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UK’s Biggest Property Firm Issues New Debt at 80% Discount to Stay Solvent

Countrywide is in trouble. Yesterday they notified investors that they would need to raise more money to pay down their £212 million dollars of debt. It was revealed that they had fallen £206 million into the red in the last six months alone, mostly due to the falling values of their assets and brand. The price of shares for Countrywide stock went down 62% in response to the news.

This is a big deal. Countywide is massive. It has around 10,700 employees, is the country’s biggest brokerage, and one of the biggest mortgage lenders. They also own about 50 brands including Hamptons International. To put it into perspective, Colliers International, the giant Canadian brokerage worth $3 billion, has 12,000 employees. With this decline in stock price, Countrywide is now only worth about $56 million, or 1.85% of Colliers International.

To better understand what happened to this former property giant, I reached out to someone that understands the British landscape far better than I do. Eddie Holmes is a long-time PropTech consultant and co-founder of the data and research firm Unissu. He co-wrote this article about Countrywide’s downward trajectory last year with Mike Del Prete but admitted that he didn’t think things would have sunken this low: “I don’t think either of us thought it would get so bad as it has. However – the leadership team in charge has planted a flag on returning the business to its 2016 profit levels by going “back to basics” – in other words, recreating the business as it was then, even by re-hiring some of the people who left recently.

The trouble with this approach is simple – the market is moving way faster than ever before and if they do achieve 2016 profit levels in three years time, even then the business will be even further behind technology enabled competitors. On top of that, the management team who got the business in this mess has been entrusted with restoring its dignity. How can that be right? If I were a shareholder I’d be calling for the board to resign. Furthermore, they have absolutely no innovation resource and no strategy around innovation.”

I wanted to get an insider’s view of the near collapse of the once mighty company so Eddie was kind enough to introduce me to the legendary Harry Hill. He ran Countrywide for 20 years until 2008. His outlook is even more gloomy for his former firm: “The fact that they are now choosing to distance themselves from radical style changes introduced by the now departed CEO, without having the decency to offer their own resignations, I think speaks volumes about their qualities.

Such has been the decline at Countrywide, I don’t think that the downward spiral is capable of being arrested and can see no solution other than a complete break-up of the group with some parts sold and others closed down.”

“The fact that they are now choosing to distance themselves from radical style changes introduced by the now departed CEO, without having the decency to offer their own resignations, I think speaks volumes about their qualities.”

The “now departed CEO” that Harry referenced is Alison Pratt. She did not come from the property world. She ran a private health group called Bupa for 21 years before being put in charge of Countrywide. While this might seem like an odd match, she justified it this way in this interview in 2016, “The roof over your head is a massive deal, not that dissimilar to how important your health is to you.” She set out to change the image of the estate agent and take a customer-centric approach, much like a traditional retailer:

“One of the things we’re keen to do is to move away from that short-term transactional view and acknowledge that actually property is going to be something that is going to feature right across your life. What we want to become is the organization that you look at and trust every time, because we bring professional expertise and we couple that with fantastic empathy. The organization that really pulls that off will set a different standard and will win.”

It turns out. This might have been a huge misstep. Countrywide executive chairman Peter Long called the retail strategy “completely wrong,” adding, “It completely destroys the business model by saying it’s a retailer and saying we don’t need management expertise locally. You disempower people, demotivate them and lose key expertise.”

While saying that you want to be a trusted organization and taking a “customer first” approach works for most brands, real estate tends to be different. It usually is not the brokerage that the customers are loyal to, but the agents themselves. Centralizing power and expecting agents to step in line is a good way to entice agents to leave and take their client base with them.

There are obviously some macroeconomic factors to this story. Brexit fears and a general slowdown of many of the U.K.s property markets certainly didn’t help, but it seems like what happened at Countrywide has a lot to do with poor strategy. This should be a frightful lesson to other legacy brokerages around the world. In the world of technology and disruption, one false move and they might find themselves in the same painful position as Countrywide.