glgi: challenges for future growth in the mattress industry
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GLGi: Challenges for Future Growth in the Mattress Industry. Gary McNeil December 18, 2007 New York. Council Member Biography - PowerPoint PPT PresentationTRANSCRIPT
GLGi: Challenges for Future Growth in the Mattress Industry
Gary McNeilDecember 18, 2007
New York
► Council Member Biography
Gary McNeil is an Independent Contractor with Stylution USA, a subsidiary of the prominent Chinese mattress manufacturer, Stylution International Corporation. He is representing their interests in the Southeastern US. and is helping them craft and execute a sales, marketing, and distribution strategy for their product launch in the US market. Previously, he was Vice President of Sales with Alliance Sleep Company, a division of the Restonic Mattress Corporation. He maintained marketing and merchandising oversight for East Coast Sales of Inner-Spring and Alternative Sleep Products until May of 2003. Mr. McNeil has over 29 years of experience in the bedding industry, including 16 years spent with Sealy Mattress and 10 years with Serta, with many close personal ties to both the manufacturing and retail sides of the business. Mr. McNeil is familiar with a wide range of issues affecting the mattress industry.
► Topics
► Why are traditional industry leaders losing share and profit? Will this continue?
► What is the impact of current economic conditions on the mattress industry? How long might it last?
► Are alternative sleep products like Tempurpedic here to stay?
► What challenges do companies like Select Comfort and Tempurpedic face for future growth?
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Randi Reiner CulangVice President, Consumer Goods & Services
Global Research HeadGerson Lehrman Group850 Third Avenue, 9th FloorNew York, NY 10022212-750-1229 [email protected]
Aaron LibermanManaging Director, Sales and MarketingGerson Lehrman Group850 Third Avenue, 9th FloorNew York, NY 10022212-984-3684 [email protected]
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IMPORTANT DISCLAIMER – By making contact with this/these Council Members, you specifically acknowledge, understand and agree that you must not seek out material non-public or confidential information from Council Members. You must respect any agreements they may have and understand the Council Members may be constrained by obligations or agreements in their ability to consult on certain topics and answer certain questions. Please note that Council Members do not provide investment research, nor do they provide professional opinions. Council Members who are lawyers do not provide legal advice and no attorney-client relationship is established from their participation in this project. Access to Gerson Lehrman Group events and services are governed by Gerson Lehrman Group’s Usage Policies (http:www.glgroup.com/usage_policies.htm). Please consult our Usage Policies for more information.
Contents Part I: The U.S. Bedding Industry
Manufacturers Channels of Distribution Seasonality Top 10 Retailers Product Trends Future Industry Challenges
Part II: New Data & Observations
8
The U.S. Bedding Industry
Trends and Data
9
Business Indicators
Past 1990 - Sales driven Entrepreneurial Marketing thrust centered on national advertising Key price points $499 to $999 queen size
Present Manufacturing driven Approximately 700 domestic producers Top four brands represent 56% of all shipments Growth in dollars far exceeds growth in units Innerspring accounts for 81% of total dollar shipments Significant decrease in manufacturing SKU’s Key price points $799 to $1, 999 queen size
10
Top Ten Bedding Manufacturers
1990 Vol(millions)
1. Sealy $469
2. Simmons 330
3. Serta 248
4. Spring Air 190
5. King Koil 80
6. Therapedic 70
7. Restonic 57
8. Englander 52
9. Kingsdown 48
10. Lady Americana 39
11. Total Industry 2,320
Top 10 = 68.2% of total shipments
2006 Vol(millions) %Inc
1. Sealy $1, 396 197
2. Simmons 963 192
3. Serta 881 255
4. Tempur-pedic 512
5. Select Comfort 381
6. Spring Air 329 92
7. King Koil 152 90
8. IBC 137 150
9. Therapedic 128 82
10. Kingsdown 99 106
11. Total Industry 6, 780 180
Top 10 = 73% of total shipments
Source : Furniture Today
11
Top Ten Bedding Manufacturer’s Sales
Sealy maintains number one position
Serta enjoys largest growth percentage
Alternative sleep products: 18.0% of top ten sales 13.7% of total sales
12
Share of U.S. Bedding Sales
1990
Sealy20%
Simmons14%
Serta11%
Spring Air8%
Remaining Top Ten15%
Other Producers32%
Other Producers23%
Remaining Top Ten10.4%
Alternative Sleep Products13.7%
Spring Air5%
Serta13%
Simmons14.2%
Sealy20.6%
2006
13
Share of U.S. Bedding Sales Trends
Sealy market share flat
Simmons and Serta increase market share
Alternative sleep products move into fourth position
Alternative sleep products are the fastest growing segment in the industry
14
U.S. Bedding Industry Channels of Retail Distribution
Includes internet, direct marketing, rent to own, shopping channels, factory direct, etc.
