Tempur Sealy CEO offers plans in wake of Mattress Firm split
LEXINGTON, Ky. — Retailers carrying products in the Tempur Sealy International brand portfolio are “incredibly excited” to capitalize on the fact that those brands will disappear shortly from Mattress Firm stores around the country, according to Tempur Sealy’s CEO.
Scott Thompson, chairman and CEO of Tempur Sealy, shared new insights on the company’s go-to-market strategy in the wake of Tempur Sealy’s decision to end its relationship with Mattress Firm stores.
He said Tempur Sealy will step up its national advertising, asserted that the company’s products will continue to drive traffic to its dealers and anticipates that the transition will be “disruptive in the short-term.”
“We have a strong network of retail partners throughout North America, who are committed to promoting our premium brands,” Thompson told analysts in a recent conference call. “In the U.S., excluding Mattress Firm, Tempur Sealy products are available in more than 12,000 doors. Our network of retail partners is incredibly excited to capitalize on the fact that Mattress Firm will no longer carry Tempur-Pedic, Sealy and Stearns & Foster. We believe they fully understand the opportunity this creates for their business, and we expect them to seize the opportunity.”
Thompson also provided new details on the impending split between those two companies, saying that Mattress Firm gave Tempur Sealy “a surprise verbal termination” of its contracts in January and later “demanded significant economic concessions.”
“We considered their demands, but we ultimately concluded that it was in the long-term best interest of our stakeholders to terminate the contracts with Mattress Firm,” he said. “Upon termination, the original contracts called for immediate stoppage of orders and deliveries. However, to facilitate a more orderly transition with Mattress Firm, we signed an agreement to allow for a two-month wind down. Mattress Firm represents 21% of our consolidated net sales for 2016 and in light of their volume was the largest recipient of promotional dollars.”
Thompson also provided a breakdown of the business Tempur Sealy has been doing with Mattress Firm.
“On the brand and product side, Tempur-Pedic product represented approximately 60% and Sealy product represented approximately 40% of our net sales to Mattress Firm,” he said. “In making this distribution decision, we had to consider our other retailers that comprise almost 70% of North America sales. We feel strongly that we must focus on retail partners who have the greatest commitment to promoting our premier branded products. We also feel strongly that it’s important to maintain a healthy competitive balance in the marketplace we serve.”
Thompson said that despite the challenge presented by the “unexpected loss of our largest customer, we feel confident we have chosen the right path.”
He cited several reasons for that optimism.
“First, we have a premier portfolio of branded beds,” he said. “Starting with Tempur-Pedic, we’ve invested over $1 billion in the past 15 years advertising the Tempur-Pedic brands to consumers, which has resulted in a significant brand advantage. Our research shows that more than 94% of Tempur-Pedic owners would recommend the product.
“In addition to Tempur, we have two other strong mattress brands in Sealy and Stearns & Foster,” Thompson continued. “Sealy is a 130-year-old iconic brand, known worldwide for its reliable support and quality. We believe Sealy has one of the highest brand awareness of any U.S. mattress brand. Stearns & Foster, founded 170 years ago, is known for rich quality and craftsmanship. In 2016, Stearns & Foster posted year-over-year sales growth, even without being on Mattress Firm’s floor for most of the year. We believe product, service and advertising is a winning formula.”
Thompson also said the company believes its North American business is solid.
“Excluding Mattress Firm,” he said, “our sales in North America grew 4% for the full-year and grew 7% in the fourth quarter with our direct business up 84%. Halfway through the first quarter, excluding Mattress Firm, our Tempur-Pedic sales are up 3%, which is an improvement from the fourth quarter, which was down 5%.”
Thompson said that while his team is currently working through their plans to partially adjust the company’s expense structure, “it’s important to note that our near-term expense adjustment will be minimal on both manufacturing and the marketing side as we expect over time to recapture the majority of the lost sales volume.”
On the marketing side, the company “will be increasing our investment on both an absolute dollar basis and as a percentage of sales,” he said. “This will be across all brands, Tempur-Pedic, Stearns & Foster and Sealy. Consistent with our long-term brand strategy, our products will stay top of mind for consumers and will continue to drive traffic to our retailers.”
“In short,” Thompson said, “we’re keeping our foot on the gas and promoting our brands and we expect our retailers to benefit greatly from our continued commitment to their success.”