How the Internet Is Forcing Risky Brand Extensions

No Apple is not expanding into the shoeshine business. But the pressure of ecommerce on all businesses and their brands is driving considerations of extensions.

The crucial issue remains risk versus reward. JL

Janet Morrissey reports in the New York Times:

A growing number of iconic brands are putting their names on products outside their areas of expertise, ranging from hotels and condos to wedding dresses and steaks. Some expand into new product niches to transform a brand into a global powerhouse. For others, it’s finding new areas of growth in the retail market, which has been struggling in with declining sales at brick-and-mortar locations, bankruptcies, store closings and the popularity of online shopping.

The luxury sports carmaker Aston Martin recently unveiled plans to build Aston Martin Residences, a luxury condominium complex in Miami. Sales will start in July, with the condos scheduled to open in 2021. The car company didn’t jump into the real estate business willy-nilly, though. It is part of a gradual brand extension that began with high-end jewelry in 2012, speedboats in 2015, luxury men’s wear in 2016 and its “Art of Living” experiences, which include exotic road trips and Champagne tastings, in 2016.

“In all of the contracts, we have the right of veto: over the control of imagery, how the building is kept, how often it’s cleaned, how people are spoken to, the quality of materials and the upkeep,” said Marek Reichman, chief creative officer at Aston Martin. “It sounds controlling, but this is the pride of our brand being put somewhere else, so we don’t want to let that go lightly.”

Mr. Reichman is betting that people will seek out the Aston Martin residences for the elegant craftsmanship and exquisite reputation that drew customers to the company’s cars. “Whether we’re doing a speedboat, a series of apartments, sunglasses, clothing or our cars, you can experience Aston Martin different ways,” he said.

Today, a growing number of iconic brands are putting their names on products outside their areas of expertise, ranging from hotels and condos to wedding dresses and steaks. (Of course, long before his presidency, Donald J. Trump put his name on a variety of offerings, including real estate, steaks and a university.)

“If you do it right and get a decent return, it may be an interesting way to invest in the growth of the brand. In a sense, you’re creating this new image, this new flagship,” said David Loeb, a consultant and analyst with more than 25 years in lodging and real estate. “But the risk is high, so you better get it right or it’s going to hurt rather than help.”

For example, when Zippo, which makes lighters, decided to move into fragrances in 2014, with a perfume bottle in the shape of a lighter, consumers were bewildered. Women bristled at the thought of pulling out a perfume bottle that looked like a lighter and spraying themselves in public. Also, many envisioned a Zippo fragrance smelling like lighter fluid, even though the scent was fruity.

Colgate tried to move into frozen foods, with its Colgate Kitchen Entrees in 2014. (It had made an earlier attempt in 1982.) The brand extension was a failure. Why? Because, experts said, when people hear “Colgate,” they think of toothpaste, not tasty cuisine.

Then there was Harley-Davidson, which decided to move into cake decorating and fragrances. For Harley-Davidson fans, cake decorating just didn’t mesh with the company’s “Easy Rider” and “Born to Be Wild” image. The fragrance was equally puzzling.

“I wouldn’t want to smell like a Harley-Davidson biker,” said Larry Light, an author of “Six Rules for Brand Revitalization” and the chief executive of Arcature, a brand consulting company.

Experts caution brands to move carefully and strategically into new niches because missteps in a new product area could taint their overall image.

“It could be a disaster,” said Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment banking services firm.

Some expand into new product niches to transform a luxury brand into a global powerhouse.

For others, it’s about finding new areas of growth in the retail market, which has been struggling in recent years with declining sales at brick-and-mortar locations, bankruptcies, store closings and the rising popularity of online shopping.

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Aston Martin’s proposed condominium in Miami. A growing number of iconic brands are putting their names on products outside their areas of expertise.

“When you’re in a revolutionary period, which we’re in now, and you have a valuable brand, the people who come out best are those who diversify,” Mr. Davidowitz said.

The high-end fashion designers Giorgio Armani and Versace as well as the crystal giant Baccarat and the luxury accessories designer Fendi have all opened five-star branded hotels in the past five years.

“You’re seeing companies begin to leverage themselves in ways that are really out of the box,” said Milton Pedraza, the chief executive of Luxury Institute. “They’re saying, ‘If I have a brand name that is pristine and prestigious and known by the wealthy, let’s see how I can leverage it across other product lines.’”

Hotel and residential real estate have been particularly popular expansion choices. When done right, it’s “pure incremental income” for the brand, with lavish hotels almost serving as billboards, said Bjorn Hanson, a professor with New York University’s Preston Robert Tisch Center for Hospitality and Tourism.

The luxury jeweler Bulgari was a pioneer in the move into hotels. Although some initially questioned what a chichi watch and necklace maker would know about hotels, Marriott saw opportunity.

“Brand recognition is really important, and Bulgari was one of the best recognized luxury brands in the world,” said William R. Tiefel, who was vice chairman of Marriott International at the time and oversaw the joint venture between Marriott and Bulgari.

Today, Bulgari has branded hotels in Milan, Bali and London, and plans are in the works to open new ones in Shanghai, Dubai and Beijing.

A flurry of companies — including the designer Karl Lagerfeld, the upscale fitness club Equinox, Restoration Hardware and West Elm — have announced plans to open hotels or residential properties in the next two years. Even Jimmy Buffett’s Margaritaville, famous for its margarita mixers and restaurant chain, recently teamed up with a real estate developer to build an active adult community in Florida.

But not all hotel expansions have worked. The clothing and accessories company Missoni backed out of its lone hotel partnership in 2014. In a statement, Missoni cited “different long-term business strategies” with its hotel partner, Carlson Rezidor.

Shoddy construction or a poorly managed condo or hotel property, for example, could be catastrophic for a brand. “People view brands as promises of an experience,” which often includes quality, architecture, style, ambience, customer service and a unique experience, Mr. Light said.

A well-known brand may lure customers to a hotel, but a bad experience will stop them from returning. “That’s the reputational risk,” Mr. Pedraza said.

It’s critical that a company seek partners with knowledge and success in the new industry. Just plopping a brand logo onto a product or real estate is a recipe for failure.

“If you’re just licensing the brand,” Mr. Light said, “giving somebody the logo and then hoping the execution will live up to the brand promise — that’s a very risky strategy.”

For example, when Zippo, which makes lighters, decided to move into fragrances in 2014, with a perfume bottle in the shape of a lighter, consumers were bewildered. Women bristled at the thought of pulling out a perfume bottle that looked like a lighter and spraying themselves in public. Also, many envisioned a Zippo fragrance smelling like lighter fluid, even though the scent was fruity.

Colgate tried to move into frozen foods, with its Colgate Kitchen Entrees in 2014. (It had made an earlier attempt in 1982.) The brand extension was a failure. Why? Because, experts said, when people hear “Colgate,” they think of toothpaste, not tasty cuisine.

Then there was Harley-Davidson, which decided to move into cake decorating and fragrances. For Harley-Davidson fans, cake decorating just didn’t mesh with the company’s “Easy Rider” and “Born to Be Wild”