Mattress Manufacturing in the US Industry Report

Mattress Manufacturing in the USJanuary 2014   1

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Rest easy: Improved disposable incomes and housing investment will drive mattress sales

IBISWorld Industry Report 33791

Mattress Manufacturing in the US January 2014

Kerry Coughlin

2 About this Industry

17 International Trade

35 Revenue Volatility

2

Industry Definition

19 Business Locations

35 Regulation & Policy

2

Main Activities

2

Similar Industries

21 Competitive Landscape

2

Additional Resources

21 Market Share Concentration

37 Key Statistics

21 Key Success Factors

37 Industry Data

22 Cost Structure Benchmarks

37 Annual Change

23 Basis of Competition

37 Key Ratios

3 Industry at a Glance

36 Industry Assistance

4 Industry Performance

24 Barriers to Entry

4

Executive Summary

25 Industry Globalization

4

Key External Drivers

6

Current Performance

27 Major Companies

8

Industry Outlook

27 Serta International

10 Industry Life Cycle

38 Jargon & Glossary

28 Select Comfort Corporation 29 Simmons Bedding Company

12 Products & Markets

31 Tempur Sealy International Inc.

12 Supply Chain 12 Products & Services

33 Operating Conditions

14 Demand Determinants

33 Capital Intensity

14 Major Markets

34 Technology & Systems

www.ibisworld.com | 1-800-330-3772 | info @ibisworld.com

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About this Industry Industry Definition

The Mattress Manufacturing industry produces mattresses and bases for retailers, wholesalers, hospitals, hotels and the export market. The industry produces innerspring, box spring and

Main Activities

The primary activities of this industry are

non-innerspring mattresses. Noninnerspring mattresses include waterbeds and beds made from rubber and latex. This industry does not include air mattresses.

Manufacturing innerspring mattresses Manufacturing box spring mattresses Manufacturing non-innerspring mattresses Manufacturing mattresses for waterbeds

The major products and services in this industry are Airbeds Foam mattresses Futons and waterbeds Innerspring mattresses

Similar Industries

32619 Plastic Products Miscellaneous Manufacturing in the US These companies manufacture plastic products, including plastic inflatable mattresses. 32629 Rubber Product Manufacturing in the US These companies manufacture rubber products, including rubber inflatable mattresses. 33261 Wire & Spring Manufacturing in the US These companies manufacture heavy-gauge and light-gauge springs from purchased wire or strip.

Additional Resources

For additional information on this industry www.furnituretoday.com Furniture Today www.sleepproducts.org International Sleep Products Association www.bettersleep.org The Better Sleep Council

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Mattress Manufacturing in the US January 2014  

3

Industry at a Glance Mattress Manufacturing in 2014

Key Statistics Snapshot

Revenue

Annual Growth 09-14

Annual Growth 14-19

Profit

Exports

Businesses

$7.6bn

1.5%

1.7% $197.8m $134.6m 401 Per capita disposable income

Revenue vs. employment growth

Select Comfort Corporation 12.4% Simmons Bedding Company 11.7% Tempur Sealy International Inc. 9.2%

% change

Serta International 19.2%

10

4

5

2

0

0

% change

Market Share

−5 −10 −15

Year 06

−2 −4

08

10

Revenue

12

14

16

18

−6

Year

20

07

09

11

13

15

17

19

Employment SOURCE: WWW.IBISWORLD.COM

p. 27

Products and services segmentation (2014)

Key External Drivers

11.5%

Per capita disposable income

Airbeds

0.5%

Futons and waterbeds

Demand from furniture stores World price of steel Value of residential construction

63.0%

25.0%

Foam mattresses

World price of crude oil

Innerspring mattresses

p. 4 SOURCE: WWW.IBISWORLD.COM SOURCE: WWW.IBISWORLD.COM

Industry Structure

Life Cycle Stage

Regulation Level

Medium

Revenue Volatility

Medium

Mature

Technology Change

Medium

Capital Intensity

Medium

Barriers to Entry

Medium

Industry Assistance

Low

Concentration Level

Medium

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 37

Industry Globalization Competition Level

Low Medium

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Industry Performance

Executive Summary   |   Key External Drivers   |   Current Performance Industry Outlook   |   Life Cycle Stage Executive Summary

The past five years have not been very relaxing for the Mattress Manufacturing industry. Mattress sales, like those of most household goods, increase when residential real estate markets grow. In 2008 and 2009, residential real estate tanked and residential construction values plummeted, causing the recession and, thus, falling demand for mattresses. Consumer sentiment, disposable income and furniture store sales all suffered during the recession. Some of these indicators of demand, such as the real

estate market, have not yet fully recovered. The industry’s revenue has begun to pick up, however, having grown at an annualized rate of 1.5% in the five years to 2014. In 2014, revenue is expected to increase 1.6% to $7.6 billion as residential construction values and other demand indicators improve. The industry’s minor successes over the past five years can be largely credited to improvements in mattress materials and production techniques. Viscoelastic and latex mattresses have grown as a share of revenue; this growth has been

enabled by increasing consumer awareness of the health benefits of undisturbed sleep and improved body support. Additionally, the industry pioneered just-in-time manufacturing over the past five years; the industry’s major companies now favor this approach to production, inventory and supply chain management. As a result, profit margins, which dropped due to the recession, have climbed back to 2009 levels, a considerable feat given the volatile prices of major mattress inputs oil and steel. Consolidation has also occurred on a large scale in the past five years, as two firms now own the industry’s four top brands. Over the next five years, industry revenue is projected to grow at an average annual rate of 1.7% to $8.3 billion by 2019. The recovering housing market and increasing disposable income will help boost demand for mattresses during the period. As residential construction activity rises, homeowners will replace or upgrade their existing household goods. Hotels and motels are also projected to purchase more mattresses as consumers increase their travel activity. Input prices are expected to be less volatile than in the previous five years, allowing companies to better estimate production costs.

Per capita disposable income Increases in household disposable income generally lead to higher mattress sales and higher average selling prices. Consumers tend to replace mattresses at a faster rate and upgrade to more expensive, highquality mattresses during times of income growth. Per capita disposable income is expected to increase in 2014, presenting a potential opportunity for the industry.

Demand from furniture stores Furniture stores are an important downstream retail channel for mattresses. Changes in demand from this channel affect industry revenue and profitability. An increase in consumer mattress purchases at furniture stores will likely lead to higher industry revenue. Demand from furniture stores is expected to increase in 2014.

