As sales data indicates, the demand for bedding products in US has been growing in the past several years attributable to growing population. However, the growth seems to have been reflected on online sales for those products of international manufacturers. US domestic manufacturers, who mainly depend on in-stores sales, seem to benefit less from growing demand for their value products.

Sector’s current, trend, causes behind trend, and future

Current and Trend

• The US domestic demand for bedding products has been growing in the past several years.
• Our data indicates that sales unit of some of major US bedding manufacturers in their comparable stores/existing retail distribution channels have been declining in the past three years while signals indicating the trend is turning.
• Trend of consolidation has continued as a result of intensive competition among US bedding manufacturers, who have also been facing competition from international smaller manufacturers, especially by online sales.
• Responding to increasing competition from both domestic and international manufacturers, major US companies have tried to expand its store reach or enhanced their online sales channels.
• Bedding sales have gradually shifted to larger and more expensive products, which to some extent, help offset the impact resulted from the decreasing unit sales.

 

Causes behind the trend

Radical factors that may determine the industry should be from population growth. Obviously, the gradual population growth and increasing homes have been behind the continuing growth in unit sales of US bedding industry.

The decrease in sales units of domestic manufacturers is probably a result of international price competition, especially in the segment of low price products. Higher price segment seems to be less impacted internationally.

While it seems that those more direct factors that impact individual manufacturers have come from supplies side. For example, the performance in retailers’ sales in the past several years may, to large extent, be attributable to online sales, especially from online sales of international smaller manufacturers. However, the deep driver behind strong online sales can also be traced to changes in demography and economy, which we think may be a result of population growth accompanying with slow income growth.

Industry Future

In a long period of time in future, the major market in US will still be based on traditional consumers with relative high purchasing power and in-store shopping habits. Accelerating recovery of economy will be able to offset temporary impact on consumers’ income of changes in monetary policy in the past two years.

International impacts will continue backed by the demographic changes in US. However, US manufacturers have opportunities to adjust their production to meet demand of those consumers.

 

General Financial Performance of Companies In the Sector

It seems that demand for bedding products has not been strong in the past several years as indicated by continuingly declining companies’ unit sales (-7-0% annual decrease for typical retail sales). While rising average price (0-10% annual increase for typical retail sales), probably as a result of both rising costs and sales’ shifting to more expensive products, may play a role in the decrease in unit sales, weak demand for lower price products provided by companies in this sector may be the major reason. However, it seems that demand for higher price products has

been strong and growing during the same period. And it seems that demand for lower price products is bouncing back in 2018.

Online sales seem to have been growing fast (20-100% annual growth) but the pace slows down in 2018.

International demand for high price products has been strong (4-10% annual growth).

Benefited from sales’ shifting to higher margin products and lowered products costs, companies have seen improved gross margin across the sector. The typical average gross margin increased to about 52% in 2018. The typical SG&A as percentage of sales has been increasing due to deleverage of decreased sales or expansion of stores and reached to about 43% and caused an average operating margin down to 8% in 2018.

The typical enterprise price/EBI (adjusted) ratio: 25 (interest/EBI ratio of 25%).

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