A Mouse Trap for KB Home

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Homebuilder KB Home (NYSE: KBH) must be trying to pull a rabbit out of a hat -- or mouse ears out of somewhere else. Its newly announced partnership with Disney (NYSE: DIS) to offer Disney-themed decor seems to show just how desperate the homebuilder is.

My Foolish colleague Rick Munarriz thinks the deal's pixie dust represents a smart move by KB, and while I agree there's something to be said for the branding ploy, I think it presages a far darker picture of housing. Like Mickey in the Sorcerer's Apprentice, the brooms will be sweeping KB Homes into the dustbin, like they did after Lennar (NYSE: LEN) reported disastrous earnings.

Here's why I think it's a small world after all: KB's branding of Martha Stewart has generally been considered a success, though specific numbers seem hard to come by. SmartNumbers, an Atlanta-based real estate information service, says Martha-branded developments are outselling typical Atlanta developments by 2 to 1. However, the homebuilder hasn't provided any numbers to color in the blank spots.

There's a limit to how far branding can grow. Martha is popular now, but that can change, and when she's finally passe, buyers' homes will lack the trendy je ne sais quoi for which they paid extra. According to Bear Stearns (NYSE: BSC) analysts, Martha Stewart Living Omnimedia (NYSE: MSO) gets a $10,000 take for each home sold.

And with Martha's success, can it be too long before other homemaking divas try to brand themselves as well? You might find a Rachel Ray-branded home more comfy -- more suited to "real" living -- than the museum quality of Martha's Connecticut elite style. If that happens, any advantage KB currently enjoys will be gone, too. So finding a new gimmick -- and that's what this new branding deal is -- is necessary.

Is Disney a magic kingdom for KB, or just a goofy move? Families buying homes are predominantly kid-centric, and Rick sees the branding as a way for KB to differentiate itself in a market with lots of excess inventory -- and falling average selling prices. But I can't quite imagine buyers willing to pay a premium for accessories that might just as easily be picked up at Home Depot (NYSE: HD), Lowe's (NYSE: LOW), or a Disney store.

Exactly what buyers will get to choose from hasn't been disclosed yet, but we're told it will be a collection of flooring, window coverings, and lighting featuring Disney characters. Homebuyers will then pay premiums for doodads that children will soon outgrow. Like the little ditty that's played over and over again at the Disney theme parks, such trappings can quickly grow tiresome and annoying. Sure, you can switch out the accessories once your children outgrow them, but your higher mortgage payment will likely outlast any love for Disney. And who's to say the next buyer will want to have Pooh on the floor or walls?

Martha Stewart homes account for less than 5% of KB's sales, and while they're expanding into more communities, I doubt the gimmick will ever become a meaningful source of revenues. A Disney collaboration seems even less compelling. Putting on the mouse ears, as it did the day before its latest earnings announcement, KB Home looks desperate for some happy news to counter what undoubtedly will be a dark report.