First, a bit of background. Peter, who started out as a fishmonger at Chelsea Farmers’ Market before joining Foxtons in 1985, when the company had only 20 employees, became the firm’s managing director in 1997, a position he held until 2005 when he acquired Marsh & Parsons. He is now non-executive director at Viewber and a member of the board of advisors at various PropTech firms.
Could you provide some background to Foxtons' expansion into America? Which parts of the US did it target and what was its strategy?
In the late 1990s, Jon Hunt was particularly concerned, as we all were, about the emergence of the internet and the effect it would have on real estate. We therefore decided to go to the Inman Conference in San Francisco which that year was focusing on how the internet would affect property.
This was at the height of the time that everybody thought that the internet would replace all estate agents and we came away concerned and thoughtful of how to embrace/counter the threat. When we got back to London, we immediately started working on a strategy to create foxtons.com and to roll the business out across the UK, doing away with physical offices and considering different levels of service. At the time, we termed them platinum, gold and silver.
The following year, we decided to attend the conference again and it was an entirely different atmosphere following the dotcom bust.
However, exhibiting at the conference was a business called Your Home Direct, with a strapline: ‘home of the 2%‘. Jon loved the business model as it was very similar to the UK model with employed salespeople as opposed to self-employed salespeople.
To cut a long story short, he bought the business. It was based in New Jersey, which if I was to offer a comparison would probably be a little like Essex, but covered the whole of the northeast area including New York.
Why did it fail so badly there?
The competition was intense, bordering on frightening, as the last thing that the incumbents wanted was a UK brand entering the market and offering to sell property for a third of what they were getting.
As a result, they organised themselves effectively to stymie Foxtons at every opportunity and because we were charging such a low fee and employing salespeople on salaries, plus small commissions, we were unable to attract the best salespeople.
As a result, we were seen as a cheap and downmarket brand and couldn’t get good instructions. Furthermore, we were active over an extremely large geographical area with little or no local presence and therefore the brand remained largely ‘faceless’ and certainly not local. It couldn’t achieve critical mass to enable it to form a local reputation. The similarities here to Purplebricks are extraordinary in my view.
Did it damage the brand, or was it just a case of a blip in a country that is hard to break into?
It had no effect on the UK brand as frankly nobody in the UK knew or cared that Foxtons had opened in the US. However, it always struck me as strange that we did our level best to maintain high fees and high service and we had the opposite of this in the US.
As Managing Director at the time, did you have reservations about attempts to break into the US market?
Yes, I had huge reservations about spending time and money trying to break into the US market whilst we had enormous possibilities of growing in London. At this time, we still only had ten offices and I felt the opportunities of opening throughout London for a brand such as Foxtons were immense.
However, Jon was the boss and was intent on following this dream. He had balls of steel!
Why is it so difficult for UK agencies to break into the US? And, conversely, why haven't huge US agencies such as Keller Williams and ReMAX been able to fully replicate their success on UK shores?
Both the US and Australian markets are dramatically different to the UK. In the UK, it is brands that generate instructions, whereas in America it is very much the individuals who go out and generate their own instructions under the umbrella of a brand.
Furthermore, the fees in the UK are ridiculously low. In America, there is 5 or 6% to split meaning that agents acting for buyers and sellers can agree to split a fee and still be properly rewarded. In the UK - at fees of 1 or 1.5% - this is obviously impossible.
Are the two models too fundamentally different to be compatible?
Probably, however I believe that the new hybrid model in the UK - where highly regarded independent individuals generate their instructions working under the umbrella of a brand whilst retaining a high proportion of the fee they generate - could be a workable business model.
The problem, I’m afraid to say, is that the industry in the UK does not attract enough exceptional talent and never has done.
When did Foxtons realise that its North American adventure wasn't going to work out?
As I mentioned, there was immediately intense hatred of the business from competitors and they did everything within their power to denigrate the business. Whilst I wasn’t directly involved at all, I think it became obvious within about a year that it was going to be an extremely tough build.
In the end, I believe when it closed it had cost the business $50 million. Interestingly, and on a similar point, when Foxtons first launched in the UK we too were universally loathed by the competition. However, we were dramatically changing an extremely sleepy industry and knew that there were incredible opportunities if we persevered.
Did you/Foxtons learn anything from the experience? Was it a sign that discounted estate agency just doesn't work very well?
As I mentioned, I wasn’t directly involved in either the launch or the running of the American operation, but I think that the prime lesson I learned is ‘stick to your knitting’!
Discounted agency could work, but it has to be in a market that enjoys huge volumes and uncomplicated transactions. Unfortunately, as we all know, the property market currently does not enjoy huge volumes and anything dealing with people and their foibles is fraught with uncertainty and in my view will be extremely difficult to make proper money.
Lastly, you are involved in a number of PropTech companies - including Canopy, Eligible.ai and Viewber in the UK and Inventure in the US. Do you think the pandemic will lead to an increase in people seeking tech solutions and how can PropTech providers encourage this growth?
Technology is obviously of enormous benefit to property businesses but will never replace them entirely. The pandemic has in many sectors vastly accelerated what was happening anyway, and I’m pleased to say that all the businesses [I am involved with] survived lockdown and have come out the other side leaner, meaner and ready for rapid growth.
I’ve chosen to become involved in all of the businesses above as I believe they hold out a real and tangible benefit to estate agents and property companies across the UK and beyond. All have the chance to build scale and become leaders in their respective fields.
Fantastic answers, Peter. Thanks very much for the honest insight.
It’s not just property companies which have failed to break America, of course. It’s been a disaster for some of our biggest retail names, with Tesco’s Fresh & Easy brand an unmitigated flop across the Atlantic, Marks & Spencer’s foray into the US an expensive failure and Sainsbury’s Shaw’s business sold off in 2004.
Where various musicians and actors have made it big in the States, it’s been less so the case with British brands and companies, and it might just be that the two models are way too different to ever have any successful crossover. Your opinions, as ever, welcome below on whether a British agency could ever break into the American model or whether such a move is even desirable.
Until next time…