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Select Comfort: It's a numbers game

By David Perry -- Furniture Today, March 2, 2003

Minneapolis — Airbed producer and retailer Select Comfort dialed into success when it introduced its innovative Sleep Number Bed in January 2001.

The idea is simple: A digital readout on a remote control device gives consumers a numerical reading of the mattress's firmness — the higher the number, the firmer the bed.

Consumers use the device to select the number that suits them, changing the firmness in the mattress air chambers in seconds.

That idea was the linchpin for an amazing turnaround that rescued the company from the brink of failure and launched it on a comeback story that continues to gain momentum.

Earlier, the company reported its sixth consecutive quarterly profit, with after-tax net income of $5.3 million. Fourth-quarter 2002 net sales were $92.3 million, 33% higher than the year-earlier quarter. Net sales for the full year were almost $336 million.

Nearly 80% of the company's sales are through the 300-plus stores the company operates. Select Comfort also sells through direct marketing, the Internet and on the QVC cable TV channel.

The soaring 2002 sales reflect heady growth for a company that was bleeding red ink when consumer products marketer Bill McLaughlin took over as chief executive officer early in 2000.

"We were in deep trouble" in those days, McLaughlin says.

As he took stock of the company's strengths and weaknesses, McLaughlin found a marketing strategy that had been formulated and was languishing in a closet in the company's offices.

It was the Sleep Number campaign.

McLaughlin quickly appreciated the power of the concept and what it could do for the company.

A risky move

Virtually betting the company's future, Select Comfort rolled out the Sleep Number campaign early in 2001. McLaughlin acknowledged it was a risky move, but said, "It wasn't done blindly. There was a very solid strategy. We launched in two markets and then expanded from there.

"We were very disciplined. Had it not worked, we really would have had to accept being a niche player. That would have been OK. But the success has proven there is broad acceptance of our technology, and that our business model can grow."

The profit turnaround came in the third quarter of 2001, despite the shock of the Sept. 11 terrorist attacks. Sales were off in that quarter, but cost controls paid off, giving Select Comfort its first profitable quarter in almost two years.

The company hasn't looked back since.

The Sleep Number strategy is about much more than just Sleep Number beds, of which there are four, and advertising, which touts the Sleep Number story.

Communicating benefits

"The Sleep Number strategy is clearly creating awareness and educating consumers to what our unique advantage is," McLaughlin said. "It attracts people to our stores. It lets our great salespeople find the products that are right for consumers. It's not just an advertising campaign. It is a repositioning of the company."

"With our Sleep Number positioning," said Noel Schenker, senior vice president of marketing and new business development, "we can explain personalized comfort in a phrase." That's a critical marketing advantage.

The advertising part of the equation is aggressive. Total media spending last year was about $38 million, a 31% increase. About $12 million of that was on nationally syndicated TV shows, which puts Select Comfort in the big leagues of bedding advertising.

The Sleep Number theme has carried over to company stores, many of which now incorporate it in their signage.

And, in a clever move, the company puts every employee's personal sleep number on his or her business card, thereby creating a buzz about the concept whenever the cards are handed out. (See story at right for the sleep numbers of several Select Comfort executives.)

Where does the company go from here? McLaughlin sees 2003 as a year to "fuel the phenomenon of the Sleep Number campaign."

Room to grow

He said the company is "loaded with potential" and has the right products and business model, noting it doesn't have stores in a number of major markets and has plenty of room to grow in markets where it's already a player.

Select Comfort's success likely will spawn more competition in the airbed arena, a development McLaughlin welcomes.

"I know other airbeds are coming out," he said. "That is good news. It will legitimatize the category and draw more attention to it."

McLaughlin has some lofty goals for Select Comfort. "We have the potential to be the No. 1 mattress company in the United States, and eventually in the world," he said.

Not bad for a company that was in serious trouble just a few years ago.

Select Comfort's 5-year history
in millions; numbers in parentheses indicate losses
	1998	1999	2000	2001	2002
¹ Includes pretax store closings and asset impairment charges of $20,000 in the 1998 year, $1.5 million in the 1999 year, $2 million in the 2000 year, $1.8 million in the 2001 year and $233,000 in the 2001 year. Also includes income tax benefits of $2.2 million in the 1998 year, $4.8 million in the 1999 year and $17.8 million in the 2002 year. The 1998 year is after preferred dividend charges of $2.1 million and also includes a $1.4 million extraordinary charge. The 2000 year also includes $642,000 equity in losses of an affiliate. The 2002 year also includes a $380,000 extraordinary loss on the early extinguishment of debt. Source: Company reports
Sales	$246.3	$273.8	$270.1	$261.7	$335.8
Net income¹	$3.1	($8.2)	($37.2)	($12.1)	$37.1

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