It was Tempur-Sealy, “the world’s largest bedding company”, that first introduced memory foam mattresses to the United States back in 1992. Made up of a proprietary foam formula, Tempur mattresses have long been renowned for their unique feel. Over the past 25 years, Tempur has capitalised on their leading position within the premium mattress market, tied in with a strong brand message, and were able to raise prices at the same time as enjoying growing volume of sales.
Recently, however, Tempur Sealy announced yet another lackluster quarter with unencouraging sales in North America. The company continues to struggle with the loss of Mattress Firm revenues due to the changing landscape of today’s mattress industry. Rivals have been catching up as of late and recreating Tempur’s famous unique feel, making it more difficult for Tempur to differentiate itself. People can now obtain a very similar product value proposition to that of Tempur’s, at much lower cost. Competitors have also started to apply very aggressive pricing programmes and successfully eaten into market share as a result.
One of the biggest disruptions to the market is coming from a new type of challenger, the so-called “bed-in-a-box” firms. Providing customers with the ability to order compact mattresses directly online, these new firms run a business model that is more build-to-order than the traditional build-to-stock. Tempur is extremely vulnerable to this new model given that their unique, proprietary foam formula cannot be compacted down to the size of a small coffee table in the same way other beds-in-a-box mattresses can.
Innovation and pricing
Innovation will be key in order for Tempur to turn its losses around, either through improving the foam itself or by implementing other disruptive technologies in order to compact materials. Other potential areas for differentiation include mattresses that reflect insights into sleep science, including regional climates and circulation, as well as the development of hybrid mattress (half spring, half foam) and adjustable bases.
Because the number of consumers who purchase mattresses in the high price-range bracket are relatively small, Tempur will also need to address the problem of stretching into a lower price point without jeopardising their brand. Tempur has attempted this strategy before, though it has not historically done well because of the premium status attached to the brand. The big challenge here is for Tempur to come up with a more cost-effective foam formula, but one that does not stray too far from the uniqueness of the Tempur feel. Other potential areas for growth could include delivering direct-to-consumer, opening more of its own-brand retail outlets and international expansion.
Can Premium Presence be Sustained?
Figures show that while 80-85% of mattresses sold are spring and 15-20% are memory foam, the number of consumers aspiring to purchase a memory foam mattress is nonetheless growing. However, it remains to be seen how Tempur will respond to both near term headwinds such as aggressive discounting by Mattress Firm, and long-term headwinds such as shifts in consumer behavior. As millennials become the dominant demographic in the consumer mix, bed-in-a-box could very well make a sizable dent in Tempur’s historically lucrative margins and commoditize the mattress industry as a whole.
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