Restless Giants

October 16, 2015  by in Business Strategy, Industry   

Bedding specialists are marching faster and farther with their expansion plans that furniture retailers.

No question that the mattress segment is one of the industry’s most profitable beasts.

It makes sense that bedding retail would continue to grow, and the powerhouse bedding retailers have been busy over the last couple of years.

In addition to the giant movers and shakers in the category, keep in mind, traditional furniture retailers are looking to hold tight to this prime bit of business by opening dedicated bedding stores. Think Art Van Furniture’s PureSleep model. Others are bolstering their sleep departments in their current footprint.

The freestanding bedding store concept has exploded satisfying consumers who want quick service. Often they perceive the specialty store format as the place to find selection, expertise, and, by the way, a location within 10 miles of their homes, according to Bob George, managing partner of Impact Consulting Services.

Unlike the emerging national furniture retailers, bedding specialists are focused on all markets—large and small.

When maps showing store locations for four key bedding retailers are examined, this segment of retailing seems to be outpacing furniture retailers in the race for U.S. domination. Three of the four examined have a presence in the majority of key markets across the U.S. 

Out in front by store count, Houston-based Mattress Firm operates more than 2,000 stores dotted across much of the U.S. landscape in 279 markets. Sleepy’s, the privately held sleep chain based in Hicksville, N.Y., falls in line behind Mattress Firm and holds more than 1,050 stores in 97 different U.S. markets.

From Sleepy’s, the next chain with the most stores is publicly traded, Minneapolis-based Select Comfort with its more than 470 stores across 212 markets. The specialty sleep surface retailer sells its proprietary Sleep Number line in its sleep shops most often found in heavily trafficked retail centers. American’s Mattress, the franchised bedding retailer by Serta International, has more than 238 stores in 123 key markets.

Impact’s George points out that Mattress Firm has the largest market share—in excess of 50 percent in its market footprint of more than 60 percent of the total market. Meanwhile, Select Comfort has a presence in more than 75 percent of the total market, but holds less than 10 percent market share, George said.

Another observation: While Mattress Firm has used acquisitions to fuel its expansion, Sleepy’s, for the most part, has relied on opening new stores to grow its footprint to more than 25 percent of the total U.S. market, George said.

Overall, all the giants’ stores combined command slightly more than 30 percent of the total market share, George said.

While the giants come into a market carrying with them heavy marketing budgets with which to roar, local retailers can be giant slayers if they place their bets wisely, George said.

“Combining the retail experience of the bedding specialty store with the reputation of a regional furniture store, such as Steinhafel’s or Cardi’s, makes for a formidable competitor to the large retail chains,” he said.

Be mindful of the manufacturer-direct channel of bedding retailers. Those companies, like California-based Banner Mattress and Murmaid Mattress, based in Chattanooga, Tenn., offer national bedding brands along with their own, homegrown product, George said.

Each of the four chains mentioned specifically has plans to grow either by adding to its store mix through acquisitions or good, old-fashioned store openings.

Here’s a look at where each of the chains stands to gain and a bit about how they could get to U.S. domination in the bedding retail segment.

Leader of the Pack

Mattress Firm has been on an acquisition tear, gobbling up smaller regional chains, like Sleep Train on the West Coast and Back to Bed in Indiana, Illinois and Wisconsin on its way to becoming a national mattress retailing brand.

With more than $2.2 billion in sales during the last 12 months, and 2,300 company-operated and franchised stores in 41 states, the retailer is a force with which to be reckoned. Mattress Firm currently has stores under the Mattress Firm moniker, of course, but it also held onto the Sleep Train name following the acquisition of that well-established and well-branded West Coast chain.

The retailer has aggressively built up its sales base in recent years through nationwide acquisitions, including the Sleep Train acquisition. The Sleep Train buy caused a shuffle of the Mattress Firm executive deck, giving the retailer a boost to its management team.

Rob Killgore, who had been with Sleep Train since 1986, has been promoted COO of Mattress Firm as Ken Murphy was promoted to president.

Murphy is now responsibility for all sales functions of the company, including store operations and distribution, marketing, merchandising and e-commerce.

“Ken has been instrumental in driving the growth of Mattress Firm into the nation’s largest specialty mattress retailer,” said Steve Stagner, CEO of Mattress Firm. “I’m equally excited to leverage Rob Killgore’s vast industry experience, strategic thinking and analytical mind by expanding his role as sole chief operating officer.”

Killgore joined Mattress Firm last year as part of the Sleep Train acquisition. He held various positions prior to COO of Sleep Train, including senior executive vice president.

“These management transitions represent a natural evolution as part of the plan we put in place at the time of the transformational acquisitions we completed last year, and are designed to position our organization for continued growth,” Stagner said.

