Branded Residential Part 2: The Brand Owner Perspective

(Continued from Branded Residential "Developer Perspective" Post on June 19, 2011)

The creation of residential brand extensions has provided hospitality and fashion leaders with a compelling new means of monetizing brand equity. It is a capital light business model in which third party developers license a luxury brand for their residential project, typically paying a one-time licensing fee that is calculated as a percentage of sales revenues and a lump sum technical services fee. As the brand owner often serves as manager of the resulting residential product, it also inherits an attractive recurring management fee stream (funded by residential purchasers).

The strategic value of a branded residential business extends well beyond immediate commercial returns. Residential design serves as an expansive canvas on which to tell and further develop “the brand experience”. Brand owners must define standards and translate style, tone, values and brand character to a residential environment. From foyer design to thread count, appliances, privacy considerations, outdoor living spaces, and service offerings, there are innumerable and novel dimensions on which to deliver against brand promises. While it is a complex endeavor, a residential product can serve as powerful expression of one’s brand, as evidenced by the ultra urban and contemporary Armani Residences which Emaar unveiled last April in Dubai.

The purchase of a branded residence can be interpreted as the ultimate expression of loyalty. After all, few consumer choices require greater commitment or say more about our preferences and individual style, than does the purchase of a private residence. For hospitality companies, residence owners are often viewed as members of the top tier of customer loyalty programs. The in-depth and long-term nature of residential management agreements enables hospitality brands to nurture a relationship with a very affluent clientele, who may emerge over time as true brand ambassadors.

The branded residence business model represents an exciting growth opportunity for luxury hospitality and fashion brands. However, the depth of the service offering requires careful consideration. Hospitality brands for their part typically do not brand residential projects unless they are operating a hotel within the same mixed-use development. The hotel provides the service infrastructure required to deliver the branded residential experience. Fashion brands must think carefully through service offerings that will be demanded in this space – delivery of concierge, butler, spa, housekeeping and reserve management services are frequent requirements. In tomorrow’s blog update we will consider future partnerships that may support the entry of luxury fashion brands.

While a private residence serves as a wonderful platform on which to tell one’s brand story, it also creates some interesting challenges from a brand management perspective. Given the level of detail involved in residential development, it is often more practical to rely on an approval process as opposed to explicitly defined brand specifications. Yet, this in turn leaves room for interpretation and can be a difficult process for brand owners and developers alike. Moreover, developers often outsource all or a portion of residential sales and marketing, and residential projects may be located in distant markets or time zones. This creates challenges for brand owners in terms of their ability to manage the use of the marketing assets they license to development partners.

Thinking through these considerations will help new entrants develop a business plan that is aligned with their brand and geographic footprint. In our next post, we will look at Future Branded Residence Opportunities.