A

recovery in the housing market will boost demand for new mattresses

Key External Drivers

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Industry Performance

World price of steel Steel coil springs are a main input in mattresses. When the price of steel increases, the cost of manufacturing finished mattresses rises. Since manufacturers can generally only pass some of the additional costs to downstream buyers, higher production costs tend to reduce the industry’s profit margins. The world price of steel is expected to remain fairly steady in 2014. Value of residential construction Changes in investment in the housing market affect demand for mattresses. As more residential buildings are constructed and renovated, demand for mattresses

increases because consumers are likely to fill their new dwellings with new furniture. The value of residential construction is expected to increase over 2014. World price of crude oil Changes in the price of oil affect the price of polyurethane foam, a main input material for mattresses. As the price of oil increases, the cost of manufacturing a mattress rises. Consequently, higher production costs reduce the industry’s profit margins if costs are not passed on to consumers as higher prices. The world price of crude oil is expected to decrease during 2014, but its volatility poses a potential threat to the industry.

World price of steel

Per capita disposable income 4

230

2

210

0

Index

% change

Key External Drivers continued

−2

170

−4 −6

Year

190

07

09

11

13

15

17

19

150

Year 05

07

09

11

13

15

17

19

SOURCE: WWW.IBISWORLD.COM

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Industry Performance

Rebounding demand

The Mattress Manufacturing industry has bounced back from its recessionary lull, but not with enough spring to gain any significant ground over its 2009 revenue. Over the five years to 2014, industry revenue has seen annualized growth of 1.5%. Per capita disposable income, consumer sentiment, residential construction activity and furniture store demand for the industry are in various states of post-recession recovery, which has hampered significant growth. At the same time, the industry’s product innovations, coupled with rising consumer awareness of the health benefits of comfortable sleep, have contributed to some modest growth in demand for new mattresses over the period. Demand for mattresses declined alongside falling residential construction values through 2010. Industry revenue, however, shot up 7.7% in 2011, as demand for mattresses returned. In particular, rising consumer spending has supported the industry’s growth since 2011. However, this recovery has tapered somewhat, with

revenue growing 0.9% in 2012 and 0.6% in 2013. Due to the nature of mattresses, consumers do not purchase them often (a mattress lasts 10 years on average), 2011’s major increase in sales limited the potential for the industry to grow at a similar rate in the ensuing years. Still, expected revenue growth of 1.6% in 2014 to reach $7.6 billion is the highest the industry has reported since before the recession.

Residential construction values are a key indicator of mattress demand, as consumers often buy new furniture, including mattresses, when they move into a new home. The housing market’s collapse was a primary cause of the recession, while other indicators of collapsing demand for mattresses followed on its heels. Demand continued to fall in 2009 as the value of residential construction fell 21.2%. Per capita disposable income also fell for the first time in 18 years by 3.6%. Demand from furniture stores, which are responsible for a significant portion of mattress sales, fell as a consequence of reduced consumer spending, leading the industry to record a 3.2% decline in revenue in 2010. By 2011, most of the key variables affecting mattress demand had

stabilized or entered a recovery phase. Disposable income is now above its 2009 levels and the value of residential construction has grown at an average annual rate of 8.6% over the past five years. Demand from furniture stores has also increased, including a 6.5% increase in 2012. Taken together, these factors have helped demand for mattresses increase slightly. While demand drivers are on the way up, so are imports. In the five years to 2014, imports are expected to increase 14.3% to $424.8 million. In 2014, mattresses made abroad will make up 5.4% of demand, up from 3.0% in 2009 due to lower prices. Exports are expected to increase at an annualized rate of 2.3% to $134.6 million in 2014.

Industry revenue 10 5

% change

Current Performance

0 −5 −10 −15

Year 06

08

10

12

14

16

18

20

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Industry Performance

Costs, consolidation and profit

Technology creates an edge

Over the past five years, prices of inputs for mattress manufacturing, such as oil and steel, have been volatile. Oil is used to make polyurethane foam, a key material in mattresses; thus, as oil prices rise, the price of polyurethane foam rises as well. The price of oil increased dramatically in 2010 and 2011. The price then fell 0.9% in 2013. These fluctuations have made it difficult for manufacturers to anticipate future spending and control costs. In addition, firms have had to add flame-retardant materials to their products to comply with new federal standards from the Consumer Product Safety Commission, further adding to production costs. To counterbalance fluctuating costs that could impact profit, larger firms have implemented new systems to increase manufacturing efficiency. For example, major player Sealy implemented “lean manufacturing,” a quick-response, low inventory production process with 48 to 72-hour delivery times. This method has reduced the incidence of defects and cut the manufacturing time per mattress from more than 15 hours to less than five hours. Other firms have begun adopting similar just-in-time production strategies, allowing them to enhance profitability. The industry’s average profit margins (measured as earnings before interest

and taxes) have fluctuated over the past five years, sinking as low as a loss of 1.8% in 2009. As a result of leaner production, gains in efficiency and reduced wage costs, 2014 profit margins hit 2.6% of revenue, higher than what they were in 2009. Wages as a share of revenue fell over the five-year period due to an annualized workforce reduction of 1.2% to 17,390 employees over the same period. Additionally, acquisitions and mergers among major player have increased economies of scale and benefited industry profit. Most recently, in March 2013, the industry’s fourthlargest company, Tempur-Pedic, purchased the second-largest company, Sealy. In 2012, Advent International acquired both Serta and Simmons; although the companies still operate independently. In the five years to 2014, the number of enterprises has decreased at an annualized rate of 0.4% to 401.

Although the industry suffered from changing demand and volatile costs, manufacturers have been active in product development over the past five years. Many players have focused on their specialty mattresses (i.e. viscoelastic and latex mattresses). These mattresses differ from traditional innerspring mattresses by offering superior support and pressure relief through memory foam and polyurethane foam. Since these

mattresses are more specialized and complex than traditional mattresses, they often have higher price tags. According to the International Sleep Products Association, however, in 2010, industry revenue grew as demand for these new products rose with the recovering economy. As consumer spending and health consciousness increase further in 2014, IBISWorld expects specialty mattress sales to grow as a share of industry revenue.

Prices

of inputs like oil and steel have been highly volatile, hurting industry profit

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Industry Performance

Industry Outlook

Over the next five years, the Mattress Manufacturing industry is expected to rise from its slumber. Home sales and values will continue to grow and consumers will purchase more household goods, including mattresses, as they invest in their homes and their per capita disposable income rises. In addition, the industry’s input costs are expected to be less volatile, which will

Demand to firm up

The expanding housing market is expected to encourage mattress sales over the next five years. Although the market declined severely during the subprime mortgage crisis, it is expected to make major gains over the next five years. IBISWorld anticipates the value of residential construction to rise at an annualized rate of 8.4% over the period. Many people will start moving into houses as they regain confidence in the economy and their household incomes improve. The Federal Reserve has reaffirmed its commitment to low interest rates in the early portion of the next five years, which will further encourage consumers to purchase homes. As a result, demand for mattresses will rise as consumers move into their new living spaces and upgrade their household goods.

