Despite Deflation, Sales Gained Smartly in '04

Expanding Top Volume Retailers Propel Category Growth

Michele SanFilippo, January 31, 2005

New York —

In 2004, the bedding category saw the continuation of price deflation, a trading up of specifications at prior price points and more direct sourcing from Asia.

Although leading bedding suppliers have struggled to grow — or even maintain — revenue levels in the face of deflation and stepped up retail-direct sourcing, the top 10 retailers have mostly posted strong growth, helping push total bedding sales ahead 12 percent to $8.3 billion.

Economic conditions remained difficult in the category last year, primarily in comforters, sheets and throws, where prices decreased and Asian importers eroded more and more business from domestic manufacturers. However, sales of better goods accelerated in 2004 as part of the overall trend toward luxury and “hotel” positioning.

In sheets, the industry faced higher cotton prices and a potential shortfall in sheet quota. Although retailers took some price increases, the category remained under pressure from retailer-direct programs, which are expected to grow again in 2005 now that quotas have been eliminated.

Keith Sorgeloos, president of Home Source International, noted, “One of the things that will become more crucial going forward is determining how to break the monotony and confusion going on about thread counts. The American consumer is still tied to thread count, but what you do to the sheet in terms of performance is what can set it apart.”

The quilt category flattened out in 2004. Although many retailers placed an emphasis on higher-end products and contemporary looks, the commoditization on the volume side of the business held price points low.

In down comforters, higher prices and the shortage of down created a reduction in supply due to the avian flu earlier in the year and increased costs of raw materials and finished goods. Some retailers cut back on down products during the year as a result. Interest in solid color programs also started to plateau, which previously had been a means of drawing more fashion-oriented customers to the category.

“Down and feather cost increases in 2004, driven by increased worldwide demand, were not a temporary event. The finished-product suppliers bore the burden in 2004, but that is not sustainable,” described Eric Moen, president of Pacific Coast Feather Company.

Meanwhile the sleep pillow and mattress pad categories were focused on providing functional, performance-based benefits. The value of thread counts was less impactful than it has been in the past as consumers lost clarity on the issue. The trend is moving away from selling product features and toward providing tangible benefits since consumers want more quality. There were also some brand distribution issues that occurred in mattress pads, with key brands migrating to lower-tier distribution channels.

Scott Walters, director of product development at Louisville Bedding, added that in the basic bedding category, there has been a continued trend toward performance-based, benefit-driven products. “Consumers are seemingly gravitating to products that actually do something for them,” said Walters.

He added that there also seems to be a continued trend toward down-alternative products, whether they are comforters, fiber beds or cluster pillows. “And who can forget the spandex knit polystyrene bead filled pillow. First introduced by Mogu, it seemed that every retailer had a version this past holiday season,” Walters described.

2004 retail sales = $8.3 billion (up 12%)
2003 revised sales = $7.4 billion

Merchandise mix ($millions) % Of Total
Blankets 7% $550
Bed in a bag 6 475
Bedspreads 2 165
Comforters 20 1,680
Duvet covers 2 170
Decorative pillows 6 499
Mattress pads 5 409
Quilts 6 528
Sheets & Pillowcases 33 2,730
Sleep pillows 9 725
Throws 4 340
Other 0.9 78
TOTAL 100% $8,349
Distribution channels ($millions)
Home textiles specialty chains 16% $1,336
Single-unit home textiles specialty stores 1 83
Department stores 9 751
Mid-price chains 19 1,586
Discount department stores 40 3,340
Off-price chains 5 417
Variety/closeout 3 250
Direct-to-consumer 4 334
Warehouse clubs 2 167
Other 1 83
TOTAL 100% $8,349

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