Source: Furniture Today
1990
Furniture Stores46%
Dept. Stores31%
Bedding Specialists13%
Warehouse Clubs2%
Others*8%
2004
Others10%
Warehouse Clubs4%
Dept. Stores6%
Bedding Specialists41%
Furniture Stores39%
15
Channels of Distribution Trends
Fastest growing segment by percentage is Specialists
Largest growing segment by units is Specialists
Biggest loss in share is Dept. Stores
Channel shift continues to have a profound effect on: Efficiencies AUSP Seasonality
16
U.S. Bedding Industry Seasonality
10.8
8.33
8.72
7.36 7.75 8.14
8.72 8.72
7.56 7.75 7.75
9.11
J an Feb March April May June July Aug Sept Oct Nov Dec
2006Source : ISPA
17
U.S. Bedding Industry Seasonality Trends
Reflects dramatic change in retail distribution channels
Has created a more stable skilled labor force in manufacturing
Expanding on raw material flows more evenly
Has created efficiencies within delivery systems
18
U.S. Bedding Industry Top Ten Retailers of 2006
Retailer Volume(millions) Doors
1. Select Comfort $676.0 442
2. Sleepy’s 430.0 425
3. Mattress Firm 401.0 358
4. Sleep Train 327.0 200
5. Sam’s Club 316.0 579
6. Macy’s 260.0 858
7. Mattress Giant 208.0 250
8. Serta Sleep Shops 205.0 359
9. Berkshire Hathaway 198.0 32
10. Ashley 190.0 296
Total 3,211. 0 3,799
Source: Furniture Today
19
U.S. Bedding Industry Top Ten Retailers - Trends
Represent 27.0% of all retail bedding sales
Specialists account for 70.0% of top ten sales
Account for 11.5% of total U.S. doors
The number one retailer sells only alternative sleep products
40% of the doors are mall based representing 31% of sales
20
U.S. Bedding Industry Alternative Sleep Products
Air and Air Chambered
Visco Elastic
Latex
21
U.S. Bedding Industry Air and Air Chambered Products
Currently accounts for 6% of total industry shipments
Dominated by Select Comfort
Improved specifications and quality
Owns the number one marketing concept in the industry: “Sleep Number”
22
U.S. Bedding Industry – Select Comfort
Perceived Strengths Acknowledged leader within niche category Separated sales presentation Limited product assortment Little pressure on retail price strategy Excellent average net sale Added third party retail partners
Perceived Weaknesses Image issue with certain customers Distribution patterns Skill required for presentation Susceptible to future competition Non direct delivery system Third party sales not living up to expectations Losing the head to head battle to Tempur-pedic
23
U.S. Bedding Industry - Visco Elastic Solid Core Products
Currently accounts for 10.0% of total industry shipments (estimated)
Dominated by Tempur-Pedic
Perception of value extremely high with consumer
Unique properties of the product enhance acceptability
24
U.S. Bedding Industry – Tempur-Pedic
Perceived Strengths Acknowledged leader within niche category Tremendous brand equity at the retail level Strong MMAP strategy Broader selection National advertising program Dramatic increase in retail presence
Perceived Weaknesses The niche cannot continue to expand at current levels Direct competition from the majors (Simmons Comfortpedic brand) Potential volatility in production materials Inability to sell price clubs and discounters Imports
25
U.S. Bedding Industry - Latex Solid Core Products
Currently account for 3% of total industry shipments
Domestically dominated by Latex International at the manufacturing level
100% natural product
Unique properties enhance presentation
The first ultra-premium product introduced by the industry
26
U.S. Bedding Industry - Latex
Perceived Strengths Historically strong following from upper class consumers Can be marketed in many different firmness categories Hybrids are increasing exposure A viable alternative to innerspring
Perceived Weaknesses Primary distribution channel is specialists No strong brand identity Retail cost prohibitive
27
U.S. Bedding Industry Future Challenges
Consolidation
Foreign competition
Maintaining a strong “bang for the buck” ratio
More closely observing consumer trends
Empower the growth of the specialist channel
Fully explore alternative sleep methods
28
The U.S. Bedding Industry
New Data and
Observations
29
The Industry 2006