Consumer preferences As mattress sales grow, the type of

mattress purchased is expected to shift toward higher-end products. Mattress manufacturers have recently been active in developing viscoelastic and latex specialty mattresses. For instance, in 2010, Sealy introduced a new mattress line called Embody by Sealy, which includes a variety of latex and memory foam bedding products. Specialty mattresses are designed to promote

help increase profit margins. Meanwhile, innovations in specialty mattresses will push revenue further upward, as new products entice consumers to upgrade their existing mattresses. IBISWorld projects revenue will grow at an annualized rate of 1.7% to $8.3 billion in the five years to 2019. In the near term, revenue is forecast to grow 3.2% in 2015.

Rising

disposable incomes will drive demand for highend items International trade will continue its upward trend as it did in the five years to 2014. Imports are expected to increase at an annualized rate of 12.5% to $764.7 million. China is expected to continue to hold as the top exporter to the US with over 55.0% of imports. Manufacturers have and will continue to move production to lower cost countries where they can increase profit margins by reducing costs. Mattresses exported by US manufacturers are expected to increase at an average annual rate of 1.6% to $146.0 million in 2019.

better sleep by enhancing support and relieving pressure points. With growing income and improved health consciousness, more consumers are expected to purchase these pricier products. Additionally, higher-end innerspring mattresses are expected to sell better than they have in the past five years; increasing per capita incomes among consumers looking for a traditional mattress will drive these sales.

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Industry Performance

Changing costs and profit

Industry consolidation

While material input prices are expected to increase from 2014 to 2019, they are expected to be less volatile than they have been in the past five years. The price of crude oil, an input for foam, is expected to rise at an annualized rate of 3.6%, which is considerably less than its previous five-year rate change of 10.1%from 2009 to 2014. Meanwhile, the price of steel is expected to grow at an annualized rate of 2.8%. Since steel springs and foam made from oil are the two main components of mattresses, any change in the price of these inputs directly affects industry costs. Their diminishing volatility means firms will be better able to anticipate future spending and make production changes accordingly. One production change has already occurred: large players have become more

efficient in their manufacturing processes in the past five years by implementing just-in-time production. Consequently, these firms’ production times have decreased; firms can now deliver a mattress five days after it was ordered. This efficiency is expected to continue over the next five years, partially offsetting higher material costs. As such, industry profit margins, measured as earnings before interest and taxes, are expected to rise slightly from their current level of 2.6%.

Even as demand grows over the next five years, the industry is expected to continue its historical trend of consolidation, supporting growing profit margins. Market share concentration among the four largest companies is 54.1%, with this concentration still on the rise. Two of them, Serta and Simmons, are owned by the same holding company, while the other two, Tempur-Pedic and Sealy, have become one under the name Tempur Sealy International as of March 2013. In addition, over the past five years, many independent owners have looked to exit the industry by selling their companies, allowing larger players to

buy them and expand their market share. These trends will continue over the next five years as manufacturers looking to expand acquire firms with popular or promising product lines. Larger firms with more market share and stronger distribution channels will make it harder for small firms to operate in the industry, further driving down the number of enterprises at an annualized rate of 0.1% to 399 companies over the next five years. Although the number of enterprises will decrease, employment will only decrease at an annualized rate of 0.9% to 16,625 in 2019. Reorganization after acquisitions will cause this slight decrease after acquisitions.

Production

efficiency will allow operators to offset rising input costs

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Industry Performance The industry is expected to perform in line with the overall US economy

Life Cycle Stage

There has been consolidation and increasing concentration among the top industry operators

% Growth in share of economy

Mattresses are essential items and are replaced on average every 10 years, which generates consistent demand

20

Maturity

Quality Growth

Company consolidation; level of economic importance stable

High growth in economic importance; weaker companies close down; developed technology and markets

15

Key Features of a Mature Industry Revenue grows at same pace as economy Company numbers stabilize; M&A stage Established technology & processes Total market acceptance of product & brand Rationalization of low margin products & brands

10

Quantity Growth

Many new companies; minor growth in economic importance; substantial technology change

5

0

Mattress Manufacturing Textile Mills

Warehouse Clubs & Supercenters Department Stores Plastic Products Miscellaneous Manufacturing Rubber Product Manufacturing

Decline

-5

Shrinking economic importance

-10 -10

-5

0

5

10

15

20

% Growth in number of establishments SOURCE: WWW.IBISWORLD.COM

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Industry Performance

Industry Life Cycle This

industry is M  ature

The Mattress Manufacturing industry is in the mature phase of its life cycle. Over the 10 years to 2019, industry value added (IVA), which measures the industry’s contribution to the US economy, is projected to decrease at an average annual rate of 2.1% per year. In comparison, US GDP is expected to rise at an annualized rate of 2.7% during the period. The difference between IVA and GDP is the result of falling industry wages and slightly lower profit margins. Still, the industry has not entered a period of decline. Its lackluster performance has mainly been due to its reliance on housing market growth to boost demand, but the housing market suffered heavy losses during the recession. Also, the lack of substitute products helps keep the industry out of decline, since imported mattresses are still relatively uncommon due to mattresses’ heft.

Broad acceptance of industry products and market saturation are indicators of a mature industry, and the Mattress Manufacturing industry satisfies each of these criteria. Additionally, mature industries often exhibit large-scale mergers and acquisitions. Mergers and acquisitions have been a major storyline for the industry over the past five years: brands that were once independent companies and had been among the top four manufacturers for years (i.e. Serta, Sealy, Simmons and Tempur-Pedic) are now split between two even larger companies. Tempur-Pedic acquired Sealy in 2013. In August 2012, AOT Bedding Super Holdings, which through National Bedding Company, owned Serta and Simmons, sold their stake to Advent International, a private equity firm. Ares Management and Ontario Teachers’ Pension Plan, who are also majority stakeholders maintain their ownership.

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Products & Markets

Supply Chain  |   Products & Services  |   Demand Determinants Major Markets  |   International Trade  |   Business Locations

Supply Chain

KEY BUYING INDUSTRIES 45211

Department Stores in the US Businesses that sell an array of products including home furnishings demand mattresses.

45291

Warehouse Clubs & Supercenters in the US Large stores who provide an assortment of discount merchandise demand mattresses for resale to the final consumer.

