Bedding executives see tough but better 2003

By David Perry -- Furniture Today, December 22, 2002

High Point — The bedding industry faces a challenging year in 2003, but one that should be better than what has turned into a difficult business year in 2002.

A Furniture/Today survey of almost two dozen leading bedding producers turned up several concerns about business next year, ranging from a war with Iraq to raw materials price hikes now being felt to the costs of complying with stringent new flammability regulations.

But producers also cited a number of positives, including a pro-business Republican majority in Congress, low interest rates, growing awareness of the importance of sleep, and the ongoing consumer trend toward buying better bedding.

Some see business rebounding by the middle of the year. But some say units next year could post another decline.

Invariably, the producers surveyed are optimistic about their own prospects next year, citing new products, marketing programs and retail customers as reasons for their optimism. They say the battle for business again will be fierce.

"We will all be fighting to increase sales while finding it difficult to maintain margins," one producer noted.

On this spread and page 10 is Furniture/Today's exclusive look at how leading bedding execs see business shaping up next year.

Industry leaders look ahead

"The industry should start its long-awaited rebound by the second half. Interest rates will remain low, which will continue to drive housing sales. Mortgage refinancing should continue to stimulate spending, and ideally consumers will be more likely in 2003 to make more big-ticket purchases. Consumer spending has shown good resiliency in the past 60 days, and factory orders and manufacturing activity has recently picked up."

Dave McIlquham, Chief executive officer, Sealy

"The world is so different today than it was in the past. The bedding industry has a lot to overcome, but I see a rebound in 2003. An increase of 2% in units would be a very good year. I think dollars will be up about 4%, with a better average unit selling price and a better mix helping there. I think there will be some additional retail washouts. Is there pent-up demand that will drive business to everyone who is left in the market? History tells us that stores drive business. We will find out if the loss of retail distribution will hurt everyone."

Ed Lilly, President, Serta

"I don't feel anything that tells me 2003 will be a recovery year for bedding. Have consumer concerns lessened? No. Have worries about jobs lessened? No. There are two positives — lower interest rates and a good housing market. But those haven't really helped us very much."

Jim Nation, President, Spring Air

"If things remain the same as they are now, I think that we've seen the bottoming out of the stock market and will begin to see more investment in the first and second quarters. Hopefully, the Enron-type fraud problems have already surfaced and government indictments have given consumers notice that sins have been purged. I do see the Republican majority (in Congress) as a positive to improve the economy. I see a rebound in the stock market, and with that an expansion of spending by consumers and businesses."

Michael Pino, President, Therapedic

"Based on current conditions and the newly released new housing start statistics, we see the bedding industry starting slowly in 2003. The Fed has no room to stimulate new housing or consumer spending. The economy is on its own. If we get the Iraq situation behind us in the first quarter, we hope to see recovery in May/June."

Bob Hellyer, President, Simmons

"The positives are that many of the leading companies are seeing their average unit selling price continue to grow. At King Koil, our Perfect Contour and Natural Response lines will fuel growth in both units and dollars. Also, the shakeout that has happened at retail has left us with a stronger, more aggressive retail community. Retailers appear to be ready to change and to look for better profit opportunities."

Larry McKay, President, King Koil

"The changes with Sealy's retail affiliates present an opportunity — and a threat. There is the opportunity for Restonic and other producers to take some of that business. But the threat is that Sealy will get more aggressive to take back the business it lost."

Ed Scott, President, Restonic

"I think there is a lot of uncertainty out there. I do think things will improve by the middle of the year. Either the economy will pick up by then, or we will learn to deal with the uncertainty. It may be a bear market, but I'm bullish on the outlook for Englander."

Dave Clark, Vice president of bedding operations, England

"For 2003, I feel that, hopefully, we will see a rebound in the third or fourth quarter. This, however, has been the 'analysis' from many investment fronts for the last two years. Also, this thinking is what leads us into the financial dilemma that we are in today. The sales prospects for our industry will continue to improve as we are seeing the move to higher price points with better values attributed to these products."

