It's a Good Thing

How America's doyenne of all things home may transform not just the KB Home brand but its business.

By John McManus

It's a Good Thing

Little did he know it, but International Creative Management super agent Jeff Berg was on to a pretty big idea more than five years ago. From his Beverly Hills digs not far from KB Home's corporate headquarters in the Westwood area of Los Angeles, Berg telephoned KB chairman and CEO Bruce Karatz and floated a business concept: Take one of popular culture's most instantly recognizable names in American design, style, home fashion, and retail and create an affinity with home buyers that would tie all that celebrity to KB Home.

That could be a good thing, Karatz imagined. He turned the thought over in his mind and tried to figure out exactly what form the relationship with such a big-time celebrity should take. Design? Decorating? Lifestyle? The buzz around the deal would be priceless, and KB would be the envy of the industry for locking in such a high-voltage personality as a marketing partner. Still, something didn't quite click for Karatz. And the more he thought about it, the more he knew Berg's idea—terrific in theory—wasn't quite the right fit for KB Home. Apart from the fact that they wanted a boatload of money to license the name, Karatz wasn't convinced that the name—Ralph Lauren—quite meant “home” in the quintessential way that would tell the KB story.

He said thanks but no thanks to the Lauren-Polo licensing deal and went back to leading his company through a five-year metrics and operations juggernaut, building KB Home into the fifth-largest home building company on the planet, a $10 billion-a-year operation, capable of closing on 40,000 or more homes every 12 months in 14 states and about 450 neighborhoods in 40 or so markets. During that time, KB has achieved annual growth of almost 20 percent in revenues and an average 35 percent growth in earnings per share, with a 26,000-home backlog worth upwards of $7 billion.

Meanwhile, Karatz and KB Home's particular flair for show biz glittered in klieg-lit concepts like a nine-week promotion with ABC-TV's Live! With Regis and Kelly in 2003 and again the following year as one of the biggest initiates in ABC's Extreme Makeover: Home Edition.

Spin forward five years from Berg's initial call, and it's déjà vu. In the spring of 2005, on the phone is Jimmy Yaffe, a managing director of advertising agency holding company giant Interpublic's Endeavor Marketing Solutions unit. Yaffe—whose marketing-entertainment credentials include creating alliances for clients such as American Express, America Online, Target, Ferrari, and Maserati—has an idea for Karatz. Why not tie KB Home to a phenomenal brand personality in American culture, one whose instantaneous recognition would secure for KB an unparalleled position among the nation's big home builders?

Novel it was not, but this time the idea clicked, because this time the name was Martha Stewart. After a few further preliminaries, a Karatz get-together with the Martha herself in New York quelled any hesitation that may have been left over from the earlier consideration of tying in with Polo's creator, as Martha waxed on about designs and floor plans, and about the four properties she owns in Maine, New York, and Connecticut.

“You could not come up with a better name in the business if you tried,” says Karatz, during a conversation in his office in early February, trying to contain his excitement. He shares bits and pieces of a then-imminent announcement that KB's deal with Martha and her company, Martha Stewart Living Omnimedia (MSLO), would extend beyond the initial pilot neighborhood near Raleigh, N.C., to a second community in the Atlanta area in the coming months, and follow with Martha-KB neighborhoods in Houston, Charlotte, Las Vegas, Orlando, Daytona Beach, Fla., and Southern California, encompassing as many as 1,800 lots in the next two years, for starters.

BRAND CENTRAL: For more than a decade, Wendy Marlett, senior vice president of sales and marketing, has led KB's marketing brain trust. That's a lot of wainscoting and open shelving in the kitchens, two Martha-esque features new to designs the builder offers in its new line of Martha Stewart homes. “Not that we're against that type of feature,” says Karatz. “You just don't necessarily think about incorporating them in the types of floor plans we've offered up to now.”

Bingo. Yes, KB Home's Martha deal brings home building branding to a new level. But KB is not paying a lot of money merely to leverage or license Martha's equity among women, the most important decision-makers in America's $8 trillion consumer economy. KB is paying Martha handsomely, but it's on a per-unit and performance basis, as opposed to an up-front, unencumbered licensing fee. What's more, as anyone who knows Martha Stewart might expect, she and her hand-picked creative and management team at MSLO in New York are involved in the KB project from the ground up. This is a strategic co-venture.

Learn more about markets featured in this article: Los Angeles, CA, Orlando, FL.