But others had big issues with it: some analysts questioned how bosses recorded sales, while others claim selling houses is a people’s business, which Purplebricks effectively removed.

Either way, Purplebricks was still in its relative infancy in the UK when it announced plans to move abroad, and experts think it would have done better to bide its time for a little longer.

After all, the list of estate agents that have a big share of the market in multiple territories must be a pretty short one – even among those that have been around for decades.

“Purplebricks tried to run before they could walk and are paying the price for being just a little bit too ambitious,” said Markets.com’s Wilson.

Mould agreed: “Ultimately Purplebricks has been trying to do too much too fast. It would be better served by fine-tuning the UK operations and slowly expanding overseas one step at a time.”

Purplebricks not alone

Purplebricks isn’t the only company to have these kind of criticisms levelled at it, with the lure of overseas markets catching out some of the biggest UK PLCs.

Tesco PLC (LON:TSCO) failed to grasp the US market with its Fresh & Easy grocery business – a venture which cost it a reported £2bn.

At the end of the nineties, Marks and Spencer Group PLC (LON:MKS) ploughed hundreds of millions into its international presence as it looked to become a “truly global business”.

But it was also forced to beat a hasty retreat just a few years later, selling off its flagship Paris store and its US brand, Brooks Brothers.

Just before that, Next PLC (LON:NXT) had opened three trial stores in the US, including one in Boston. According to reports, it lost a “handful” of millions of pounds on the venture before pulling out.

More recently, taxi app Hailo was also forced to call time on its US adventure back in 2014 after finding the competition from the likes of Uber and Lyft a little too much to handle.

Laura Ashley Holdings plc (LON:ALY), HMV and J Sainsbury PLC (LON:SBRY) are a few of the others who have been forced to close their US operations.

Quick facts: Purplebricks

Price: 45 GBX

Market: AIM
Market Cap: £1.38 m

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