Mighty Bargain Hunter

Brand-name houses?!

July 12th, 2007 | by mbhunter |

Are homebuilders starting to reach the bottom of the barrel for ideas?  KB Home now builds quite a few homes designed in part by Martha Stewart, and has for over a year.  Apparently sales of these homes are pretty good, and the homebuilder is figuring out how to get more land to build more, and how to enter new markets with the offerings.

But if this is what homebuilders are starting to do to attract buyers, the sector may be in worse shape than I thought.  This affiliation with Martha Stewart might help KB Home a little bit for a while, but if this is successful, other homebuilders will sign on other celebrities to co-brand their homes, and eventually every homebuilder will have one, and then the advantage KB Home enjoys now will be gone, except that now money will be going into celebrities’ pockets and not the homebuilders’.

Actually, I have no idea about the terms of the deal between Martha Stewart and KB Home.  But it reminded me of a few things:

• Branding raises the price of the product.  Just like anything that has a licensed character raises the price of the item, buying a Martha Stewart KB Home house will cost more, too.
• Branding can get out of control.  Atari in the early 1980s paid over $20 million to license E.T. for its video game.  The game sucked, and Atari went bankrupt shortly after this.  It’s possible that other homebuilders will extend too far and pay too much for too little as well.
• Brands come and brands go.  Martha Stewart is probably a pretty strong brand, considering everything that this brand has gone through recently.  (No, the homes do not come with ankle bracelets!)  But when homeowners tire of Martha, will the homeowners be able to recoup the premium they paid for the house?  Will the homebuilders be able to move on?
• Branding is a marketing trick.  The homes may indeed look better and be more “homey” to some people, but to others it’s just a sales pitch from a different angle.

I give points to KB Home for this innovation.  I just don’t see this making much difference in the grand scheme of things.  Real estate’s in trouble, and even the refined touch of Martha Stewart won’t be able to save it.