45299

Dollar & Variety Stores in the US Stores that retail a broad range of deep discounted merchandise demand mattresses.

62211

Hospitals in the US Healthcare facilities demand mattresses for patients.

72111

Hotels & Motels in the US Hospitality establishments demand mattresses for hotel and motel rooms.

KEY SELLING INDUSTRIES

Products & Services

31310

Textile Mills in the US Mills supply mattress ticking and woven upholstery fabrics (e.g. cotton, nylon, polyester, rayon).

32221

Cardboard Box & Container Manufacturing in the US These firms supply paper and paperboard containers, including shipping sacks and other paper packaging supplies.

32611

Plastic Film, Sheet & Bag Manufacturing in the US These manufacturers supply plastic products in the form of sheets, rods, tubes, film and other shapes.

32615

Urethane Foam Manufacturing in the US These companies supply foam cores (including latex) and foam padding.

33251

Hardware Manufacturing in the US These firms supply sleeper mechanisms for dual-purpose sleep furniture.

33261

Wire & Spring Manufacturing in the US These manufacturers supply springs, innerspring units and box spring constructions.

The Mattress Manufacturing industry produces a high volume of similar products differentiated by the type of material from which they are made. Overall, product innovation is low, although consumer demand for newer and higher priced foam, latex and air mattresses has helped boost industry unit sales and revenue over the five years to 2014. Innerspring mattresses Most mattresses in the United States are made using innersprings. These mattresses represent about 63.0% of industry revenue, and about 80.0% of the domestic mattress market in terms of

unit sales. Most of these products sell for less than $1,000 through retail furniture and bedding store channels. This type of mattress uses the support of tempered steel coils in a variety of configurations. Layers of upholstery provide insulation and cushioning between a person’s body and the spring unit. This mattress type can come in all sizes and different levels of firmness. Sealy, Serta and Simmons are leading manufacturers of innerspring mattresses. Over the five years to 2014, this category declined as a share of industry revenue as consumer preferences shifted toward higher priced and higher quality foam mattresses. At the same time, however, this category

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Products & Markets

Products & Services continued

Products and services segmentation (2014)

11.5% Airbeds

0.5%

Futons and waterbeds

25.0%

Foam mattresses

Total $7.6bn continues to comprise the majority of industry unit sales because of these mattresses’ lower average selling prices. Foam mattresses Foam mattresses are the second most popular mattress type. Over the five years to 2014, IBISWorld estimates that foam mattresses grew from about 20.0% of industry revenue in 2009 to about 25.0% in 2014 due to their higher average selling prices and quality along with increased demand from consumers. They can be made of a solid core or from several layers of different types of foam laminated together. Advanced technology in polyurethane foams, refinements to traditional latex and the new viscoelastic (memory) foams have added to the comfort, support and overall performance of these types of mattresses. Tempur Sealy is the leading manufacturer that caters to this market segment. Foam mattresses have become more popular in the past five years as consumers have grown more aware of the importance of sleep for health and the improved body support these mattresses offer. This segment is projected to continue to expand as a share of industry revenue from 2014 to 2019 as consumers become more willing to spend on these higher priced mattresses.

63.0%

Innerspring mattresses

SOURCE: WWW.IBISWORLD.COM

Airbeds Airbeds are mattress manufacturers’ third largest revenue generator, accounting for about 11.5% of industry revenue. Airbeds are now designed to look like the familiar mattress and box-spring combination, with an airfilled core providing the support instead of an innerspring unit or foam core. These designs come in a range of firmnesses and are typically adjustable to suit individual sleepers’ needs. Select Comfort is the leading manufacturer of mattresses in this market segment. Over the five years to 2014, IBISWorld estimates that airbeds’ share of industry revenue has increased at the expense of traditional innerspring mattresses. Other products The smallest product segments are futons and waterbeds, which together account for about 0.5% of industry revenue. Most waterbeds are now designed to look like a familiar innerspring mattress, with a water-filled core providing support. Quality construction is especially critical when water is involved; the vinyl and seaming need to be designed for maximum durability. Futons, which are designed to support sitting as well as sleeping, are

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Products & Markets

Products & Services continued

also less popular than other forms of mattresses. These products are an affordable alternative to traditional

beds. Futons need to be flexible so they are typically made of cotton, synthetic fibers and foam in various combinations.

Demand Determinants

About 70.0% of new mattress purchases are estimated to be replacement purchases. The average time between mattress replacements averages about 10 years for consumers. Reasons for replacing mattresses include upgrading to a larger size, switching to an electronically adjustable bed, mattress wear and tear, and health and comfort reasons. Although mattresses are a basic necessity for sleeping, the demand for new mattresses is influenced by several economic factors.

These conditions have helped increase the likelihood of consumer spending on mattresses over the past five years.

The effects of wealth Since the timing of buying a new mattress is at the consumer’s discretion, most consumers wait until they feel financially comfortable to make the big purchase. Therefore, the level of disposable income is a key determinant for the demand for new mattresses. If disposable income is low and the consumer’s old mattress will last a few more years, the consumer is likely to put off buying a new mattress until their disposable income rises. Another determinant of consumer spending is consumer sentiment, which measures consumers’ confidence about the current and future state of the economy. While per capita disposable income has remained flat over the past five years, consumer sentiment has risen.

Major Markets

Firms in the Mattress Manufacturing industry generate most of their revenue by selling to a range of downstream retailers. These retailers sell industry products in physical stores and online to end-consumers. Compared with other

Growth in the housing market Another determinant of demand is the value of residential construction. As more consumers move into houses or condominiums, they become more likely to replace old furniture such as mattresses. In turn, the amount of merchandise bought at furniture stores and mattress retailers increases. However, if the level of residential construction drops, fewer new mattresses are purchased. Over the past five years, the value of residential construction has increased by 8.6%, which has increased the likelihood of new mattress purchases. Price Mattress purchases are also determined by price, as most consumers are pricesensitive when it comes to buying mattresses. The industry’s products are relatively expensive, so consumers are also willing shop around for the best available price. Mattress prices dropped in 2010, but have risen for every other year during the five year period. As such, mattress prices have increased since 2009. acting as a deterrent to new mattress purchases.

furniture manufacturing industries, mattress manufacturers sell a lower percentage of their products through wholesalers and a higher percentage of their products directly to retailers and consumers. Sales to retailers and

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Products & Markets

Major Markets continued

Major market segmentation (2014)

