Simmons sets fast pace in allowances category

This week we shine the spotlight on a part of the business that we seldom mention: the discounts, incentives and allowances that major bedding producers give retailers.

This is talked about mainly in whispers. We hear that X retailer got Y millions for signing an exclusive deal with Z producer. Since the details are seldom made public, they go unreported most of the time.

But our latest bedding market share report does throw some light on the incentives issue, in broad terms. Once again, we broke out the incentives, allowances and sales discounts offered by the three largest producers. Some of the figures are eye-opening.

Last year, our report said, Simmons had allowances, incentives and cash discounts totaling $95 million, a whopping 11.2% of the company’s wholesale shipment volume of $849 million. Sealy, by contrast, had allowances of $86 million, which was “only” 6.4% of its wholesale volume of $1.3 billion. Serta was far behind with allowances of $27 million, or 3.3% of its wholesale volume of $811 million.

A look at 2004 and 2003 showed the allowance figures for Sealy and Simmons have been steadily increasing. Sealy had allowances of $70 million in 2004 and $50 million in 2003. Simmons had allowances of $78 million in 2004 and $60 million in 2003.

Those are very big numbers, especially for Simmons, which has been giving far more generous allowances than Sealy, its much larger rival. The $95 million in allowances granted by Simmons last year is a massive number, larger than the total sales at any of the final three companies on our list of Top 15 Bedding Producers.

Why are the biggest producers spending those kinds of dollars? It goes with the territory, my bedding sources say. The biggest producers have the fattest wallets, and the biggest retailers are looking for the best deals they can strike. The producers are locked into tough competition with one another. Sometimes it’s a zero-sum game, with one producer aiming to knock the other guys off the sales floor. But such exclusive deals come with a price, one that becomes steeper as the stakes grow larger.

We presume the producers making these deals know exactly how much business they must gain to justify the discounts, allowances or incentives they provide to the retailers.

Are these kinds of deals limited to the biggest producers? Sort of. The deal-making is most intense at the highest levels of the industry, but smaller producers also do what they need to do to get the business. We don’t really know what’s happening with the smaller producers because they don’t give us audited or accountant-verified figures that would reveal the levels of allowances they provide.