September 05, 2017

TPX - U.S. Mattress Category Shaking Up

SNH SJ, TPX
By Pascal Benazet

Some U.S. mattress buyers are starting to see a benefit from Tempur Sealy’s April termination of its relationship with Mattress Firm stores.

The market is well aware of the turmoil created in the mattress industry when Tempur Sealy International Inc. terminated its relationship with Steinhoff International Holdings N.V’s Mattress Firm, its largest U.S. customer. Since Tempur Sealy management in July gave confident guidance and commentary about the U.S. market but struck a more cautious tone for Europe, OTR Global reached out to both U.S. and European sources to gauge early 3Q17 sales and outlook.

United States
Of the four U.S. buyers, two said their overall July-August sales increased yy, and one of those two said they were aggressively attempting to gain Tempur Sealy business after the brand terminated its relationship with Mattress Firm. The other two buyers were struggling because of more rainy weather yy and tough comps. Sources were optimistic they would pick up market share from Mattress Firm, aided by increased advertising by Tempur Sealy yy and qq. “Tempur Sealy has reached out to us to help us go after the business that Mattress Firm left, and Tempur Sealy is advertising a lot more,” one buyer said. “Tempur Sealy separating from Mattress Firm has opened up a lot of opportunity, and we want to strike while the iron is hot,” another said.

Buyers also said they would be in a better position to sell Tempur-Pedic at full price because Mattress Firm frequently violated MAP [minimum advertised price]. “Mattress Firm was a lot of business for Tempur Sealy to walk away from, but it was probably unhealthy business. Mattress Firm violated MAP a lot, which causes a lot of problems with all the other retailers,” one buyer said.

Most buyers were confident their Tempur Sealy sales would grow because of the strength and quality of the Tempur-Pedic brand, but buyers also agreed it would take time for Tempur Sealy to get sales back on track. “I think Tempur Sealy is very concerned about [the loss of] Mattress Firm, and they should be. Think about it: Most mattress stores already carry Tempur-Pedic, so really how are they going to make up 20%+ business? It is not going to be by going after a bunch of little guys like me,” one said.

Both Mattress Firm managers said sales decreased yy because they no longer carry Tempur Sealy products, however, both said sales met expectations because of Mattress Firm’s significant increase in advertising. “Tempur-Pedic is a very strong brand that we sold for years, but we are doing a lot more advertising and really going after business. We have great new brands with better price points,” one said. Managers said the biggest complaint about Tempur-Pedic was the steep price. Both managers said while they still get a lot of customers asking for Tempur-Pedic, they often are able to convert them to other less expensive brands. “We have a lot of customers coming in looking for Tempur-Pedic, but we are able to convert most of them to other brands. The [Serta Simmons Bedding LLC] Beautyrest new Black line and Serta's iComfort are less expensive and have better technology compared with Tempur-Pedic, and customers appreciate that,” one said. “We sold Tempur-Pedic for a long time, so we still get a lot of customers asking for it. So we spend a lot of time with them going over all the reasons why our brands are better and they are less expensive,” the other said.

One buyer, however, said because of Tempur-Pedic’s strong brand name, it may not be easy for Mattress Firm to convert a customer to a new brand when looking for Tempur-Pedic. “I have heard Mattress Firm sales are down in some areas between 10%-15% since they exited the Tempur Sealy business. They are going to have to sell a lot more of their lower-priced mattresses to make up that business. It is too soon to tell how it will all shake out, but we are positioning ourselves to take that business,” one buyer said.

United Kindgom and Germany
Tempur Sealy reported 2Q17 European sales slightly below expectations, mostly blaming the post-Brexit macro weakness in the United Kingdom, its largest market, but reported some growth in Germany. Sources reported July-August Tempur Sealy sales in line with expectations, helped by more advertising and promotions, but sources in both countries reported increased competition.

Three of the four U.K./German sources reported July-August Tempur Sealy sales increases yy, driven by advertising and promotions as well as improving brand awareness. “Advertising is stronger, but also Tempur is more well known these days, and customers are less nervous about buying a memory-foam-type mattress now that it's a more familiar concept,” one U.K. source said.

However, sources in both countries reported increased competition and expressed concern about future performance. Sources cited suppliers offering equally good viscoelastic mattresses, often at cheaper prices, and a shift in distribution toward the online channel, including Tempur’s own website. "We don't have as many [memory foam mattresses] as we used to. It's a smaller part of business because of two factors: One, natural-filled fiber mattresses are coming back, and, two, there is more competition in the memory foam category," a U.K. source said.

Additional Quotes

United States
“Tempur Sealy is doing a lot more national advertising compared to last year and even last quarter, but it is really just typical brand advertising. It is not geared towards driving traffic to our stores; it is more about brand recognition,” Buyer

"Tempur Sealy is very worried about losing Mattress Firm. It may have been unhealthy business but it was a very significant account. It will not be easy to gain those sales back. They don't have that many retailers to go after.” Buyer

“Mattress Firm was constantly violating MAP, and Tempur Sealy, for whatever reason, was never able to reel it in. It was extremely frustrating for other retailers.” Buyer

“We are selling a lot of memory mattresses, but the price points are lower than last year because we no longer sell Tempur-Pedic.” Mattress Firm manager

“The biggest complaint about Tempur-Pedic has always been the price. It is expensive, so customers pay attention when we say our lines are less expensive and some of the features and technology is actually better than Tempur-Pedic.” Mattress Firm manager

“We have some customers that really want Tempur-Pedic, so we can't help them, but really we haven't had as many customers leave as I expected.” Mattress Firm manager

United Kingdom and Germany
“In their own category, they're the clear leader, but other categories have picked up and overtaken them. Heat was an issue -- a lot of people didn't like the warmth that came with memory foam. Unless you're buying the top end of Tempur, it can be an issue, so you need a lot of money to buy one that will keep you cool.” U.K.

“Also a big factor for us is the Chinese; they are really expensive there, and they buy them here and ship them home.” U.K.

“We had an increase in sales; more advertising and the anniversary promotion are generating more interest. We have to see if this can last.” Germany

“I have to say Tempur is becoming a bit less interesting for us. There are more alternatives, often at better prices to customers and with better margins for us.” Germany

“The brand has become more visible, which is not to say it wasn’t visible before.” Germany

Contributors: Katie Jacobson, Karsten Knothe and Michelle Noble

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