Specialty stores finally grab top spot

Channel eclipses furniture stores with 41% share

By David Perry -- Furniture Today, September 2, 2007

High Point — It was only a matter of time. And sometime in the past two years, bedding specialty stores finally dethroned furniture stores as the largest channel of distribution for mattresses.

The bedding specialty stores have been gaining share for the last six years, according to Furniture/Today's tracking of bedding's key distribution channels. Furniture stores have slipped a bit during that period, opening the door for the specialists.

The newspaper's latest analysis of distribution channels gives the bedding specialty stores a 41% slice of the retail bedding pie, compared to a 39% slice for furniture stores. No other channel has more than a 6% share, an indication of the dominant power wielded by specialty stores and furniture stores.

The latest report marks another sterling chapter in the rise of the bedding specialists, which are the dominant bedding retailers in many markets across the country. In 2000, the bedding specialists had a 32% share, a full 10 percentage points behind furniture stores.

That gap has narrowed ever since. In 2002, it was only seven percentage points, with bedding specialty stores holding a 33% share and furniture stores standing at 40%. In 2004, the gap had narrowed to only three percentage points, with the bedding specialists up to a 36% share and furniture stores dropping to a 39% share.

Now those two channels have swapped positions. The five percentage point increase recorded by bedding specialty stores in the past two years, combined with a flat performance by furniture stores, easily propelled the bedding specialists into the No. 1 spot.

Furniture/Today examines the bedding distribution picture every two years, and has been regularly tracking the channels since 2000.

The latest report puts department stores in the No. 3 position, with a 6% share, down three percentage points from 2004. Department stores have steadily lost share since 2000, when they had a 13% share, according to Furniture/Today's distribution reports.

The rest of the bedding distribution pie is cut into small slices. The direct-to-consumer channel has a 5% share, unchanged from 2004, followed by warehouse clubs with a 4% share, also unchanged since 2004.

The "other" channel, which includes discount mass merchants and rental stores, has a 3% share, down one percentage point. And the factory-direct channel brings up the rear at 2%, down one percentage point since 2004.

Furniture/Today examined several sources of data to make its latest projections. It made estimates of the volume generated by key retailers in each channel, and then compared those numbers to volume figures derived from consumer survey data. Then those figures were reviewed by a group of leading bedding producers and retailers.

This report examines each of the key distribution channels, listing the members of the Top 25 Bedding Retailers in each category. And comments by leading bedding producers help put the significance of each category in context.

Bedding specialty stores

"Bedding specialty stores offer consumers a one-stop shop with a wide selection of mattresses to try."

Philip Dobbs, Senior VP marketing, Sealy

"While there is some regional weakness in bedding stores due to economic conditions, we are seeing nice increases in many dealers who are aggressively promoting themselves and their products."

Steve Fendrich, EVP sales, Simmons

"Spring Air believes the future of the bedding specialty retailer is very strong, and indeed we are investing our marketing efforts to support the growth of this channel. This channel is the most competitive in the sector and, as such, retailers need to find innovative products and offer conspicuous value the consumer will relate and react to."

Kevin Damewood, EVP sales, Spring Air

"Bedding specialty stores continue to grow, but there is a consolidation occurring in that channel. That's due to a combination of issues at hand, primarily a very volatile retail market combined with many undercapitalized sleep shop businesses. Still, those who survive are capturing a large market share, and it's still growing. Specialty sleep will continue to grow. Due to the relatively low cost of entry, new sleep shops spring up across the country at a much faster frequency than the industry's growth would support. That phenomenon also impacts the relatively high mortality rate which exists in that category. Nonetheless, specialty sleep remains an important part of every healthy manufacturer's dealer mix."

Gerry Borreggine, CEO, Therapedic

"The sleep shop channel continues to grow. This is because consumers today have a need for bedding specialty retailers."

Bob Sherman, President, Serta

"We've seen them grow and grow. I don't see them slowing down. I do see them becoming more refined, with the emergence of specialists within the specialty store segment."

Kevin Toman, President, Englander

"The bedding specialty stores are expanding, with more outlets today relative to what they had five years ago. They offer the consumer an expertise not available anywhere else. They offer a quicker process to get the transaction completed. They will grow and get stronger."

