Ride-sharing is going to change a lot in the coming years. Younger generations are not buying cars like my generation did. When I turned 16, I couldn’t wait to get my license and a car to drive around in. These days you have to drag your kid to the DMV just to get them to take the stupid test. How about you, are you renting less cars when you travel on business? Taking less taxi’s? Will fewer cars be produced as this plays out? My point is that there is a ripple effect from the rideshare industry if you look at it.
In the spirit of that idea, what is the ripple effect going to be if some of the analysts are right and 40-50% of mattress sales will be in the direct to consumer channel? I don’t have the answers but I have some thoughts on how it could impact the brick and mortar guys and manufacturers out there. Much of what you read below is true today, but not to the degree that they will be as things tighten up. Some will be right, others not even close. You decide which is which:
- Only the very best sleep shops will survive as they don’t have furniture to supplement their business OR they will expand product assortments to include more than mattresses and sleep essentials to appeal to a larger audience. They will need to focus more and more on unique products that deliver big tickets and healthy margins so that they are not in the commodity business which will be well served online. They will need to create an experience that justifies the consumer’s visit to their store and has them leaving, and telling their friends.
- Brand awareness in the brick and mortar space will mean JACK SQUAT (apply the same logic here to bedding products). If you don’t have a strategy to build a relationship with your consumer and create a real PREFERENCE for your store or product then you probably won’t make it. Why would anyone WANT to visit your store or buy your brand? Can YOU fulfill a promise that others can’t? How have you earned their loyalty? Do you do something totally extra that the rest of the market isn’t doing? Do people LOVE YOU because of your business philosophy or the way you support your community? Low prices and constant sales aren’t going to work; consumers can get that online.
- Foam will grow in market share as a way to build a mattress. Innersprings are still participating but not at the same rate if the current trend continues.
- Foam producers are going to have to differentiate their 10-12” thick products if they are going to expect premium prices which will require either a big brand spend or a product that is clearly different along with a great way to communicate their superior approach. The bastardization of foam beds will continue as it did for innerspring hence the creation of the hybrid category.
- Hybrid producers will need to do the same and justify why having a coil in a bed makes more sense and how their approach to that product is simply better. Value has to be built by someone.
- We will see a consolidation of bedding producers. SSB and TPX could both shrink drastically unless they bump up their D2C push even more which we already see happening, or increase their marketing spend. Other producers that are smaller in size will likely go away unless they do the same and flatten out their distribution model online or with a factory direct approach.
- Bedding brands will be in a fierce fight for retail space so the brick and mortar guys will have much more leverage with slotting fees, co-op etc. This could drive investment spending up, and value to the consumer down making D2C even more viable.
- As brick and mortar companies strive to maintain their business and become more profitable so they can chase the consumer with the required bigger ad budget, they will be looking for their product lines to produce better margins with larger tickets (sell more to the people already coming in your store). This will drive interest in products that are legitimately different with stories that justify better tickets. Craft beer/craft beds will grow quickly as a percent to total.
- As a result, producers that are willing to give limited distribution to retailers could have an advantage in the brick and mortar space.
- The business discipline of marketing will become more and more important to every company out there. Anyone with a strong understanding of how to tell their story in a cost-effective way will have a distinct advantage. It’s not about running a chain of stores or building a bed. It’s about differentiation and how you capture the hearts and minds of the consumer. Even if you are just trying to sell as many widgets as you can for the low price in the market, you’re going to have to know how to get an audience and convert them into a sale. There has never been as much advertising in the category as there is right now so you need to understand how to break through the clutter with the smallest budget possible.
- For bedding manufacturers, the lowest cost producer will have the edge as they are able to produce velocity price points (private label programs), in a way that allows the retailer to deliver better value. To my earlier point, if brand awareness is much less important, then price will win the day and the low-cost producer can deliver the best price. This is true today but for whatever reason, retailers are still paying slight premiums for brands that don’t mean much of anything to consumers. (At least the brick and mortar guys are, the e-commerce guys have figured this out and are doing their own thing.) At some point the best retailers will stop doing that and look to their own marketing/selling departments to drive the business and build store and brand preference. The trend is already there if you are paying attention.
- Big slotting fees will likely go away in their current form. Taking big payments for multi-year deals from brands that aren’t relevant anymore, will take a toll on retailers business. SKU’s need to produce and more importantly, mean something to the consumer. If you aren’t bringing your consumer cool treasure hunt type stuff (think Costco), then the consumer will likely stay home and shop in their underwear. What’s more important; a big payment up front or products customers absolutely love? Are you playing the long game or the short game?
- Strategic partnerships will be more important. The progressive manufacturers out there are going to figure out that they need to be about more than making products. The companies that bring additional value to the table will have a big advantage when it comes time to fill slots on the brick and mortar floors. If producers bring PROGRAMS vs. PRODUCTS they can win the business from the companies that refuse to evolve. If you can add value above and beyond table stakes, then you make yourself more valuable to the market. Are you really in it for your customer and their success or are you just trying to sell stuff? What is the evidence of that?
- Creative thinkers and company cultures that celebrate creativity will be more important to than ever before as competition gets even more fierce. The market will demand innovative components, new sleep solutions, retail concepts that attract consumers and transcend the current model, new selling processes that help the consumer connect to the right products for them to improve sleep. If you are going to do things the same old way, it will become more difficult to compete. Consider the “sleep shop” and various mattress/pillow/sheet brands today and how many of them are really different from one another.
If you make things, how important are the above points going to be to you when it comes to winning the business from a consolidated retail base? If you’re a brick and mortar retailer, how are you going to win the battle with competitors down the street and the pain in the rear e-commerce guys that in many ways are overpromising and under delivering? So what did I get right or wrong? Let me know in the comments section!