The Joneses ambitions and impact on the NZ real estate market ended today with the removal of their website and the notice to vendors that they had placed the operation in the hands of a liquidator. Just 18 short months ago The Joneses burst onto the real estate scene in flamboyant style very much reflective of the background of the key directors Chris Taylor and Andy Haines whose expertise in consumer goods’ marketing showed through so well in the very much in-your-face advertising strap line of “Flat fee – Not fat fee: Real Estate Reinvented”.
In a rather prophetic foreboding of today’s notice the prospectus for The Joneses reverse listing on the NZAX was titled “Reinventing Real Estate” some might say a rather work-in-progress judgment on their ability to truly reinvent real estate.
The Joneses were an agent-of-change negatively impacted by the combinations of a weakening property market and grand plans requiring too great an up-front investment for the original shareholders to fund.
So what was right about The Joneses and what was wrong – here is an opinion piece from an interested observer’s point of view as I have watched their progress over these 18 months.
The proposition for The Joneses was a simple as it was compelling – Chris Taylor explained it to me a year ago. He said – “5 years ago the average commission on the average NZ property sale was around $6,000 – the industry at the time was successful. Why then 5 years later when costs have not markedly increased do commissions now total $12,000”? – it was this premise that drove to The Joneses offering of a flat fee of originally $7,995 – recently increased to $8,995 to sell any home regardless of selling price.
The fixed price was not the only point of difference to traditional high street operators, The Joneses took true customer service to the heart of its business – they chose to employ their staff, rather than adopt the industry tradition of commission based salespeople who are all independent contractors. The Joneses premise was employ capable people. Pay them a good salary. Motivate them through incentives based on customer service and utilise skills efficiently for employees to work together in teams. There is a specialist salesperson to seek listings. A specialist negotiator to aid the transaction process. There are dedicated marketing individuals and a central call center come customer management center providing one point of contact for sellers and buyers alike.
The Joneses model is or was by no means unique. Its closest relative is Foxtons in the UK – this hugely successful real estate company puts the same focus on consumer service and brand marketing, it has been around for over 25 years and currently lists over 40,000 properties for sale or rent per annum. They like The Joneses employ salespeople and motivate them for exemplary service. They have a highly web-centric service environment complemented by smart customer friendly high street meeting places (the word office does not do it justice). Their fees are scale based reflective of property selling price but are equally a lower fee than traditional real estate companies.
Now the interesting deeper parallel between Foxtons and The Joneses is the fact that based on the success in London, Foxtons ventured to New York state in 2004 with a staggering offer to the US public with their new breed of real estate pitched with a 2% commission on sale – remember the US market is traditionally a 6% commission market with a buyers agent and sellers agent each getting 3% to facilitate the sale. Now as a function of the US market and high overheads Foxtons in the US closed its doors in September last year putting 500 employees out of work.
So what did The Joneses get wrong?
I believe their weakness was a function of the current market, not their model. Unfortunately time was not on their side. If they could have had another 12 months of a steady market to build brand value and establish word of mouth then their ambitions could have been realised. They offered a compelling proposition of professional service and powerful brand advertising, the latter would have become deeper ingrained in the consumer’s mind within another year. There have been questions raised as to the quality of their service and people’s acceptance to the use of a call center when people expect to be able to speak directly to the listing agent who is working on behalf of the vendor, but given time these would have been minor issues.
What The Joneses got right was their ability to grab the media attention and this they did to great effect at the time that the government was seeking input into proposed changes to the real estate act. They showed a fresh and appealing face to an industry that is seriously in need of a make-over. They set about offering a clear offer at an affordable price. The fact is the numbers though did not stack up.
Reviewing their prospectus document of just a month ago showed that over the period from Sep 06 to Nov 07 they achieved a total sales of 433 properties grossing them $3.5m – as at today they had 297 listings on realestate.co.nz spread across the 4 major centers of Auckland, Wellington, Christchurch and Dunedin. With a staff of 80 employees though; the pressure on The Joneses to deliver sales was critical as the break-even point was around 125 sales per month, not an insurmountable target which would have represented a 1.5% market share, however hard to attain in a slowing market when you have yet to change entrenched mindsets borne of many decades of established practice by the major franchise groups.
As a closing comment I think it is to the credit of all the directors and staff of The Joneses for having the passion and commitment to “give it a go”– and as someone pointed out to me today when was the last time a high profile company went into liquidation and you find the major shareholders and directors prepared to front the media. I can’t recall Bridgecorp fronting up!