6.1%

1.6%

Accommodation Exports sector

2.2%

Healthcare sector

30.6%

14.9% Other

Specialty bedding stores

16.8%

General retailers

Total $7.6bn consumers are generated through vertically integrated wholesaling and retail operations, respectively. The primary reason for this structure is the industry’s short lead time between a mattress’s purchase, production and delivery. This model reduces costs associated with inventory, and vertically integrated suppliers are the most effective at implementing it. Over the five years to 2014, nontraditional retail channels such as wholesale warehouse clubs and direct sales to consumers online have grown as a share of industry sales. IBISWorld expects these channels to continue to grow in importance as a source of industry revenue over the next five years. Specialty bedding stores Bedding stores specialize in retailing mattresses and complementary bedding products such as pillows and sheets. IBISWorld estimates this segment accounts for about 30.6% of industry sales. Through bulk purchasing mattresses from industry firms, hiring skilled staff and maintaining extensive advertising campaigns, specialty bedding stores have drawn significant sales from traditional furniture stores in the past

27.8%

Furniture stores SOURCE: WWW.IBISWORLD.COM

five years. Leading retailers in this category include Mattress Firm and Sleepy’s mattress stores. Furniture stores General furniture stores’ purchases of mattresses account for an estimated 27.8% of industry revenue. Sales to this segment have suffered over the past five years due to growing sales from specialty bedding stores. Increased awareness of the health benefits of sleeping has driven more consumers to purchase mattresses at specialty locations with trained staff. Businesses in the general furniture stores category include Ashley and Thomasville. General retail stores About 16.8% of mattresses are sold through general retailers including department stores and discount retail stores. These stores offer a reduced selection of mattresses compared to furniture or bedding stores; however, their prices are competitive due to their size and purchasing power. Department stores such as Macy’s and Bloomingdales tend to offer higher quality mattresses, while discount retailers such as Walmart and Target tend to offer mid and lower end mattresses.

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Products & Markets

Major Markets continued

Accommodation sector Sales of mattresses to customers in the accommodation sector account for about 6.1% of industry revenue. Customers in this category include a wide range of hotels, motels and other hospitality firms. Hotels usually buy both high-end and mid-range mattresses, while motels purchase lower end mattresses. Over the five years to 2014, this market segment has remained fairly flat as a share of industry sales. Hotels and motels delayed and scaled back purchases of mattresses and delayed construction of new properties due to the recession and its lingering negative effects on domestic travel and tourism spending. However, this category’s spending began recovering in 2010 from its recessionary drop, and has since reached its prerecessionary level. Healthcare sector IBISWorld estimates that sales of mattresses to firms in the healthcare sector account for about 2.2% of industry revenue. Customers in this channel include hospital bed manufacturers, hospitals, nursing homes, healthcare professionals and medical supply retailers. Over the five years to 2014, IBISWorld estimates that this segment has slowly grown as a share of revenue due to increased healthcare utilization. Healthcare demand remained solid over the past five years, even during the recession due to the essential nature of healthcare services. Also, medical technology has enabled

people to live longer lives, and with a growing and aging population, hospital usage has increased. Other markets and exports Industry firms also sell mattresses through a variety of other means that vary among firms depending on their size and level of vertical integration. Other sales channels include wholesale bedding outlets, warehouse clubs and direct-toconsumers sales through the internet and direct marketing. Collectively, these channels account for about 14.9% of industry sales. Wholesale bedding outlets represent about 4.2% of industry revenue, while warehouse clubs such as Costco account for about 2.5% of revenue. About 8.2% of revenue is derived from sales through the internet and direct marketing to end-consumers. Larger industry firms, such as Select Comfort Corporation and Tempur-Pedic International, have increasingly focused their efforts on selling directly to consumers online and through direct marketing. As such, online sales and direct marketing have increased as a share of industry revenue over the past five years. Overseas buyers represent only a marginal proportion of industry sales, at just 1.8 % of industry revenue. The top international markets for mattresses exported from the United States are Canada, Mexico, China and Japan. High shipping costs due to mattresses’ weight and size keep exports fairly low.

Mattress Manufacturing in the USJanuary 2014   17

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Products & Markets

Level & Trend  xports in the E

industry are L ow and I ncreasing Imports

in the industry are Mediumand Increasing

The Mattress Manufacturing industry has a trade deficit; additionally, imports have increased significantly over the past five years while exports have declined. As such, imported mattresses represent a growing threat to the industry. Exports Exports currently represent about 1.8% of industry revenue, which is an overall drop compared to their share in 2009. In 2010, exports accounted for 1.9% As such, exports have declined at an annualized rate of 1.9% over the past five years. Export levels have been somewhat volatile during the period, and grew 9.2% in 2011 and are expected to fall 4.3% in 2014. Over the five year period, the dollar has appreciated slightly, which has been detrimental to industry exports. The majority of industry exports, at 67.1%, go to Canada. Canada benefits from the favorable trading terms of the North American Free Trade Agreement (NAFTA). Also, it borders the United

Exports To...

Industry trade balance 400 0

$ million

International Trade

−400 −800 −1200

Year 06 Exports

12

Imports

14

16

18

20

Balance

States, which reduces the high shipping costs of large items such as mattresses. Mexico, the industry’s second greatest export destination, enjoys these same advantages. China and Japan also make large purchases of the industry’s mattresses, and are the third and fourth greatest generators of export revenue, respectively.

Imports From...

6%

Mexico

10

SOURCE: WWW.IBISWORLD.COM

Canada

5%

08

2%

Belgium

8%

Other

4% 3%

China Japan

57%

20% Other

67%

China

28%

Mexico

Canada

Year: 2014

Total $134.6m

SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA

Total $424.8m SOURCE: USITC

Mattress Manufacturing in the USJanuary 2014   18

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Products & Markets

International Trade continued

Imports Imports of mattresses have increased at an annualized rate of 14.3% during the five years to 2014. They have satisfied a growing share of domestic demand during this period; in 2009, imports represented 3.0% of domestic demand, and they represent 5.4% in 2014. Imports have been aided by the dollar’s slight appreciation during the five years to 2014. Mattress manufacturers have made significant advances in automating machinery in an attempt to reduce the competitive advantage of low labor cost countries such as China. However, China

continues to make inroads in US mattress markets, evidenced by the annualized growth of its imports of 23.7% over the past five years. China is the source of most imported mattress sales, and accounts for 56.7% of industry-relevant imports. Similarly, imports from Mexico have increased significantly over the past five years (at an annualized rate of 8.9%), and now represent 27.5% of mattress imports. Rounding out the top four importers are Canada and Belgium, which have also stepped up import levels during the period and account for 5.9% and 2.0% of imports, respectively.

