CEO Robert Refffkin floated the idea of a franchise brand on Tuesday’s earnings call, describing it as a “more profitable” way to grow the business.
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Compass CEO Robert Reffkin revealed Tuesday that the company is exploring franchising possibilities to boost profitability.
Robert Lefkin
Lefkin commented on his company’s earnings call. “Franchising is definitely a more profitable way to grow,” he said in response to a question from a Wall Street analyst. but provided little detail on how it works.
“We have no intention of franchising in the same region as our business,” he added.
Lefkin also did not disclose when Compass might begin franchising, nor which markets might see such an option roll out first.
Inman has reached out to Compass for more information and will update this article with information provided by the company.
Still, details are sparse, but this news is a significant announcement. Since its inception, Compass has grown to be the largest company of its kind while maintaining a centralized ownership structure. At best, an agency that needed more control could team up, but not really own their own business in the same way a franchisee of another company would.
Compass has also recently faced increasing competition from companies such as Side, which provides back-office support for agents who want to run their own brand.
Compass’s foray into franchising could turn the status quo upside down, allowing the brand to scale faster and more agilely. It can also make Compass look like its former rival. Companies such as RE/MAX and brands under his parent company, Anywhere, have long run franchises.
Compass’ franchise business would be a game-changer for brokerages, but such a move is not unprecedented across the industry. For example, in 2020, Chicago-based brokerage firm @properties launched its own franchise brand. The company now has franchises in multiple regions of the United States.
California-based luxury brokerage firm The Agency also operates a franchise business.
No matter what happens at Compass, news about potential franchise operations comes at a time when brokers are vying for profitability. Lefkin said on Tuesday’s earnings call that he expects his free cash flow to be positive in the second quarter and full year of 2023, and said he stands ready to cut costs further if needed. I was.
In total, Compass posted revenue of $1.11 billion in the fourth quarter of 2022 and suffered a net loss of $158 million. Earnings were down year-on-year, but that loss actually improved him compared to the last month of 2021.
Lefkin was ultimately optimistic about Compass’ prospects, but in his company’s earnings report, he described 2022 as “one of the worst years for the real estate market.”
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