2008 Newsmaker of the Year: Mattress Firm

November 30, 2008  by in UnCategorized   

By Home Furnishings Business in Bedding on December 2008 Once again, it’s time for Home Furnishings Business to celebrate its Newsmaker of the Year (NOTY) issue, an annual feature that recognizes executives who have had the most impact on the industry over the previous 12 months.

This year’s Newsmakers—Mattress Firm CEO Gary Fazio and President and COO Steve Stagner—have changed the bedding landscape by adding nearly 200 stores across the country to become a nationally known bedding retailer with 530 stores. As it has expanded into new markets, Mattress Firm has gained a reputation for continually striving to upgrade the “sleep shop” experience.

In a field where under-financed operators can open a store for a few thousand dollars, the Mattress Firm invests nearly 50 percent more than most sleep chains to build impressive stores on heavily traveled corners, and it invests even more in training employees, to help take the confusion out of a mattress-buying process that has become even more complicated with the rise of specialty bedding and other alternatives to traditional mattresses.

A new initiative, “Comfort by Color,” injects a dose of color to mattress stores that had been dominated by shades of white, while giving customers the power—and the knowledge—to guide themselves through the selection process, with help when it’s needed.

NOTY is a tradition that started six years ago with InFurniture Magazine, which HFB acquired in 2006. Fazio and Stagner join a short and exclusive list of NOTY recipients. Previous Newsmakers have included Neil, Michael and Steven Goldberg of Raymour & Flanigan (2007); Ron and Todd Wanek of Ashley Furniture (2006); Keith Koenig of City Furniture (2005); Vaughan Bassett CEO John Bassett III (2003); and the late Laurence “Larry” Moh of Fine Furniture (2002).

Positive Discontent

A sense of never being satisfied, even when things are going well, has been a force behind the strong growth of Mattress Firm. After opening more than 180 stores in two years, Mattress Firm has established itself as the only multi-brand mattress chain with a presence across all four time zones, and it is poised to become the first national retail brand in its category as it rapidly closes in on $1 billion in annual sales.

What sets Mattress Firm apart from its rivals is what CEO Gary Fazio calls “a positive sense of discontent.”

Even in a year in which the Houston-based chain reached 530 stores after opening 68 locations (on top of building and acquiring 115 in 2007), Fazio said neither he nor President Steve Stagner are entirely satisfied. “We always just want it to be a little bit better,” Fazio told Home Furnishings Business in an interview at the company’s headquarters. “It’s not unhappiness, but you also have to always be careful that you don’t pat yourself on the back too hard” over past accomplishments.

Fazio, 58, who jokes about positive discontent as an illness, said it led him to leave Sealy as general manager in 2001 to join Mattress Firm—which was then losing money—and quickly return the company to profitability and begin to set the foundation for rapid growth.

Stagner, 39, may have an even more advanced case of positive discontent. He left a sales position with a mattress manufacturer at age 26 to open a Mattress Firm franchise in Atlanta in 1996. That one store grew to a chain of 50 locations with sales of $63 million by 2005 when he merged his business with Mattress Firm.

LOFTY GOALS Since then, the management team that Fazio and Stagner lead has established Mattress Firm as the nation’s only retailer of both conventional and specialty mattresses with a presence in all four time zones. Top executives are now focused on goals that Fazio calls “audacious.” One is boosting sales past the $1 billion mark in 2011 (from about $525 million this year) and the second is establishing Mattress Firm as the first truly national multi-brand retailer in the mattress category, and those goals don’t seem out of reach when you consider the company’s recent track record.

Even though 2008 was one of the most difficult years in the history of mattresses—with an industry-wide sales decline of 10 percent or more on a unit basis—Mattress Firm’s revenues increased on the strength of its store growth and the company is profitable. Fazio declined to be specific about the sales increase, but said the company plans another 50 stores in 2009.