Dave Roberts, President, Comfort Solutions

Channel facts

• 2006 market share: 41%

• Change from 2004: Gained five percentage points

Where the channel was represented on the 2006 Top 25 Bedding Retailers:

1. Select Comfort, Minneapolis (stores accounted for 76% of retail sales in 2006)

2. Sleepy's, Bethpage, N.Y.

3. Mattress Firm, Houston

4. The Sleep Train, Citrus Heights, Calif.

7. Mattress Giant, Addison, Texas

8. Serta-Exclusive Sleep Shops, Hoffman Estates, Ill.

12. 1800mattress.com, Long Island City, N.Y. (stores accounted for 48% of retail sales in 2006)

13. Rockaway Bedding, Randolph, N.J.

18. Mattress Discounters, Upper Marlboro, Md.

22. Sit 'n Sleep, Gardena, Calif.

Furniture stores

"Furniture stores attract consumers who may be interested in furnishing their entire bedroom in addition to buying a mattress."

Philip Dobbs, Senior VP marketing, Sealy

"Imports have caused furniture stores to see a decline in their average ticket. Bedding can drive traffic and offers an opportunity to grow the size of their ticket."

Steve Fendrich, EVP sales, Simmons

"Furniture stores obviously have been hard hit by the real estate downturn. We are focused on giving them events that will help drive traffic."

Bob Sherman, President, Serta

"The furniture store channel remains strong for Spring Air because we offer a strong alternative to some of the better-known 'S' brands at a price and value very attractive to consumers. Another key factor in growing this channel is the ability to provide regular, consistent training to sales associates, since bedding is usually not the majority of what they sell. Spring Air is growing its sales organization and making a strong investment in training for our retailers, which empowers them to sell more bedding."

Kevin Damewood, EVP sales, Spring Air

"Furniture stores that treat bedding as a separate entity will continue to hold a viable position in the category. The ones who don't will exit the category. The most successful furniture stores treat bedding as a separate business of equal importance to other categories, and they go after the business. They don't concede sales to the specialists."

Dave Roberts, President, Comfort Solutions

"Furniture stores continue to be a primary channel for Therapedic. Among our dealer base, furniture stores continue to grow their market share. We also find those we aren't selling to be among our most attractive prospects. Consequently, the company, are very bullish on this segment."

Gerry Borreggine, CEO, Therapedic

"Unless they get more aggressive as a group, they will continue to lose share. Some bigger furniture stores are aggressive, but some smaller ones are losing share to specialists."

Kevin Toman, President, Englander

Channel facts

• 2006 market share: 39%

• Change from 2004: No change

Where the channel was represented on the 2006 Top 25 Bedding Retailers:

9. Berkshire Hathaway furniture division, Omaha, Neb.

10. Ashley Furniture HomeStores, Arcadia, Wis.

11. Rooms To Go, Seffner, Fla.

15. American Signature, Columbus, Ohio

16. Slumberland, Little Canada, Minn.

19. Raymour & Flanigan, Liverpool, N.Y.

21. Art Van, Warren, Mich.

23. Havertys, Atlanta

Department stores

"Our business in the department store category is showing strength this year."

Steve Fendrich, EVP sales, Simmons

"Recent consolidation among department stores has resulted in a smaller set of big players in this category. These retailers have growth potential given their national reach, ideal locations and advertising power."

Bob Sherman, President, Serta

"Department stores remain a large part of the mattress industry landscape. However, the continuous consolidation in this sector has limited the amount of lines the larger chains are carrying and made the channel much more competitive for manufacturers. We have found good reception to the Spring Air brand because we are the only leading value brand with a truly national footprint, where quality and service is consistent throughout the organization. Additionally, our large sales force, which still regularly calls on accounts, provides a valuable training source for department stores, who still rely on manufacturers to train their sales associates."

Kevin Damewood, EVP sales, Spring Air

"There are only a few department stores who still carry bedding. The challenge for department stores to stay viable in the category is the same challenge faced by the channel as a whole. The financial bureaucracy of a department store can make it hard for them to stay competitive in bedding on a price/value relationship."

