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Specialty sleep hits rough patch

First-quarter '08 declines follow robust growth period

By David Perry -- Furniture Today, July 20, 2008

HIGH POINT — Until it hit a rough patch earlier this year, the specialty sleep category had been heading ever upward, generating a growth story that captivated the industry.

Specialty sleep beds generally sell at $1,000 and up, helping retailers capture more sales dollars for each sale, a development that retailers always welcome. In addition, specialty beds have been less subject to the kinds of price pressures that have kept some innerspring prices depressed.

Led by two seemingly invulnerable specialty sleep producers, memory foam producer and retailer Tempur-Pedic and airbed producer and retailer Select Comfort, the category has sizzled on sales floors in recent years.

A strange development hit the category in the first quarter of 2008, when both Tempur-Pedic and Select Comfort reported steep sales declines. Some bedding observers see that as a temporary blip; others are not so sure.

What is certain is that the recent history of specialty sleep has been a remarkable one, marked by robust growth in the last three years.

The International Sleep Products Assn. began breaking out shipment data on specialty sleep bedding in 2004, and now has comparative data for three years: 2005, 2006 and 2007.

And those unit and dollar breakdowns record a stellar growth story that has, with the rare exception or two, dramatically outpaced the growth recorded by innerspring bedding.

Consider:

Unit shipments of specialty mattresses (which ISPA officially calls “non-innerspring mattresses”) grew by 24.5% in 2005, dipped by 0.2% in 2006 (a figure that some leading bedding producers said they had a hard time believing), and shot up by 9.4% last year.
In that same three-year period, innerspring mattress units increased 5.2%, dipped 1.7%, and then dipped 4.9% last year.
The dollar value of specialty mattresses also has been on the ascent, growing 29.2% in 2005, 12.2% in 2006 and 10.2% last year. In that same period, innerspring mattresses posted increases of 13.3%, 6.1%, and saw a 0.2% decline last year.
The average unit prices of specialty mattresses grew by 38% in 2005, 12.5% in 2006 and 0.8% last year. Innerspring mattresses saw their AUSP increase by 7.6% in 2005, 8% in 2006, and 4.9% in 2007. The AUSP of specialty mattresses was an impressive $572.94 last year, almost three times the AUSP of innerspring mattresses, which was $203.64.
Growing last year in a down market, the specialty sleep segment made strong market share gains. In dollars, specialty sleep gained almost two points of share, jumping from 22.9% in 2006 to 24.7% in 2007. The unit gain in market share was also strong, increasing from 9.1% in 2006 to 10.4% in 2007. That means that about one in four dollars generated in bedding shipments last year was in specialty sleep bedding, while about one in 10 units shipped was in specialty bedding.

Why all that growth? There are several reasons, according to bedding veterans. Both Tempur-Pedic and Select Comfort have driven demand for their products with feature and benefit-driven advertising that has focused on better sleep, not lower prices. They have educated millions of consumers about the alternative offered by specialty mattresses, appealing to poor sleepers and to sleepers seeking new sleeping technologies.

In addition, producers across the marketplace have increasingly jumped on the specialty sleep bandwagon, anxious to get their share of a rapidly growing market. Memory foam and latex foam beds, in particular, have proliferated at a wide range of price points, including medium prices. As consumers have been exposed to more options in specialty sleep, sales for the category have been strong.

But then a strange thing happened to the bedding industry's growth star. The almost-constant growth in specialty sleep slammed to a halt in the first quarter this year, a development documented in ISPA's numbers for the first quarter.

Those numbers, based on a sample of leading producers, recorded a shocking reversal: The unit volume for specialty mattresses plunged 13.7% in the first quarter, while the dollar value of specialty mattresses dropped by 14%. Even the AUSP for specialty mattresses, which increased steadily in the last three years, suddenly went south, declining by 0.3%.

Innerspring mattresses, on the other hand, also were down in the first quarter, but not by nearly as much, which means that they actually gained market share on specialty sleep, an unheard of development in the last three years. Innerspring mattress units dropped by 3.2% in the first quarter, while dollars were down by 3.9%.

What happens to specialty sleep next? Time will tell.

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