HIRE FOR FUTURE PLANS Since there has never been a national brand in the conventional mattress industry, Mattress Firm has modeled itself on highly successful (and profitable) specialty retailers in other segments. It has also filled its management team with executives with experience leading high-growth retailers like David’s Bridal and Chico’s. “We think of ourselves as a specialty retailer building a national brand, not just as a sleep shop,” Fazio said. “It’s a distinct retail model and our earnings are much more like the nation’s fastest-growing specialty chains than retailers in the mattress category.”

The company’s most recent growth spurt came after Fazio and Stagner spent a couple of years of focused effort on establishing a platform for adding stores at a rapid rate. The company made additions to its management team, upgraded technology and established a network of 24 distribution centers capable of delivering twice as many mattresses as the company handles today.

In January 2007, the growth-minded J.W. Childs Associates private equity firm (along with Fazio, Stagner and other top executives) purchased what was then a 305-store chain from Sun Capital Partners. Fazio said J.W. Childs put the company on a fast growth track, which has included a number of acquisitions.

RED CARPET TREATMENT Mattress Firm’s stores are appointed like boutiques in a luxury mall, with wood floors, large flat-panel television displays and, in a few new locations, a coffee bar with a distinctive high-end flair. If you buy a mattress, the crew that brings it to your home will unfurl a red carpet in your entryway and slip on booties to prevent dirt from being tracked in—no matter whether you bought a $399 store brand or a $3,999 luxury bed.

Stagner said “Red Carpet Delivery” and the company’s same-day service are just a couple of the ways Mattress Firm has sought to set itself apart from its many competitors, which include club stores, traditional furniture retailers, department stores and countless sleep shops.

Over the years, mattress advertisers have bombarded shoppers with confusing claims and counter-claims and bait-and-switch pricing strategies. In a typical mattress department or store, shoppers are almost completely reliant on a salesperson who has been trained to rattle off specifications about coil counts and foam density, which often leave shoppers even more confused. “It all has led to a lack of trust or, at least, a challenge when it comes to trust with consumers,” Stagner said. “It’s difficult for customers to compare similar products in stores that are often a sea of sameness with a bunch of white cloth rectangles on the floors,” he said. “For us, it’s all about ‘Sleep Made Easy.’ It influences everything we do, including our training, our marketing messages and the way we go to Market.”

SLEEP MADE EASY Mattress Firm’s newest “Comfort by Color” merchandising initiative groups mattresses into categories, so a shopper can easily use store signs and color-coded displays to find what they’re looking for, whether it be firm, plush or pillow top. It’s much the same process an athletic shoe store uses to help a runner pinpoint the jogging shoe section and then be able to narrow his search to a preferred brand or price. “We’re enabling customers to be much more involved and engaged in the selection process, and that’s something that makes shoppers a lot more comfortable,” Stagner said.

Another innovation at Mattress Firm is its in-store television network (delivered live by satellite). With multiple screens throughout the store, a shopper can see various mattress categories defined in one area of the store or watch an educational video on tips for a better night’s sleep on another nearby screen. “It gives us an opportunity to sell benefits that are difficult to deliver in any other way,” Stagner said.

LONG-DISTANCE LEARNING The private television network is also used for employee training, enabling Fazio and the management team to broadcast messages to the chain’s stores. “We can provide first-generation information to all of our associates out there simultaneously, which is critical when you have stores across four time zones,” Fazio said.

Last year, the company teamed with sleep expert Dr. Michael Breus, a well-known psychologist who has appeared on television programs like the “Today” Show and “Oprah.” He develops and delivers training programs to deepen the knowledge of Mattress Firm associates about sleep disorders and solutions.

SEEKING OUT A SPECIALIST The company’s brand lineup has insulated it to some degree from the steep sales declines some mattress sellers have seen, especially during the second half of 2008. Fazio said the difficult environment “has not been fun.” He predicts a number of under-financed bedding retailers will go out of business, but adds that Mattress Firm will grow. “This is a good time to build stores, but that doesn’t mean (increasing) same-store sales are going to be easy to come by.”

With three decades of experience, Fazio also knows that every time the mattress industry has suffered a down year or two, it has seen a sharp boom period once the economy has turned in a positive direction.

