No Rest for Bedding Suppliers in 2004

Michele SanFilippo, September 13, 2004

NEW YORK – With rising raw material costs, escalating fuel prices and the effects of avian flu, 2004 has been a tough year for basic bedding and utility suppliers.

By far, the most important issue this year was the stabilization and control of the avian flu outbreak, said Bob Hickman, vice president of sales and marketing at United Feather & Down.

“We’re paying more for cotton, down and feathers across the board,” said Hickman. “People who are not willing to pay more are experiencing compromised quality standards. Quality issues have become more prevalent in the post-avian flu era.”

“The continued pressure on U.S. manufacturers to survive is constant,” he said. “Fuel prices raise the price of everything across the board – vinyl bags, polyester, heating, transportation, travel costs – and I don’t think this problem will go away anytime soon. The only good thing about expensive oil is that it imposes conservation and encourages alternative energy development.”

He said less attention is being spent on research and development because companies are focusing on finances.

Fritz Kruger, vice president of marketing at Pacific Coast Feather Co., said, “Presently, down and feather prices are higher than we built into the costs of our goods. We certainly expect prices to settle back down over the course of the next 12 months as it relates to the avian flu. There are a lot of factors that influence the costs of goods, i.e. quota, trade issues, domestic demand in China, fuel costs, which can negate or exacerbate price changes related to avian flu. I think avian flu was the biggest factor in the first half of the year and the election will be the biggest in the second half, plus it has implications on trade policies.”

Kruger added that manufacturers now need to be more stringent to ensure they maintain down and feather quality in this tight supply situation. “The other trend we are seeing is retailers returning to a more broad merchandising strategy that covers a full spectrum including, value, differentiated, value-added and luxury products versus the price-oriented focus we saw over the past few years given the economic downturn,” he said.

Allen Robinson, director of marketing at Perfect Fit, said, “We certainly have experienced some increases in raw material costs this year due to fuel prices, yet the retail environment is still very price sensitive, so the market can’t really accept a semi-permanent price increase right now. We have still not seen the down and feather market stabilize in China. There is still some volatility there due to a slower-than-expected ramp up, as well as recognition of a business risk on the part of Chinese suppliers, plus a growing domestic demand.”

Leo Hollander, chairman and CEO of Hollander Home Fashions, agrees. “The impact of fuel is going to be felt in every product you import because it touches everything we do.”

Art Birkins, president and general manager of the basic bedding division at WestPoint Stevens, said price increases have been the biggest challenge. “Oil has been hanging above $40 a barrel for a long time, so in essence every raw material we touch has gone up. People are really going to have trouble with heating costs this winter because they are 30 to 40 percent higher than normal. I believe that this won’t resolve itself until 2006.”

As a result, WestPoint is launching an energy-conservation campaign featuring point-of-sale signage and packaging with tips on how to conserve energy with down and feather products.

“As a result of avian flu, testing becomes more of an issue because there’s going to be a lot of bad quality goods coming into the Unites States from Asia since the supply of good quality down has decreased,” said Birkins, adding that American Down Association members have committed to better policing quality control in the post-avian flu era. In addition, pricing for down and feathers has remained consistently high.

Hickman added, “In the U.S., we are still enjoying a growing share of the market because in America people are still discovering the joys of owning down products. There is a renewed awareness of natural products, conserving energy and sleep wellness.”

Birkins explained, “We’re seeing the consumer respond to innovation and value-added benefits. If you’re in this business, you have to take a long-term view and you have to innovate to stay in the game. Business as usual is not winning anybody any increased business or profitability.”

He said the company spends as much time developing innovative packaging as it does coming out with new products. “The more changes we can make to the packaging to innovate and be the retailers’ silent sales person, the better chance that consumers will go home with the product,” Birkins added.

Beth Mack, senior vice president of basic bedding at Hollander, said that packaging is becoming more of a concentration among retailers and suppliers. “There’s a fine line between consumer-friendly information and flooding your customer with too much info,” she said, adding that Hollander has started offering more proprietary point-of-sale and product signage for some of its biggest customers.

“From a bed pillow perspective, the major trend continues to be value and what equates to value, such as surface interest, quilting and thread counts,” said Mack. “Down alternative polyesters also remain important because the American consumer is much more aware of what this is and because of the avian flu situation earlier in the year, retailers are looking for more alternatives in bed pillows.”

Andrew Schantz, vice president of basic bedding at Hollander, said, “Down-alternative comforters, fiber beds and microfiber have been our biggest areas of growth this year probably because they are intrinsically hypoallergenic. There is more consumer awareness; retailers are looking for more alternatives to down; and consumers have learned more about these products.”

He said the company is also working with international testing labs for higher performance fabrics.

Products in the better and best categories are doing well this year, according to Judi Alexander, vice president of marketing for the basic bedding division at WestPoint Stevens. For example, WestPoint is seeing a good reaction to its “Feel the Difference” packaging in which the vinyl bag has an opening where customers can feel the product.

Alexander added that people are trending toward larger down comforters, more synthetic down alternatives due to price and supply, and increased surface texture.

According to Perfect Fit’s Robinson, the industry has been trying to bring more value to the consumers through product innovation and enhancements. For example, he said that in mattress pads, there has been an effort to bring in retail-ready compressed products from Asia, but the recovery is not 100 percent and there is a performance difference in the poly fill.

According to Lonnie Scheps, vice president of sales and marketing at Hudson Industries, the most important trend in the specialty problem-solving therapeutic-sleep classification has been the maturation of the category.

“Baby boomers are more intrigued with this category than ever before because it really speaks to them and their needs for better sleep products,” he said, adding that visco-elastic foam has reached an acceptance level and is being blended to yield products with new benefits.

Scheps added that the petro-chemicals market has taken off in terms of cost increases in the last 90 to 120 days. “We have between five and six U.S. chemical companies we deal with and each has announced double-digit chemical increases recently,” he said, noting that chemicals represent the lion’s share of the materials cost that goes into foam. “You can’t contain it, absorb it or pass it along to retailers … so we’re hoping that this situation will be short lived and a little clearer in the first quarter,” added Scheps.

Scott Walters, director of product development at Louisville Bedding Company, said, “Raw material increases, primarily petroleum-based products, continue to pressure margins. All are experiencing pricing pressures, and as we all know, these increases are generally absorbed by the manufacturer and are rarely passed on to the retailer.”

“I believe the quality of many goods on the shelf today from overseas is not of the same level as the U.S. manufactured programs they may have replaced,” Walters added. “As an industry, we talk about adding value to a product but, oftentimes, the exact opposite happens ... quality is taken out of a product to hit a price point, due to increased margins, etc. This trend flies in the face of the general trend bantered about of ‘value adding.’”

David Fuchs, executive vice president of sales and marketing at Sleep Innovations, said, “We’ve started to see that when you package a product right and give the consumer the feeling that they are bringing home a unique product that they can understand and feel, your sales are significantly better. We see a continuing pattern of consumers spending money on their homes and products that make them feel comfortable.”

Sleep Innovations has used colored boxes, foil printing, fixtures, hand samples consumers can squeeze and feel, 3-D holograms, and even packaging with wheels.

Kevin Stein, director of marketing at Latex Foam Products, said, “Because of the level of information on allergies and the importance of sleep, consumers are becoming more aware of what’s out there and what is beneficial for a good night’s sleep and are willing to pay for it.”

Stein said this has helped latex because it is dust-mite resistant, antimicrobial, mold and mildew resistant and hypoallergenic. “I also think you will start to see mattress toppers become more important to relieve pressure and extend the life of a mattress,” he added.

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