Mattress Manufacturing in the USJanuary 2014   19

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Products & Markets Business Locations 2014

West New England

AK 0.0

Great Lakes WA

ND

MT

2.1

Rocky Mountains ID

OR 1.5

West NV 1.5

1.9

SD 0.0

WY

0.4

MN

0.4

0.2

Plains

CO

1.5

KY

1.1

9

OK 1.3

NC 5.3

TN

AZ

NM

3.0

0.6

Southwest TX 7.2

HI 0.4

Additional States (as marked on map) 1 VT

2 NH

3 MA

4 RI

5 CT

6 NJ

7 DE

8 MD

0.0 1.1

0.4

2.7

1.9

0.2

SC

Southeast

0.8

MS

AL 2.5

1.5

GA 3.8

1.3

LA 0.2

FL 6.1

Establishments (%)

0.0

0.8

AR

8

0.6

1.9

16.9

7

WV VA 1.9

0.8

1.3

CA

West

3.2

MO

KS

1.5

OH

1.9

3.6

6

3.8

IN

IL

0.6

UT

PA

2.3

1.3

0.0

1 2 3 NY 4.2 5 4

MI

2.5

IA

NE

0.0

WI

ME

MidAtlantic

9 DC 0.0

Less than 3% 3% to less than 10% 10% to less than 20% 20% or more SOURCE: WWW.IBISWORLD.COM

Mattress Manufacturing in the USJanuary 2014   20

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Products & Markets

Distribution of establishments vs. population 30

20

10

Southwest

Southeast

Rocky Mountains

Plains

New England

Mid-Atlantic

Great Lakes

0 West

The geographic distribution of mattress manufacturers generally follows major population centers in order to increase the speed of deliveries and reduce transportation costs. The Southeast has the largest share of industry establishments as well as the largest share of the nation’s population. It holds 26.6% of the industry’s establishments and 25.4% of the US population. Florida, the most populous state in the region, holds 29 establishments; its share is the third greatest of any state. The West and Great Lakes regions have the second- and third-largest number of establishments. California has 80 establishments, the most of any US state; it also has the greatest population at 12.1% of the US total. Texas, the second most populous state, correspondingly has the second greatest number of industry establishments at 34. Regions with smaller populations, such as the Plains, the Rocky Mountains and New England, have relatively few mattress manufacturers. Over the past five years, the total number of industry establishments has been decreasing; however, the distribution of the establishments’ locations has remained relatively constant during this time. The location of industry establishments is also related to wage

%

Business Locations

Establishments Population SOURCE: WWW.IBISWORLD.COM

costs and raw material centers. The Southeast is the preeminent mattress manufacturing region in part because it is a major producer of cotton, which is a traditional mattress input. North Carolina, an epicenter for cottondependent textile production, has a disproportionate number of mattress manufacturers at 25. Additionally, wage costs in the Southeast are lower than in other regions, making it more attractive for manufacturers to locate there.

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Mattress Manufacturing in the US January 2014  

21

Competitive Landscape

Market Share Concentration  |   Key Success Factors  |   Cost Structure Benchmarks Basis of Competition  |   Barriers to Entry  |   Industry Globalization Market Share Concentration Level Concentration in this

industry is M  edium

Key Success Factors IBISWorld

identifies 250 Key Success Factors for a business. The most important for this industry are:

Concentration in the Mattress Manufacturing industry is medium, since the top four players hold about 52.5% of the market share. About 397 companies compete for the remaining 47.5% of the market. Major player Sealy(prior to being acquired) has traditionally been the industry leader, and was number one in shipments for several decades beginning in the 1970s. However, strong consumer demand for specialty mattresses helped Serta pull ahead of Sealy in 2011, and Serta continues to hold the number-one position. In 2014, IBISWorld estimates that Serta and Simmons will have market share of 19.2% and 11.7%, respectively. Select Comfort and Tempur Sealy are expected to have market share of 12.4% and 9.2%, respectively. Over the past five years, market share concentration has increased. The major players have been active in merger and

acquisition activity during the period, which has boosted industry concentration. AOT Bedding Super Holdings, already the owner of Serta, acquired Simmons in 2010. The two companies will continue to compete with each other and function independently, though. Additionally, Tempur-Pedic acquired Sealy in 2013 and changed the name to Tempur Sealy International Inc. A decline in industry participation has also boosted market share concentration, since many smaller firms exited the industry over the past five years. Additionally, some large players performed poorly during the recession. Spring Air and Simmons filed for bankruptcy in 2009, when each company’s market share was low. This resulted in reduced market share concentration. Both companies have since been acquired and have built up their market share considerably.

Production of goods currently favored by the market Mattress manufacturers must be able to adjust their production processes to meet demand for different mattress types. Premium products must be made to high quality standards, and low cost goods should be perceived as offering high value for the money.

Guaranteed supply of key inputs Access to high quality, low cost materials ensures that production of mattresses is not disrupted. Established links with suppliers allows for a steady flow of key inputs and can also provide cost savings through fixed term contracts and bulk purchases.

Proximity to key markets Due to the bulky nature of mattresses and the associated high transportation costs, manufacturers need to be located close to retailers and consumers. Having a good reputation Selling through reputable retailers and providing customers with high quality products with warrantees increases the appeal of a firm’s products.

Downstream vertical integration (ownership links) Larger mattress manufacturers own retail outlets, which allow them to collect the retail markup on their products while gaining greater control over distribution. Access to the latest available and most efficient technology and techniques Developing new manufacturing technology can help a firm gain a competitive advantage. Improvements in automation can increase efficiency and reduce production costs.

WWW.IBISWORLD.COM

Mattress Manufacturing in the US January 2014  

22

Competitive Landscape

Cost Structure Benchmarks

The cost structures of individual firms in the Mattress Manufacturing industry vary depending upon firm size, product portfolios, supply chain relationships and distribution capabilities. The industry operates with a high level of automation; automation keeps labor costs low and allows industry firms to compete with producers in developing countries that use more labor intensive processes. While labor costs are relatively low, mattresses have higher shipping costs than other manufactured consumer goods due to their size and weight. In response, industry firms have adopted a quick service delivery model that allows them to maintain low inventory levels. This model enables industry firms to meet changing consumer tastes quickly and cost effectively. Profit Industry profit margins, measured with earnings before interest and taxes, represent about 2.6% of revenue in 2014. As such, profit margins are currently equal to their 2008 level and are well above negative territory where they were in 2009. Relatively flat demand and volatile purchase costs over the past five years have kept industry profit growth subdued. The price of industry products has increased since 2009, but not enough to outpace rising costs associated with repair fees, legal fees and insurance (the “other” category discussed below). At the same time, increased automation and production efficiency have helped offset volatile demand and production costs and have allowed industry profit to recover from low points during the five-year period. Purchases Purchase costs represent the largest expense for the industry, accounting for about 47.4% of revenue in 2014. These costs include inputs such as wire coils, foam, plastic, fabric and paperboard

