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All across the country, home builders are gasping for air as sales plunge, inventories rise and profits disappear. But in one small corner of the housing market, the sales picture is a little brighter: There is steady demand for houses designed in part by Martha Stewart and built by KB Home (KBH, news, msgs).
"I love all her things," says Menyon Green, a 42-year-old nurse who recently bought a Martha Stewart-KB Home in the Atlanta suburb of Fairburn, Ga. "I just knew this was going to be a good subdivision."
The Martha homes are a rare source of good news for KB, the nation's seventh-largest builder by market value. Last year, the Los Angeles company's chief executive left over a stock-option backdating scandal, and two weeks ago KB reported an unexpectedly large quarterly loss, amid deteriorating markets.
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Right now, the Martha homes, representing less than 5% of KB's overall home-building production, aren't large enough to lift the builder's flagging earnings. But with the Martha developments outselling most of KB's other subdivisions, the company is expanding the Martha brand to as many as 36 new markets, as soon as it can obtain the necessary permits and land, a KB spokeswoman says.
Gregory Duriez, KB's Atlanta division president, says he is struggling to keep up with demand. "My problem isn't how can I sell more Martha homes. It's how can I get more lots in front of me," he says. From March through June 15, the two Martha Stewart developments alone drew 42% of the people who visited KB's 22 subdivisions in the Atlanta metro area, according to the builder.
But the success of the Martha-KB venture, launched 16 months ago, could pose a potential dilemma: How to expand a successful product fast enough to boost profit, but without weakening the brand from overexposure.
"Right now it's a unique type of offering," says Rita Rodriguez, chief executive of Enterprise IG in the U.S., a brand and design agency. "You can invite someone to your home and say, 'This is a Martha Stewart home.' But if it's replicated and stamped across too many odd markets, the uniqueness can be gone. That cachet and aspiration isn't there, and you just become like everybody else."
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Price, location, branding
The Martha-KB partnership is a closely watched experiment in brand marketing.Stock Charts (Year)
KB Home
The conventional wisdom among home builders was that home-buying decisions were based on two primary considerations: price and location. While those factors are still extremely important for home buyers, the success of the Martha homes shows that branding also matters in some cases.
The Martha homes target a broad market, with prices ranging from $148,990 to about $500,000.
In the Atlanta area, where new-home sales dropped 20% in the first quarter of 2007, traffic at Martha-KB new-home developments has been steady. The largest Martha-KB Home development has been outselling the average Atlanta subdivision 2-to-1, according to SmartNumbers, a real-estate information and analysis firm based in Marietta, Ga.
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