Sales Estimated Wholesale Shipments 6.7B Estimated Unit Shipments 21.9M pieces Estimated Avg. Unit Wholesale $310 Estimated AUW Alternative Sleep Products $600 Estimated AUW Traditional Industry $275 Total Industry achieved 56% of dollar sales in $1,000+ beds Alternative segment – 95% of dollar sales in $1,000+ beds Traditional segment – 37% of dollar sales in $1,000+ beds Total Industry dollar shipment grew by 4.7% Alternative segment dollar shipments grew by 18.7% Traditional segment dollar shipments grew by 3.5% Alternative segment represented 13.7% of total industry shipments Alternative segment represented 25.7% of total industry dollar shipments in
$1,000+ beds
30
The Industry 2007 (Projected)
Sales Estimated Wholesale Shipments 6.9B (+3.5%) Estimated Unit Shipments 21.9M pieces (Even) Estimated Avg. Unit Wholesale $320 Estimated AUW Alternative Sleep products $642 Estimated AUW Traditional Industry $282 Total Industry dollar shipments grow by 3.5% Alternative segment dollar shipments grow by 13.3% Traditional segment dollar shipments grow by 2.6% Alternative segment represents 15.5% of total industry shipments
31
Sealy
Strengths: Still the number one brand in the industry Aggressively attempting to redefine identity with consumer
1. Innerspring – Sealy, Stearns, Bassett
2. Latex (layered) – Springless collection
3. Latex (core) – Luxury Collection
4. Visco (layered) – Truform
Issues: Being able to focus on all the initiatives they are bringing forward Stem the market share loss from 2006 and probably 2007 Ability to re-establish Stearns & Foster Holding floor position in multi-vendor accounts Maintaining a strong retail sell through
32
Simmons
Strengths: Still the 2nd largest bedding company in the industry Strong sales performance in 2006. Significantly outperforms the industry in 2007 Intro of new Beautyrest Black ultra premium line Recapturing promotional business with Deep Sleep line Recent purchase of Comfortpedic
Issues: Getting COGS under control Healthsmart product still a black eye Maintaining adequate field coverage in light of significant sales force reduction 6th reintroduction of the Backcare assortment Bringing incentive expenditures down as a percentage to sales Maintaining momentum
33
Serta
Strengths: Sole supplier to Sams Club Company supported “America’s Mattress” program Still the most entrepreneurial of the big three
Issues: Right now there appears to be a significant lack of focus Vera Wang and Perfect Day ultra premium lines not performing Almost 40% of their volume rests with Sam’s and America’s Mattress They continue to rely on inner-spring technology that is 25 years old
34
Tempur-Pedic
Strengths: Continue to maintain dominant share in visco foam niche Embarking on an aggressive repositioned third party agreement program Expanding product selection to strengthen their presentation Huge increase in consumer exposure Outperforming Select Comfort head to head
Issues: Dealing with intro of 2nd generation visco products Pricing pressures and commoditization of the product More direct competition from imports Sales force upgrade Transferring national ad dollars to regional use
35
Select Comfort
Strengths: Dominant force within a complex selling environment Top notch sales force and POP materials Aggressively pursuing selected third party agreements Have significant separation from competitors
Issues: Potential cannibalization from existing store structure Presentation outside of a sterile setting Direct competition from other alternative sleep products Competition from the traditional industry Sales force
36
Pacific Rim Imports
Strengths: Quality to price ratio is at least 30% below domestic companies. Most are vertically integrated Currently represent 5% of domestic business. Will move to 10% by
end of 2010 Merchandise horizontally dramatically increasing profit potential at
retail
Issues: 4 to 6 week lead time on containers No brand awareness
Offsetting “image” problems generated by recalls in other areas
Gerson Lehrman Group Contacts
Sam Jacobs
Director
Consumer Goods & Services
Gerson Lehrman Group
850 Third Avenue, 9th Floor
New York, NY 10022
212-984-3676
Christine Ruane
Senior Process Manager
Gerson Lehrman Group
850 Third Avenue, 9th Floor
New York, NY 10022
212-984-8505