Of course, Mattress Firm has benefited from a move by consumers away from super-sized stores toward specialty retailers, including sleep shops. That trend is especially pronounced in furniture, where sleep shops accounted for 19 percent of the market in 1990 and up to 45 percent this year, according to the company’s internal research. “Specialty stores are succeeding because consumers are time-constrained and selection-driven,” Stagner said. “We believe we have all the best brands, and that’s a real motivator for consumers who don’t typically visit several stores, but still want to compare. We’re the only chain in most of our markets that has Select Comfort and Tempur-Pedic in one place, which is powerful because those companies spend $200 million a year on advertising.”

Mattress Firm also carries brands like Sealy, Simmons and Stearns & Foster, as well as its own private-label brand.

DOMINATING MARKETS While the company has goals, including reaching $1 billion in as little as three years, Fazio said the company is even more focused on being dominant in the market where it operates. In most cases, that means working to maintain twice the market share as its closest rival in the sleep category.

He believes Mattress Firm will capture more sales than most because of the talents of the chain’s store-level associates. “A restaurant can have a great chef, but if the waiter is bad, you’re not going to go back, and that’s always in our mind as we think about the sales associates in our stores,” he said.

FOCUS ON STORES, NOT COIL COUNTS New hires, 60 percent of whom are college graduates, fly to Houston for a week of intensive training before ever selling their first mattress, and all Mattress Firm employees receive three full weeks of continuing education every year—and Stagner said very little of the training focuses on coil counts or other technical aspects of mattresses.

After having opened in five new markets in 2007, Mattress Firm’s goals include operating in as many as 100 markets nationwide in just a few years. As a result, it’s going to need hundreds of new associates and it needs many of its store managers to develop into divisional managers, regional managers and executives with even broader responsibilities. “What we’re teaching is, essentially, how to run a business and gain work and life competencies that will help you for the rest of your life,” Stagner said.

Fazio said the chains pays better than average, and it’s been reported that after their first year, Mattress Firm’s full-time, commissioned associates can earn well in excess of $50,000 a year. At Stephen F. Austin University in East Texas, where Mattress Firm’s success is well-known, scores of seniors in the business school line up each year to interview with the company. The same thing occurs at the University of South Dakota, which like the Houston school, often calls on Fazio, Stagner and other company executives to serve as guest lecturers.

One result of Mattress Firm’s strong sales crop is that its sales in the luxury category tops 50 percent, meaning that more than half of its sales involve a mattress priced at over $1,000—which is far above industry averages.

ORGANIC GROWTH & NEW HORIZONS Looking toward the future, Fazio said there’s plenty of room to grow in the 44 markets in 21 states where Mattress Firm currently has stores, but also adds that the company currently reaches only 24 percent of the population—which leaves open a lot of opportunities. “We’re going to grow it at the right speed,” Fazio said. “We have the purpose and the passion to become a national chain, but we can increase our store count by 60 percent in the markets we’re already in.”

At press time, Mattress Firm announced it had added five stores to its 530 corporate locations by acquiring five franchise locations in Birmingham, Ala., which had opened all five locations in that city over the previous 15 months.

Fazio said the company’s franchise program has not been very active in recent years, but the company has hired two executives to begin focusing on smaller markets. Corporate stores will continue to focus on cities with a population of 1 million or more.

INTERNET STRATEGY Stagner also sees the Internet as an opportunity for customers in existing delivery areas to have an easy option for quickly replacing their bed. The company’s Mattressfirm.com site now offers a lot of sleep tips and a broad selection of mattresses and prices, but Stagner said the site will become transactional in the not-too-distant future.

Despite the current state of the economy, Fazio sees a bright future:

“This category has not serviced the customer very well, and we believe there’s a way to do it better. ... We have the talent we need here in the building to reach our goals. We think it’s all about serving the customer, being profitable, providing a solid return to the shareholders and being good to our employees. If we can do all those things and do them right, we’ll get to exactly where we want to be with control and strong results.”