McIlquham: Model can work
By Furniture Today Staff -- Furniture Today, November 4, 2002
Trinity, N.C. — Sealy President Dave McIlquham says it is wrong to conclude from the troubles of Sealy's two retail affiliates that a single-vendor sleep shop model doesn't work.
Such models can and do work, he asserts. He sees other issues — tough competition, a proliferation of sleep shops, the quality of store personnel — as key in the sleep shop channel.
Furniture/Today Executive Editor David Perry asked McIlquham for his assessment of the issues that influenced the sale of The Mattress Firm and the Chapter 11 filing of Mattress Discounters, two of Sealy's biggest customers.
Here is the full text of McIlquham's response:
"Given recent announcements about the acquisition of Mattress Firm by Sun Capital and Mattress Discounters' filing for bankruptcy, some may quickly conclude the reason for these retailers' troubles is their single-vendor retailer models, whether these models are perceived or real. However, a more productive examination would be to determine factors affecting how sleep shop-modeled retailers successfully expand and operate in multiple markets, regions, or nationally.
"Single-vendor sleep shop retailers create different market dynamics than multi-vendor retailers, but they can sustain themselves and flourish. There are several such retailers who have been very successful and whose accomplishments can be outlined in tremendous detail.
"When looking at single-vendor bedding retailers in furniture retail, one would instantly see numerous examples of great success, including Finger Furniture, Raymour & Flanigan, American Furniture, Lack's and American TV. Similarly, the success of La-Z-Boy, Thomasville, Bassett and Ashley in opening new stores points to a growing trend among furniture retailers to become single-brand stores.
"The sleep specialty channel has different dynamics than other channels.
Sleep shops that have attempted rapid expansion have faced hurdles that other furniture retailers, even single-vendor models, will not experience.
"In many markets we have seen a proliferation of sleep shops, both single and multi-vendor. It appears a catalyst driving this situation has been the low barriers to opening bedding shops. When this is combined with the category's high profitability, it becomes easy for entrepreneurs to get backing from competing bedding manufacturers who are willing and able to provide additional co-op funds for advertising, promotions and other tools to drive traffic and move product.
"A sleep shop needs to have a very strong market position, almost fortress-like, to offset competitive attacks, as other stores are subsequently encouraged to open in these markets. Whether single- or multi-vendor, there are only a few markets where a sleep shop operator has achieved this entrenched position. Examples include Houston (Mattress Firm), Washington, D.C. (Mattress Discounters), Seattle (Sleep Country) and New York (Sleepy's).
"Furniture retailers that operate single-brand stores invest much greater amounts to open, and tend to be current operators in a market who already have some back room operations in place. They are typically much stronger financially, since most of their capital is usually self-generated. In many markets over the past few years, sleep shops have opened with little internally generated capital.
"Perhaps the most challenging issue for a multi-region sleep shop is store personnel. As sleep shops have exanded broadly to other markets, staffing has been a source of problems, and was certainly an issue at Mattress Discounters.
"Regarding Mattress Discounters and Mattress Firm: While their situations are different, both faced challenges rapidly building a strong image in new markets where they faced well-established bedding retailers. Mattress Discounters was saddled with substantial debt, which limited their ability to respond to fierce competitive pressures in some of their key markets.
"Mattress Firm, having recently exited a few under-performing markets, has been focusing on solidifying its business in existing markets. Recent results have been very positive. In addition to being more focused, Mattress Firm will be appropriately capitalized under its new ownership to grow the business, with Sealy as the primary vendor on its floor.
"Moving forward, Sealy will focus on giving all its customers, whether single- or multiple-vendor models, the tools and product lines they need to help grow their businesses. Sealy will nurture and support each partnership until it becomes the success both partners believe it can be."