Dave Roberts, President, Comfort Solutions

"The demise of the department store in our category has been greatly exaggerated. To the surprise of many, they continue to survive, if not thrive in our category. This is due mainly to the tremendous customer list advantage they hold over many of their competitors in the form of the database of charge card holders, who carry their store's credit card. This, coupled with the consumer's trust in this shopping venue, makes it a very viable bedding destination. And while this segment of the business has undergone a tremendous consolidation over the past few years, it remains strong because the independents had become so similar over time that the only noticeable difference in the industry's consolidation has been the nameplate on the building. Consumers know what they are to expect when they enter a department store, and typically the store delivers on that expectation. I am sentimental about department stores, as this category represents my heritage in this business. I am pleased that they remain a vibrant segment among our distribution channels."

Gerry Borreggine, CEO, Therapedic

"The decline of the department stores is amazing. At one time they were 30% of the business. Some of the department store business has gone away, and some of it has gone to specialty stores."

Kevin Toman, President, Englander

Channel facts

• 2006 market share: 6%

• Change from 2004: Lost three percentage points

Where the channel was represented on the 2006 Top 25 Bedding Retailers:

6. Macy's, Cincinnati

14. JCPenney, Plano, Texas

17. Sears, Hoffman Estates, Ill.

Direct-to-consumer

"While there are two large players in the arena, Spring Air believes the best approach for its products is through more traditional retail channels, where we can partner with quality retailers and provide a full range of service to the customer. Though many of us have been in awe of some of the gains of specialty manufacturers in this arena, the vast majority of bedding continues to be purchased through a sleep shop, furniture store or department store. A quality retailer helps the consumer find the right mattress and sleep system for them, and gives them support and service before and after the sale, which is very important. We are making a greater investments in the traditional retailer channels because we believe this is really where the growth for Spring Air will come from."

Kevin Damewood, EVP sales, Spring Air

"The only thing we market directly to the consumer is information. And we do that primarily though our Web site, in order to assist to our dealers, who are selling our products."

Gerry Borreggine, CEO, Therapedic

"I think the direct-to-the-consumer channel will grow. More and more of the big producers are aggressively using that channel, including the shopping networks. The Internet offers untapped potential. Some Internet retailers are under the radar and aren't talking about how much business they are doing."

Kevin Toman, President, Englander

Channel facts

• 2006 market share: 5%

• Change from 2004: No change

Where the channel was represented on the 2006 Top 25 Bedding Retailers:

1. Select Comfort, Minneapolis (direct accounted for 24% of retail sales in 2006)

12. 1800mattress.com, Long Island City, N.Y. (direct accounted for 52% of retail sales in 2006)

25. Tempur-Pedic, Lexington, Ky.

Warehouse clubs

"Certainly this channel is a growing source of business for all manufacturers. It is a different buying and service model than many of us are used to, but no less important. As with department stores, Spring Air's national footprint is a real attraction for the warehouse clubs, and our value pricing is another key component to their retail strategy. I suspect we will be doing more business in this arena in the future."

Kevin Damewood, EVP sales, Spring Air

"The warehouse clubs will grow their bedding business as their own stores grow. Their members are driven by the clubs themselves. The value is there, as is the credibility of the stores and the allegiance of the members to those stores."

Kevin Toman, President, Englander

Channel facts

• 2006 market share: 4%

• Change from 2004: No change

Where the channel was represented on the 2006 Top 25 Bedding Retailers:

5. Sam's Club, Bentonville, Ark.

20. Costco, Issaquah, Wash.

Factory direct

"Designing, manufacturing and customizing quality sleep completes the blueprint of the factory-direct mattress segment. Spanning over 200 years, the factory-direct segment retains its status as a viable success story because its marketing strategy is grounded in cultivating a local, loyal customer base. Factory-direct manufacturers and retailers, like Verlo Mattress Factory Stores, realize that being closer to customers is essential in delivering marketing and value proposition strategies. In an industry now predominately owned at both the retail and manufacturing levels by venture capitalists and outside investors, the factory-direct segment preserves its family-owned and operated, successful and consumer-conscious face in the industry, which differentiates them from big-box retailers and the like."

Dave Young, CEO, VyMaC Corp., parent of Verlo Mattress Factory Stores

Channel facts

• 2006 market share: 2%

• Change from 2004: Lost one percentage point

Other channel

"The rental stores are fueled by the economy. Maybe they are stronger now than they were in the past, but I wouldn't call this a growth channel."

Kevin Toman, President, Englander

Channel facts

• 2006 market share: 3%

• Change from 2004: Lost one percentage point

Where the channel was represented on the 2006 Top 25 Bedding Retailers:

24. Big Lots, Columbus, Ohio