Despite Mattress Firms fairly recent acquisitions of Sleep Train and Back to Bed, Stagner has said the retailer has an appetite for more albeit perhaps smaller ones.

The company’s overall goal is to build a national presence from coast to coast.

While some acquisitions will be transformed to the Mattress Firm brand, Stagner reminds us that Sleep Train has a strong brand on the West Coast.

“We’re comfortable with their experience operating a multi-brand company,” Stagner said. “We feel the market can sustain multiple brands.”

The company acquired Back to Bed, M World Mattress, MCStores and TBE Orlando, which collectively operate Back to Bed and Bedding Experts retail stores in Illinois, Indiana and Wisconsin and Bedding Experts and Mattress Barn retail stores in Florida. It included approximately 131 mattress specialty retail stores primarily in the Chicago and Orlando, Fla., metropolitan areas, for an aggregate purchase price of approximately $64.5 million. The rebranding of the acquired retail stores in the Chicago market was substantially completed in May.

Mattress Firm delivered net sales growth for its eighth consecutive quarter in the second quarter of 2015.

Mattress Firm opened 71 new stores and closed 11 stores in the second quarter of 2015, bringing the total number of company-operated stores to 2,223 as of the end of the second fiscal quarter.

Anything But Sleepy

Family owned Sleepy’s has been moving south opening stores in North Carolina and has moved into South Carolina, too. Its expansion has gotten as far west as Chicago.

Relatively quiet, the bedding chain offers nationwide delivery to consumers who buy via phone or online. The retailer’s network of 10 distribution centers, six of which are corporately owned. The other four—Dallas, Oakland, Calif., Pompano Beach, Fla., and Santa Fe, California— provide the retailer with coast-to-coast reach.

Sleepy’s digital commerce strategy is its way for furthering its geographical reach. Through its planned omni-channel strategy, the chain is creating a more personalized shopping experience for consumers.

The retailer has said despite its brick-and-mortar heritage, it realizes that consumers are more connected now than ever and are shopping through different outlets. Staying connected and accessible to those consumers is key.

Site Selection

Dedicated Sleep Number retailer Select Comfort has stores in all 47 states in the contiguous U.S. Back in 2004, the company forged a strategic alliance with both C.S. Wo & Sons in Hawaii and Furniture Enterprises of Alaska for those retail operations to sell the Sleep Number beds. Both retailers still sell the line in their stores giving the Sleep Number brand distribution in all 50 states.

With its more than 470 branded stores, e-commerce site, direct marketing and through its telephone sales, the company’s name holds cachet and brand recognition with consumers. The company’s plan for 2015 included capital expenditures of about $80 million, including investments in information technology and new, relocated and remodeled stores.

Earlier this year, a corporate shareholder kicked off a proxy battle prior to the company’s annual meeting. The shareholder later backed down, but not before some serious accusations were lobbed against management.

Shelly Ibach, president and CEO of Select Comfort, outlined the company’s in-progress growth strategy in an open letter to shareholders that pointed out plans to build the Sleep Number brand into a consumer lifestyle brand, grow its consumer base by four times, and advance its national footprint while keeping markets locally focused and profitable.

The company plans to stick to its consistent annual new store growth of 5 percent to 7 percent while keeping from cannibalizing its existing sales in key markets. Select Comfort’s formula targets one store per trading area with a population between 35,000 and 500,000 people. Its target consumer is between 30 and 54 years old with a household income of more than $75,000.

The company’s strategy appears to be working.

In its latest financial report for the second quarter of its fiscal year, Select Comfort sales increased 17 percent to $275 million and same-store sales were up 13 percent. Net income climbed more than 29 percent to $11 million in the quarter from $8.5 million in the second quarter of last year.

The retailer is big into having its national footprint while maintaining its local market development. The local market development requires it to be on pointe with its site selection process to ensure the stores are visible, convenient and economically priced. Site selection includes mall and off-mall placements depending on a market’s consumer traffic flow.

America’s Brand

Serta’s America’s Mattress retail franchise program says nearly 400 stores in 123 U.S. markets in 39 states, including Alaska. The retailer sells all of the Serta and iComfort brands, and puts ownership in the hands of local, community-minded people.

The America’s Mattress concept creates a network of independently owned mattress stores. According to the retailer’s website, the company is looking for franchisees who have a successful business management background. For a single-store, the retailer recommends a minimum of $75,000 in liquid capital.

Impact’s George said the manufacturer franchise, once a super hot concept, remains viable.

“The America’s Mattress franchise has a market footprint of more than 30 percent of the total market,” he said. “Combining buying power with local ownership can be a winner.  Bed Mart of Portland (featured in the August issue of Home Furnishings Business) is a strong, successful example.”