LSL announces today that its entire owned estate agency network of 183 branches will become franchises.

Long-term franchise agreements have been reached for 143 of its branches with agreements for the remaining 40 branches at an advanced stage, the company revealed in a statement to the City.

Following completion of these agreements, LSL will become one of the largest providers of estate agency franchise services in the UK, supplying services to a network of just over 300 branches.

“This milestone announcement completes a significant programme of work initiated following a detailed strategic review of our estate agency business and marks a further significant step taken to simplify the group and focus its activities on business-to-business services.

“The resultant business is well-placed to deliver group margins that are structurally higher than the group has delivered historically,” LSL says.

Rationale

The firm says the rationale for the move to franchises is:

· A higher-margin business with a significantly smaller fixed cost base, resulting in improved and substantially less volatile earnings through housing market cycles

· The continued distribution of related products and services, including long-term provision of financial services

· The potential to grow network footprint without significant additional investment by supporting the expansion of franchisees and recruiting new franchisees

· The opportunity to benefit from the entrepreneurship and agility of independent franchisees, resulting in a more productive, flexible, and resilient business model

Franchise network

Prior to this restructure of its estate agency business, LSL operated a network of 120 franchise branches. This network will now be supplemented by the addition of the previously owned network of 183 branches, making LSL one of the largest providers of estate agency franchise services in the UK.

LSL has appointed Paul Hardy as MD of its estate agency franchise business. He led this programme to transform the estate agency branches, and previously held senior roles in financial services and as finance director in the estate agency division.

The enlarged network of just over 300 franchise branches will be operated by 62 franchisees under the Your Move, Reeds Rains and LSLi group brands under long-term royalty agreements. Following the sale of Marsh & Parsons in January of this year, LSL will no longer own and manage estate agent branches.

As part of this change, around 1,200 Estate Agency Division colleagues, mainly branch-based personnel, will transfer to the franchisees, ensuring continuity of service to estate agency customers.

Financial impact

Significant cost reductions will be achieved immediately with further savings over time, LSL says.

“We estimate that this transaction, combined with the recent sale of Marsh & Parsons, eliminates over £110m of a cost base of c.£125m supporting the estate agency division with the largest reduction taking place immediately.

“This is in addition to cost reductions of c.£30m in the Financial Services Division following the recent disposal of its D2C brokerages to Pivotal Growth.”

Milestone

David Stewart, Group CEO (main picture), says: “Today’s announcement is a significant milestone in the execution of our strategy and is the culmination of a substantial effort on the part of colleagues across the business.

“The estate agency franchise model is similar to our financial services network and it will make us a much simpler, more resilient business whilst opening up new opportunities to grow our estate agency division.

“I am delighted we have been able to complete this major project and excited about the growth opportunities ahead.”

Estate agency revenues were down 5% on 2021, the company announced earlier this month, as the group battled with housing market cycles and the impact of the stamp duty holiday.

While the second half of 2022 was better due to a strong pipeline, lettings revenue also held up and increased by 4%, on a like for like basis, over the previous year.

LSL sold its direct-to-consumer financial services businesses to its joint venture with Pollen Street Capital, Pivotal Growth.