containers. From 2009 to 2014, purchase costs have been volatile due to fluctuating oil and steel prices that directly affect the prices of foam and wire springs. Industry operators benefited from lower input costs in 2009 but have seen these increase over the past few years. In the five years to 2014, the prices of steel and oil have increased at average annual rates of 3.1% and 10.1% respectively. These increases came after sharp declines during the recession. Wages Labor expenses are expected to account for 8.7% of revenue in 2014, down slightly from their level of 11.1% in 2009. Per-mattress labor costs have continued to fall over the past five years due to rising automation levels. Better production machinery has enabled operators to reduce their workforce, and industry employment has declined at an annualized rate of 1.2% over the past five years. Because the industry is becoming less labor intensive, the average wage has decreased considerably to $37,976. Marketing Firms market and advertise their products in order to establish their brand name and achieve product recognition in a crowded market. Notable industry marketing campaigns include Serta’s “counting sheep” and Select Comfort’s Sleep Number ads. Marketing expenses currently account for about 2.6% of revenue. Marketing has remained relatively stable over the last five years, however, is 0.2% lower than prerecession levels as operators have scaled back on the number of advertisements. IBISWorld estimates that marketing will remain at current levels moving forward. Other costs Rent, utilities and depreciation are estimated to account for 1.3%, 0.4% and 1.1% of industry revenue, respectively. These

WWW.IBISWORLD.COM

Mattress Manufacturing in the US January 2014  

23

Competitive Landscape

Cost Structure Benchmarks continued

costs have all remained flat compared to their 2009 levels. Depreciation is relatively low compared to other manufacturing industries, even though mattress manufacturers rely increasingly on sophisticated quilters, foam compressors and wire spring unit fabricators. While these machines are expensive, they represent a low cost relative to industry revenue. Other costs, including repair fees, legal fees, insurance, administrative expenses,

transport expenses and research and development costs, account for the remaining industry costs. In 2014, these expenses are estimated to account for about 47.2% of industry revenue, a slight increase over their 46.3% share in 2009. The significant increase is due to rising transportation costs and the large legal and administrative fees that have been incurred recently due to mergers and acquisitions.

Sector vs. Industry Costs Average Costs of all Industries in sector (2014) 100

Industry Costs (2014)

2.6 8.7

6.9 10.4

■ Profit ■ Wages ■ Purchases ■ Depreciation ■ Marketing ■ Rent & Utilities ■ Other

Percentage of revenue

80

47.4

60

58.6 1.1

40

20

2.6 2.8

1.4

2.6

1.7

35.9

17.3 0 SOURCE: WWW.IBISWORLD.COM

Basis of Competition Level & Trend  ompetition C

in this industry is Mediumand the trend is S  teady

Manufacturers in this industry set themselves apart from their competitors on the basis of their product quality, design, range of offerings, price and service. Internal competition Many consumers are willing to spend a significant amount of money on a quality

mattress. Mattresses are expected to have a lifespan of ten years, and many consumers consider such purchases to be personal investments; after all, the average person spends a third of their lifetime sleeping. The increasing awareness of the health benefits of sleep has driven up the demand for premium and specialty mattresses. Specialty

WWW.IBISWORLD.COM

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24

Competitive Landscape

Basis of Competition continued

Barriers to Entry Level & Trend  arriers to Entry B

in this industry are Mediumand S  teady

mattresses can offer back support, adjustable firmness, and adjustable sitting and reclining positions. Additionally, a growing number of the industry’s mattresses are organic or hypoallergenic. Manufacturers have to stay aware of consumer trends and perceptions of quality in order to produce stock that will be in demand. Companies have also competed on the basis of product range. Successful companies offer multiple product lines as this permits them to effectively meet the needs of many customers. When viscoelastic and latex mattresses became more popular, major players quickly acquired companies that produced these, or else they began manufacturing their own foam mattresses. Firms in the Mattress Manufacturing industry compete on the basis of price within each market segment. Since the industry is highly competitive and most firms carry a large array of products, companies may differentiate themselves on the basis of price. Mattresses are expensive, and price can determine a consumer’s purchase if multiple mattresses are judged to be of the same quality.

Customer service is a further way that major players distinguish themselves from competitors. Industry firms sell their goods to furniture stores, bedding shops, wholesalers and end consumers. If they can provide timely deliveries, warrantee support, customer service, or assistance in retailers’ advertising campaigns, industry firms can increase their attractiveness as suppliers.

The top four players in the Mattress Manufacturing industry are estimated to capture a combined market share of 52.5%, reflecting a medium level of industry concentration. Consequently, the dominance of existing players creates a significant barrier for new entrants to establish links with key suppliers and customers. Heavy investment must be made in marketing and promotional activity to build customers’ brand awareness and to overcome retailers’ resistance to brands that are not well established. To be a viable startup in this industry, a

company should offer an innovative product that differs from those already widely represented in the market. Initial start-up and entry costs for mattress manufacturers can be high. New entrants will need to consider the start-up costs for capital equipment, research, development, marketing and the purchase of low-priced and highquality raw materials. These high costs can be a discouraging factor for new operators. Start-ups need to establish distribution networks with upstream suppliers and downstream wholesalers and retailers. These relationships are

External competition The Mattress Manufacturing industry has little external competition from domestic industries. Consumers can choose to sleep on air mattresses (which are not included in the industry), sofas or in sleeping bags, but these choices are usually made for short term periods. Competition is steeper from abroad, however. Imported mattresses are gaining ground and have grown from satisfying 3.0% of domestic demand in 2009 to 5.4% in 2014. Imports from countries with low wage costs such as China and Mexico are behind most of this growth, and these countries’ mattresses represent an increasing threat to industry firms.

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Mattress Manufacturing in the US January 2014  

25

Competitive Landscape

Level & Trend  lobalization G

in this industry is Lowand the trend is I ncreasing

International trade is a major determinant of an industry’s level of globalization. Exports offer growth opportunities for firms. However there are legal, economic and political risks associated with dealing in foreign countries. Import competition can bring a greater risk for companies as foreign producers satisfy domestic demand that local firms would otherwise supply.

