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Epperson: Bedding sees gains thanks to innovation

By David Perry -- Furniture Today, November 18, 2007

Weston, Fla. — Industry icon Jerry Epperson said the mattress industry is dramatically outperforming other home furnishings categories by developing innovative products, providing superior quality and service, raising its prices and delivering strong profits.

Speaking at the International Sleep Products Assn.'s Industry Conference and Exhibition here, Epperson's message, punctuated with charts and tables, was warmly received by the mattress men and women who filled the meeting room at the Hyatt Regency Bonaventure Resort.

Epperson, a partner in the Richmond, Va.-based investment banking firm of Mann, Armistead & Epperson, said the unit and dollar value of mattress shipments have been on a largely upward course for more than two decades. He offered a "Sweet 16" reasons the mattress industry does well:

Manufacturers reimburse much of the advertising expense, ensuring that retailers will promote their products.
Bedding manufacturers usually carry the inventory. Thus, the retailers have minimal obsolescence, shrinkage and warehouse damage, and earn a higher return on invested capital.
The mattress sector offers strong national, regional and local brands that develop loyalty, provide assurance to the retail salesperson and comfort for the consumer.
Mattresses are improved constantly, based on new medical and ergonomic findings. They are also safer and longer lasting. But, he said, there is also "verbal engineering," a comment that drew chuckles.
The mattress industry has developed new construction alternatives, such as visco-elastic foam, airbeds, adjustable beds and gel beds. It also uses new, non-traditional marketing techniques such as infomercials, the Internet and direct marketing, which have educated the consumer and made her willing to spend more.
The industry rapidly delivers quality with few returns, and meets or exceeds consumer expectations.
It has developed and adapted to new retailing concepts like bedding specialty stores, warehouse clubs and factory-direct.
The industry has invested in an effective consumer advisory program, the Better Sleep Council, which yields benefits through greater consumer awareness of bedding.
Mattresses are not as import sensitive as other home furnishings categories, because of transportation costs and the low-retail-inventory model. There also is a growing export opportunity for bedding, Epperson said. Imports only accounted for 4.1% of bedding sold in the United States last year, compared with 50.9% of wood furniture and 24.2% of upholstery, he said. Mattress imports from China last year totaled $106.6 million.
Constant improvements in construction, durability, health benefits, safety and comfort have lead to ever higher average unit sales prices — unlike many other home furnishings categories, which have seen deflation this decade.
Homes have been getting larger and, more important, rooms have been getting larger, allowing the greater use of larger bedding sets. Most new homes today have more bedrooms than older homes.
The 77 million Baby Boomers are now ages 44 to 62 and can afford larger, more luxurious mattresses for their primary homes and their growing purchases of vacation homes. In addition, they are the most obese generation ever and need larger beds.
Unlike other home furnishings categories, spending on mattresses increases with age. That is a change from 20 years ago.
The 72 million children of the Baby Boomers, Generation Y, are beginning to have an impact, getting their first apartments and homes.
Mattresses are the most profitable product on furniture store floors and have been for years. In some stores, bedding accounts for 10% of sales but 25% of profits.
Providing exclusive merchandise to each retailer not only gives comfort to the retailer, but allows for greater penetration in each market.
Epperson also shared a shorter list of challenges and concerns facing the bedding industry:
Growth in specialty bedding shops and alternative channels of distribution may diminish the role of furniture stores and precipitate more store failures.
Baby Boomers will begin to reach retirement age in 2008 and will slowly decline in spending power.
Generation Y consumers will need smaller mattresses for their apartments and first homes, especially as they repopulate older homes that have small bedrooms, and as they have children.
Imported mattresses, primarily from Asia, may have a real impact if they can adapt to the U.S. bedding supply model and not just offer high-volume mattresses in container-load quantities.
What's next after visco-elastic and adjustable airbeds? The consumer is waiting for the next big idea to take the industry to the next level.
Shifts in ownership structure away from the historically dominant regional licensees to a single corporate structure, often with a private equity investor as a partner, will continue to have an effect. There's likely to be less family ownership, more publicly traded equities and indebtedness, and more total debt.

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