Tempur Sealy International Inc., headquartered in Lexington, Kentucky, announced on June 18 that it has entered into a supply agreement with Houston-based retailer Mattress Firm Inc. to reintroduce Sealy, Stearns & Foster and Tempur-Pedic brand products to approximately 2,500 Mattress Firm stores across the United States.
“We are pleased that this agreement reunites some of the industry’s strongest brands with the largest bedding retailer in the U.S,” said Scott Thompson, Tempur Sealy chair, president and chief executive officer. “The largest bedding manufacturer in the world should do business with the largest specialty mattress retailer in the world.”
In the same announcement, Tempur Sealy revealed it has added a new European customer, Beter Bed Holding, based in Uden, Netherlands, and expanded its relationship with big box retailer Big Lots Inc., headquartered in Columbus, Ohio. Big Lots will add to its lineup of Sealy products at 1,400 U.S. stores. Beter Bed will begin selling the Tempur-Pedic brand in 100 stores in Belgium, the Netherlands and Sweden.
The three new supplier agreements are expected to yield incremental net sales in 2020 of more than $400 million, Tempur Sealy said, and incremental adjusted EBITDA (earnings before interest, tax, depreciation and amortization) of $75 million to $100 million.
In a June 19 conference call with investors, Tempur Sealy executives declined to break down the sales and revenue forecast by retailer but said the renewed relationship with Mattress Firm was clearly the most important.
“I’m hopeful that (the $400 million) is a conservative estimate,” Thompson added. “No question, the numbers could be higher — a lot higher.” However, Thompson said, “the totality of change” affecting Mattress Firm (new management, new board, 20% fewer stores) has made it, in effect, “a new entity, (which) makes giving an estimate very difficult.”
“We performed our due diligence and believe we are doing business with a new, different and greatly improved Mattress Firm,” he said. “The new leadership team (there) is driving toward a customer-centric strategy based on quality of service and providing true value to the customer.”
Tempur Sealy and Mattress Firm severed a long-term relationship in January 2017. The split came not long after Mattress Firm was acquired by Steinhoff International Holdings NV based in Johannesburg. In October 2018, Mattress Firm declared voluntary Chapter 11 bankruptcy, from which it emerged one month later with 20% fewer stores and new financing. Its parent Steinhoff has been embroiled in an accounting scandal since December 2017, which wiped out its shareholder value and is yet to be completely resolved.
Tempur Sealy had a long, fruitful relationship with Mattress Firm before the 2017 breakup, Thompson told investors during the conference call. “In 2016, the Mattress Firm business represented 21% of (our) global sales and more than half of those were sales of Tempur-Pedic products. The breakup was a highly disruptive situation for the entire bedding industry. There were really no winners in (that) unfortunate situation.”
Thompson said the coming infusion of marketing dollars for co-op advertising and brand advertising that will result from his company’s re-entry into Mattress Firm stores will lift the entire U.S. mattress industry. Products will be on the floor beginning in the fourth quarter of 2019 and the full roll-out will be completed early in the first quarter of 2020.
In its new relationship with Mattress Firm, Tempur Sealy is no longer just a supplier but a partner, Thompson said. And unlike in the past, Mattress Firm is now committed to carrying a full offering of all three Tempur Sealy brands.
During the call, Chief Financial Officer Bhaskar Rao said the company has the plant capacity to ramp up production to meet all new customer needs. “Our business model is built to be able to lever up and down,” Rao said. “We have only closed one very small plant in the last five years. We do have to hire some people, but we never stopped investing in our plants.”
A June 19 news release provided more specifics. Tempur Sealy is in the process of hiring approximately 700 new U.S. employees to meet growing demand for its mattresses and bedding products. New positions include management, operations and logistics, sales and other roles, and are spread across the country.
“The expansion of our distribution is a testament to the strength of our brands, coupled with reliable manufacturing and quality service,” Thompson said in a June 18 written statement. “While the most important aspect of our worldwide omnichannel distribution strategy is third-party retail distribution, we continue to pursue our highly successful direct to consumer initiatives, both online and through company-owned retail stores. Furthermore, the company has also embarked on an initiative to capture additional market share in emerging e-commerce and big box retailer channels as a continuation of our focus to be wherever the customer wants to shop.”