Pat Flippin, President, Kingsdown

"In 2003, Lady Americana looks forward to a major new program beginning early in the year that will result in significant new business. However, in general, business will be affected by a war (or a non-war) in Iraq."

Gene Schayer, President, Lady Americana Associates

"As the U.S. economy gradually improves in 2003, advertising the features and benefits of sleep will drive sales more than the discounting we have seen in 2002. I also see 2003 as a breakout year for specialty bedding. Traditional bedding producers will be challenged more than ever to keep pace with consumers' demand for specialty bedding. The industry in general should have a record year in both units and dollars, but a great deal of uncertainty surrounds the new fire regulations and could significantly impact the final numbers."

David Fogg, President, Retail Division, Tempur-Pedic

"Whatever the economic climate in 2003, consumer awareness of the importance of sleep will continue to grow and support growth of premium bedding in particular. At Select Comfort, we are fortunate to have weathered the economic storm with double-digit sales growth throughout 2002. We expect to sustain this profitable growth in the years to come, with plans for a 15% increase in sales in 2003."

Bill McLaughlin, Chief executive officer, Select Comfort

Bedding executives look ahead

"Manufacturers and retailers alike will have to be very innovative in the pursuit of their share of the consumer's mattress dollar in 2003. Business will have to pick up considerably from current levels to meet the forecasts for 2003. Couple that with the unprecedented increases manufacturers are seeing in raw materials and insurance costs, and you have the formula for a very competitive year. We will all be fighting to increase sales while finding it difficult to maintain margins."

Paul Sullivan, Executive vice president and general manager, United Sleep Products

"The biggest surprise of 2002 was the overall strength of the economy given all of the negatives. I see a glass very much half full with good things to come in the future."

Jimmy Orders, President, Park Place Corp.

"The trend to better bedding will continue, unless low-end imports become a factor and knock premium bedding out of its position as being a major thrust in the industry. But I don't see imports having that kind of impact now. Someday it could happen in bedding; it has happened in other industries, including furniture."

Daryl Tarbutton, President, Bemco Associates

"Savvy retailers who focus on bedding and how to differentiate themselves will have a lot to be happy about in 2003. Bedding has always been a reliable promotional vehicle for the furniture industry, delivering the best sales and profit per square foot. 2003 will be no exception. The industry on average will have a flat to modest uptick of 2% to 4% growth, but averages are just that and in each market a retailer will take an increased share and grow their business in the double digits."

Bob Naboicheck, President, Gold Bond

"It's a tough environment for bedding, but there is business out there. We need to work our current customer base aggressively and give those customers the tools to be successful. The consumer is still in the market for bedding and they are cocooning. We need to push value and comfort."

Stuart Carlitz, President, Eclipse International

"The economy will continue to be led by consumer spending. Even though they are timid and cautious, consumers are still entrenched in the marketplace.... As manufacturers we need to work with each retailer to develop every area of their business for full market penetration. The development of special opportunities, unique segments and maximized floor sales will be vital to have a successful year in 2003."

Ron Passaglia, CEO for U.S. operations, Selther

"I am fairly optimistic about our prospects for 2003. Although 2002 was a difficult year, we had enough spikes of good business to lead me to believe that with an improving economy, and the continued impact of previous tax cuts and Fed interest rate reductions, our environment will be more favorable than in 2002.... As higher-end consumers feel more comfortable, we will see an upward trend in better case goods and upper-end bedding."

Don Robb, Chief executive officer, Chittenden & Eastman

"The bedding industry will be faced with another difficult year in 2003. The S-brands' financial problems will continue to force them into factory sponsored/exclusive retail partnerships. While many of these exclusive stores have struggled, the lure of large upfront or guaranteed co-op dollars influences the medium-to-small independent retailer into these relationships and pushes the retail price points higher and higher."

Brian Akchin, Vice president, Fraenkel Co.

"From the perspective of the high end, I think next year will be fantastic. There does not seem to be a lack of spending on high-end products. Our products, which retail from $3,600 to $4,800 in queen, are being well received in the market. Those prices pique retailers' interest. When you add in the romance of our product and the image that goes with it, that generates interest in areas we didn't expect."

Adrian Jones, Director of sales, Hypnos