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July 11, 2007

« Global Superstar Cities | Main | Toronto and Me »

Web_marthastewart While many think that tattoos and piercings are typical of all creative class members, Martha Stewart and her empire embody many elements of the creative class theory -- from a focus on design and supporting the creativity of customers to building a career  that allows for one's passion to play a central role. According to a new WSJ article (sub required) by Michael Corkery, creative class Queen, Martha Stewart has been very effective in using her creativity to sell homes in a weakening housing market. From the piece...

"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 Los Angeles-based KB Home.

Here 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."

While some core creatives may never be interested in a Martha Stewart home, there are other members of the group who are clearly interested in letting her design a warm, welcoming home for them. (A longer segment of the article is available after the jump).

Posted by David

A longer snippet from the article,

"FAIRBURN, Georgia -- 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 Los Angeles-based KB Home.

"I love all her things," says Menyon Green, a 42-year-old nurse who bought a Martha Stewart-KB Home in this Atlanta suburb earlier this year. "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 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.

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 KB.

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 cache and aspiration isn't there and you just become like everybody else."

The Martha-KB partnership is a closely watched experiment in brand marketing. 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.

Here 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.

The Martha homes are modeled after Ms. Stewart's current and former residences in New York, Connecticut and Maine. She and her design team helped design many of the 64 floor plans from which buyers can choose. KB heavily markets the domestic diva's personal influence: open kitchens and dining rooms suited for entertaining, plentiful windows to capture natural light, and an exterior trim available on some homes that supposedly matches the color of Paul Newman's eyes. (The actor was Ms. Stewart's neighbor.)

Some buyers say they are attracted to the Martha homes because they suggest quality, functionality and class. Others say they expect the homes will have a better resale value than other homes.

"I have faith that Martha's Stewart's name is going to help market the property later on if I want to sell it," says Melanie Washburn, a 35-year-old marketing manager at a gaming technology company in Atlanta, who closed on a Martha home in Fairburn in April.

Currently, in addition to the Atlanta area, Martha-KB homes are on sale in Perris, Calif., east of Los Angeles; Katy, Texas, near Houston; and Cary, N.C., near Raleigh. Construction has begun on Martha developments in Denver, Daytona Beach, Fla. and Lancaster, Calif., outside Los Angeles. The company says it could extend the Martha Stewart brand to up to 10% of the homes it builds, which totaled 39,013 units in 2006.

"It's our version of the iPhone. It illustrates the power of something different with a brand tied to it," says KB's chief executive, Jeffrey Mezger, who has set a clear goal for the company: "Let's get these things open everywhere, as fast as we can."

KB and Martha Stewart's company have been selective about how they market their co-brand. For instance, plans to build "mock" Martha homes in Macy's stores around the country have been put on hold for now, amid the weak housing market. Neither company will disclose the financial arrangements of their partnership, but Mr. Mezger says the company still has higher profit margins from Martha homes than other homes. Michael Meltz, a Bear Stearns analyst who covers Ms. Stewart's company, says it receives a fee of up to $10,000 per house.

Even if buyers pass on buying a home, they come away with a full dose of Martha. For Martha Stewart Living Omnimedia Inc., which is seeing declining viewers, but strong advertising on the "Martha" television show amid shrinking audiences for daytime TV, the KB venture is a marketing opportunity. The homes are a showcase for her bedding, paint colors and magazine, "Martha Stewart Living," which is displayed ever so subtly in the model homes. A large picture of Ms. Stewart hangs in the sales office and adorns marketing brochures. One couple visiting a Martha community near Atlanta told a saleswoman they weren't interested in buying a home. They came only to look for decorating ideas.

That explains, perhaps, why Ms. Stewart's design team is so meticulous about outfitting the model homes in the subdivision. The team tries to pay close attention to domestic details, including the color of the lentils stored on the kitchen counter, and the matching colors of the book bindings on the shelves. Buyers can pick from hundreds of different options for their own homes."

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Comments

Michael Wells

Don't underestimate Martha. Her decision to do a little jail time rather than drag through years of appeals was gutsy and brilliant (compare to Scooter or the Enron execs for p.r. savvy). In Annie Liebowitz' book WOMEN she tells of photographing Courtney Love and commenting on the irony that her next appointment was to shoot Martha Stewart. To her surprise Courtney said "Oh I love Martha, tell her hi from me." Martha may not have tatoos, but her friends do.

What Martha has done in terms of bringing an artist's eye to everyday life and presenting it to the average person in affordable terms (the color of the lentils -- or her paint colors at Sears) is astounding. The KP homes aren't the highest end of the market, but I'll bet Martha's have great details. Maybe not the impact of Oprah's book club, but still a significant contribution. Oh yeah, she became a billionaire along the way.

Richard

Polish parents, born in Jersey City, moved to Nutley (tough places). Scholarship to Barnard. Stockbroker, former model. She knows about housing, renovation and construction. She redid the old Westport farm-house. Tough, tough, tough.

DJM

While they may not be the highest end homes (like we often see in/near cores of top metros), at 500K for the high end, these are targeted to discerning customers with $$. The people quoted in the snippet above are a a cfo of an association, a nurse and a gaming technology marketing manager.... representing various market segments of the creative class. Also, it is interesting which markets KB is putting these homes in. (Atlanta, Raleigh, Riverside,CA)

Michael Wells

David, you're right about the high end. What's interesting about the Martha/KB homes is they also serve the lower end, under $150,000 market -- but from the KB website include details like wainscoting and picture molding. They're like her Living Magazine, which with its classy presentation and clean layout looks expansive. But read the articles, they're about do-it-yourself projects with yard sale items. Or compare the ads to something like Architectural Digest. Martha sells Sears appliances, not Sub-Zero. She could have obviously chosen to partner with Williams Sonoma rather than K-Mart.

Martha's estate-living neighbors can use her ideas, but so can young renters. Martha is telling people to really look at what they live with, more like an art instructor or Zen master than a typical interior decorator.

I don't know the communities they're building in, or if they're mixed income neighborhoods or $500K in one development and $150K in another. The Martha/KB sells to all parts of the creative class -- and as Richard says, everyone is creative.

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