Compass Explores Risk Of Franchising, Firm Says | Inman

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In a shock twist, Compass CEO Robert Reffkin revealed Tuesday that his firm is exploring the potential of franchising as it really works towards profitability.

Robert Reffkin

Reffkin made the feedback throughout his firm’s earnings name. In a response to a query from a Wall Road analyst, he stated that “franchising is certainly a extra worthwhile method to develop.” Although he stated the corporate is exploring the choice, he supplied few particulars on the way it may work — as an alternative saying solely that “we’d not try this in a manner that might impair the expertise for our current brokers in any manner.”

“We might not franchise throughout the identical geographies of our personal operations,” he added.

Reffkin additionally didn’t say when Compass may start franchising, or which markets could possibly be the primary to see such an possibility roll out.

Inman has reached out to Compass for extra particulars and can replace this story with any info the corporate offers.

Nonetheless, even with sparse particulars, the information is a significant announcement. Since its founding, Compass has managed to develop into the most important firm of its form even whereas sustaining a centralized possession construction. At finest, brokers who wished extra management might kind groups, however they couldn’t truly personal their very own companies in the identical manner a franchisee at one other firm may.

Compass has additionally confronted elevated competitors recently from corporations, equivalent to Facet which give back-office assist for brokers who need to function their very own manufacturers.

A Compass foray into franchising would upend the established order, doubtlessly permitting the corporate to broaden its model extra rapidly and nimbly. It will additionally make Compass look extra like its older rivals; corporations, equivalent to RE/MAX and types underneath dad or mum firm Anyplace have lengthy operated franchises.

Although a Compass franchise enterprise could be a significant shift for the brokerage, such a transfer isn’t with out precedent within the broader business panorama. Again in 2020, as an example, Chicago-based brokerage @properties launched its personal franchise model. At present, the agency has franchises unfold out throughout a number of U.S. areas.

California-based luxurious brokerage The Company additionally runs a franchise enterprise.

No matter occurs at Compass, the information of potential franchise operations comes because the brokerage scrambles for profitability. Reffkin stated throughout Tuesday’s earnings name that he expects to be free money circulate optimistic within the second quarter of 2023, and total for the 12 months, and that he’s ready to do extra price reducing if obligatory.

In whole, Compass introduced in $1.11 billion in income and suffered a web lack of $158 million in the course of the fourth quarter of 2022. Income was down 12 months over 12 months, however that loss was truly an enchancment in comparison with the ultimate months of 2021.

Reffkin was finally upbeat about Compass’ prospects, however in his firm’s earnings report additionally described 2022 as “one of many worst years for the true property market.”

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