Yell is a company drowning in a sea of debt. In 2018, Yell’s investors attempted to recoup some of their £4bn investment by offloading Yell to a third party.
However, as sales declined and customer cancellations went up, the business sale fell through. In 2018, Yell was losing money fast and came close to shutting down.
To buy some time, Yell issued a corporate bond (similar to an IOU) in which the bondholders would receive a return of 8.5% by 2023. They sold bonds worth £225m giving Yell some breathing space to try and turn things around.
The directors of Yell were then under a huge amount of pressure to improve the figures. The directors, in turn, put pressure on their managers who then applied further pressure on Yell’s sales agents to hit targets fast.
How were they going to achieve this when The Yellow Pages (their biggest cash-cow) was now out of print? They had to find a way to generate more sales but without increasing costs.
The solution was to partner up with companies offering white-label marketing services and then sell those services on at a profit. Yell had an enormous database of small business owners and a regular flow of new businesses registering for a free listing on their (now redundant) directory.
Fortunately for Yell, these small business owners had also been disrupted by the web. They struggled to understand how to market themselves online and couldn’t afford to hire people who did.
Yell positioned themselves as a trusted brand who could advise small businesses on how to promote themselves online by offering websites, Google Ads and listing tools such as Reputation Manager.
To provide these services at scale and without increasing costs, Yell use automated platforms that require very little human intervention or expertise to manage. Anything that required manual work was outsourced to developing countries where labour was cheap.
While this did have a short-term positive impact on sales, it also caused significant damage to the Yell brand. Business owners were paying their hard-earned profits to Yell on monthly subscriptions but seeing poor results. These small business owners were now locked into 12-month contracts from which Yell would refuse to let them cancel.
The sales agents were further incentivised to push inappropriate products on naïve customers and use unethical (possibly illegal) practices to massage the figures. As a result, Yell was being flooded with customer cancellations, staff resignations and investors breathing down their neck.
In late 2019, Yell appointed a new CEO, Claire Miles. Several other members of Yell’s senior management were also replaced.
Yell’s ineffective products
90% of all traffic to Yell.com comes from Google. Over the past ten years, Yell’s organic Google traffic has declined by around 80% (see chart below from Sistrix).
This sharp decline in Google traffic means that advertising on Yell.com is unlikely to generate any business for Yell’s clients.
This has forced Yell into selling advertising products from third-party partners on a 40-50% margin. This margin means that every Yell customer is at a competitive disadvantage compared to any business that advertises directly with Google or Facebook.
By 2023, Yell’s bondholders will need to be fully repaid with 8.5% interest. If Yell is unable to repay the bonds, issue more bonds, or sell the business; the company is likely to be shut down.
Yell bonds are now being traded on the secondary market at a yield of 42.5% to maturity. This effectively means that those people who bought the bonds in 2018 now consider their value to be worth a fifth of the price they paid at launch. In other words, the bondholders now consider it increasingly unlikely that their bonds will be paid at maturity.
Moody’s (the credit rating agency) have downgraded Yell to a Caa2 rating, classified as a “ Poor quality and very high credit risk”.
Miles has, at most, two more years to come up with an innovative strategy to return the company to growth, increase profits and restore Yell’s damaged reputation.
So, what is Miles’ Grand Plan? Why, to sell even more useless third-party products at inflated prices of course!
Miles plans to sell business owners Facebook ads and an online messenger services from GotU and LivePerson respectively. Services that any small business could quite easily purchase and manage themselves at a lower cost.
To give credit where it is due, Miles has made an attempt to repair the damage to Yell’s damaged brand. The company has admitted that Yell’s business practices lacked integrity and that staff were lying to customers.
The decision to improve these unethical practices was more likely due to the realisation that Yell’s sales agents would struggle to sell their products rather than a genuine desire to behave ethically. Yell can only genuinely claim to have resolved the issues of the past when every missold customer is fully compensated.