Sleepless Nights

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\"RRI am not sure about where you live, but around here in southeastern Pennsylvania, it seems like wherever I drive, I am never far away from a mattress store, and a discount one at that.

It makes me wonder how these stores can keep their lights on. Can there really be that many people in this community of half a million that, give or take, need a new bed? I don’t have the answer for the mushrooming growth of retail banks, but do I understand Americans have been buying mattresses in record numbers making the mattress category the fastest growing segment in the $164.4 billion home furnishings business in 2012, according to HFN’s State of the Industry report. In 2013, the mattress segment posted slower but still good growth to reach $9.4 billion.

Mattress Madness

Obviously Americans are sleeping better—or at least investing in record numbers in better beds. And with recent double-digit growth in the category, mattress retailers are trying to squeeze every bit of spring out of the mattress business. Sleepy’s tops out at over 900 stores, and gives ‘showrooming’ mattress shoppers access to deep discounts for most of the leading brands. The leading television channels and even Walmart are getting in on retailing beds.

Then there is Mattress Firm Holdings, leader in number of doors, with nearly 1,500 stores and reported plans to open 160-180 more this year. The company boasted spectacular 20.8% revenue growth FY 2013 and preliminary results for 2Q14 brag of a 35.5% bump. Mattress Firm sells all the usual-suspect mattress brands, including Tempur-pedic which is credited by Warren Shoulberg, editorial director of Sandow Media and fellow Robin Report columnist, with sparking much of the growth in the overall industry. He says, “Tempur-Pedic was the first to bring high tech to mattresses. It offered a meaningful point of difference when customers went shopping. Prior to this, people shopped blind, looking at white boxes with no idea what was really inside.”

But hidden in the glowing Mattress Firm Holdings release is a quiet word of warning that the boom may be ready to go bust: Almost all that growth was made from acquisition and new stores, as comparable store sales only increased 1.3% for fiscal year 2013.

Consumer Demands

Clearly the nation isn’t adding that many new households (about 6.4 million from 2007 to 2013, which is only adding about 1% per year according to the Census) to account for the growth of the category. Rather, much of the growth in the mattress business is due to consumers trading up to features that are rich, more luxurious and to significantly higher priced brands like Tempur-Pedic, Select Comfort, and Stearns and Foster. Unity Marketing’s research into the highend and luxury mattress market indicates that the affluent consumer segment (top 20% of households with incomes $100k and above) accounts for $4.4 billion of the total $9.4 billion mattress market, or some 46% S.O.M.

But recent indicators signal challenges ahead for premium brands, like Select Comfort, Tempur-Pedic, Stearns and Foster and others. Consumers are demanding all the comfort from a premium brand, but at steeply discounted prices and the current state of rabid retail competition means that the premium brands can’t hold the line on prices.

Paradox of Choice

There are too many comparable brands, too many styles, too many stores and few clear differences on which a shopper can make a choice. What’s more, as Warren explains, the traditional way mattresses are sold is based upon none too subtle obfuscation, “The mattress industry makes the purchasing process complex on purpose to keep the consumer confused and stop them from comparison shopping. As a consumer, it’s not ideal, but for vendors and retailers, the system works fine.” Yet in today’s consumer empowered environment, strategies that don’t serve the customer first just won’t cut it anymore. While the premium and luxury brands fight amongst themselves to grab market share, there is a growing class of mattress companies emerging online dedicated to taking the confusion and pocketbook pain out of the process.

Tuft & Needle and Casper are disrupting the traditional market, as is Saatva. These brands are poised to capture business from both the high-end and middle-market mattress brands. For example, Saatva offers a single ultrapremium luxury mattress with all the bells and whistles, available in three basic flavors (soft, medium, firm) and sold direct-to-consumer online. Through this simplified shopping experience without the added cost of retail middlemen, Saatva offers customers all the quality features of the luxury name-brand mattresses for 70% less, so prices for a king-size is a flat $1,599 and a queen is $1,149. For its customers, Saatva takes the complexity out of shopping for a new mattress.

Reimagining Mattress Luxe

Tuft & Needle, Casper and Saatva are addressing the reality that premium and luxury mattress brands are losing their ‘luxe.’ For example, Select Comfort was disappointed in 2013 sales and gave investors the ‘willies’ when they announced these sales trends were expected to continue into 2014. Tempurpedic too has its troubles. In 2013 Tempur-Sealy International reported a 5.6% sales decline in its Tempur North America segment owing to competitive pressures. In response to weak performance, the company announced six new TEMPUR-Cloud mattresses coming in 2014 to an already confusing array of TEMPUR-branded mattresses, styles, and designs; in other words, the company is reverting to industry’s standard practice of obfuscation. Rather than boost sales, this strategy adds complexity to an already complex buying decision and will cause affluent shoppers to back off the brand through indecision, not step up to the counter to buy.

In the current environment where high-end brands are just commodities, marketers must move aggressively to put the ‘luxe’ back into their brands. Introducing new models like Tempur Sealy isn’t the answer. Affluent consumers resent the whole mattress shopping experience. It is just too annoying and time consuming.

What established brands can learn from Saatva is how to take out all the confusion from shopping for a bed. The ultimate luxury is the time-savings and convenience of buying from Saatva, compared to spending meaningless time trying to figure out what mattress you want in a crowded and intentionally confusing retail store.

\"177294982\"Disrupt Before Being Disrupted

Here’s some good advice. Be alert for the signs that your market is headed for disruption. Using mattress retail as a case study reveals not what to do!

High-end brands need to wake up to the problems customers face when approaching their category. Whether it be mattresses, or any other product where commoditization is taking hold, or when customers are choosing new ways of shopping and buying (think jewelry, beauty, high-end fashion, home furnishings), it’s critical to learn from the winning strategies of disruptive brands before it’s too late. Brands need to truly grasp the customers’ pain points today (not yesterday’s) and solve those problems first, rather than try to force the customer to fit into their preconceived business models.

Today the traditional business model for mattresses is broken and high-end brands have lost their pricing edge. Premium brands need to focus on customer experience, honing in on the needs of the best customer prospects (i.e., the affluent luxury buyers) and build relevance for the brand around those needs. That takes decisive action. Here are a few of the challenges:

  • Recognize that the brand doesn’t have the same meaning to the customer as it does to marketers. Mattresses have become commoditized and have lost the ‘luxe’ edge.
  • Uncover through consumer insights what the affluent customer really wants in a sleep experience and what mattress features and values communicate those expectations
  • Implement changes to brand positioning, marketing, distribution strategies and pricing around customer wants and needs.

To drive sales, mattress brands and bedding retailers can’t keep doing the same things they always have done. More models, more brands, and new pricing schemes aren’t going to make a difference. Brands need to start by understanding that the customer wants clarity and true value. A successful luxury brand is one that is relevant, priced right and fills a gap in the marketplace. As for the high-end mattress market, which is nearing $5 billion, there still are a lot of sleep-deprived affluents out there looking for a sleep solution that they are willing to pay for.



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