The Mattress Manufacturing industry has a medium level of globalization. The industry’s major players serve their US markets with production facilities in the United States. However, many also have operations across Asia, Australia, South America, Europe and the Middle East for international consumers. Sometimes, these foreign plants are company owned and operated, and sometimes they are run by another firm under license. Due to the bulky nature of mattresses and their related transportation costs, manufacturers benefit from being close to retailers and consumers. Mattress manufacturing requires a fairly high level of labor if specialized capital equipment is not available. Trade Globalization 200

Barriers to Entry checklist

SOURCE: WWW.IBISWORLD.COM

Because industry firms invest in this equipment in their domestic plants, they generally do not benefit from moving operations abroad, where labor costs are cheaper, to serve the US market. These firms would also incur increased costs for shipping if they structured their supply chain in this way. However, manufacturers may organize their facilities differently when they are located in countries with low labor costs, and rely less on automating equipment. Globalization has been on the rise due to increased levels of imported mattresses. The countries that have made the biggest gains in this regard are China and Mexico; their imports have increased at annualized rates of 23.7%

Global

150 100 50

Mattress Manufacturing

Import

40

Medium Medium Mature Medium Medium Medium Low

Going Global: Mattress Manufacturing 20002014

Export

0 Local 0

Level

Competition Concentration Life Cycle Stage Capital Intensity Technology Change Regulation & Policy Industry Assistance

200 Export

Exports/Revenue

Industry Globalization

complicated by pre-existing arrangements between established operators and suppliers and distributors; these arrangements cover raw materials such as springs, foam and textiles and license agreements with retailers. If contractual arrangements specify exclusivity with established firms, startups are cut out of relationships with these suppliers, wholesalers or retailers automatically.

Exports/Revenue

Barriers to Entry continued

80

120

Imports/Domestic Demand

160

Global

150 100 50

2000

0 Local 2014 0 40

Import 80

120

160

Imports/Domestic Demand SOURCE: WWW.IBISWORLD.COM

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Mattress Manufacturing in the US January 2014  

26

Competitive Landscape

Industry Globalization continued

and 8.9%, respectively. Operations in these countries can undercut the labor costs of those in the United States, and

can gain a competitive advantage by being more labor intensive than those in the United States.

Mattress Manufacturing in the USJanuary 2014   27

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Major Companies

Serta International   |   Select Comfort Corporation Simmons Bedding Company   |   Tempur Sealy International Inc.   |   Other Companies

Major players (Market share)

Tempur Sealy International Inc. 9.2% Select Comfort Corporation 12.4%

47.5% Other

Simmons Bedding Company 11.7% Serta International 19.2%

Player Performance Serta International Market share: 19.2% Industry Brand Names Serta

Along with Simmons, Serta is a subsidiary of AOT Bedding Super Holdings. Serta is currently number one in US mattress sales, having surpassed Sealy in 2011 (Sealy had been number one since the 1970s). The company was founded in 1931 and offers innerspring mattresses under the Serta Perfect Sleeper, iSeries, iComfort Sleep System and Serta Brands, which include Bellagio at Home, Hotel Mattresses, Sertapedic and Perfect Elements. Serta also produces non-innerspring mattresses or memory foam under its iComfort brands. Serta’s mattresses are well represented in the hospitality industry, with the company supplying mattresses to establishments such as Hilton Hotels, Sheraton Hotels, Hampton Inn, Marriott, Intercontinental Hotels Group and Wyndham Hotels. Serta is headquartered in Hoffman Estates, IL, operates 47 factories worldwide and sells its products in 100

SOURCE: WWW.IBISWORLD.COM

countries. Total revenue in 2014 is estimated to be $1.5 billion. Serta emphasizes style and innovation to attract consumers. In 2009, Serta rolled out its Donald Trump home collection; the mattresses allow users to adjust firmness and shift the mattress into various positions for sitting and sleeping. In 2011, the company partnered with the Bellagio to introduce the Bellagio at Home mattress line. Also in 2011, Serta rolled out its iComfort collection, which is a set of memory foam mattresses, similar to those sold by rival Tempur-Pedic. In 2010, Serta’s holding companies, Ares Management LLC and Ontario Teachers’ Pension Plan, made a major acquisition when they purchased competitor Simmons. At the time, Simmons was in Chapter 11 bankruptcy. Serta and Simmons continue to function as separate entities, however, and compete with each other. The companies

Serta Corporation (US mattress manufacturing) – financial performance* Year

Revenue ($ million)

(% change)

Net Income ($ million)

(% change)

2009

915.0

-6.4

-16.5

-30.9

2010

985.0

7.7

19.7

N/C

2011

1,163.0

18.1

41.9

112.7

2012

1,237.7

6.4

4.95

-88.2

2013

1,370.4

10.7

61.7

1,146.5

2014

1,463.6

6.8

38.4

-37.8

*Estimates

SOURCE: IBISWORLD

Mattress Manufacturing in the USJanuary 2014   28

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Major Companies

Player Performance continued

have remained distinct in order to comply with antitrust laws. In late 2012, Advent International Corporation agreed to buy a majority stake in AOT Bedding Super holdings; existing investors Ares Management LLC and Ontario Teachers’ Pension Plan will retain a significant stake. Financial performance Serta International is a privately owned company, meaning publicly available financial information is limited. Over the past five years, IBISWorld estimates that Serta’s US-specific revenue has grown at an average annual rate of 9.9% to $1.5 billion. In 2011, new product

Player Performance Select Comfort Corporation Market share: 12.4% Industry Brand Names Sleep Number

Best known for its Sleep Number beds, Select Comfort Corporation was founded in 1987 and is headquartered in Minneapolis. The company designs, manufactures, markets and retails foundations, bedding accessories and mattresses. Select Comfort has manufacturing facilities in South Carolina and Utah and is the main retailer of its products through its 410 company-owned stores located within the United States. Select Comfort employs about 2,700 people and total company revenue, which includes manufacturing and retail revenue, is expected to be $1.1 billion in 2014. Select Comfort is vertically integrated and generates revenue by selling products through four complementary distribution channels. Three of these channels (retail, direct marketing and e-commerce) are company controlled and sell directly to consumers. Select Comfort claims its company stores are the sixth most productive retailer in the country based on sales per square foot. The company’s fourth distribution channel, wholesale, sells to the QVC shopping network and to select hospitality groups

introductions and successful advertising campaigns drove up revenue 18.1%, propelling Serta International past Sealy and Tempur-Pedic to become the largest mattress manufacturer in the United States. Furthermore, the company was able to weather the declining economy relatively well due to strong relationships with growing hospitality companies, such as Hilton Hotels. Still, similar to other mattress manufacturers, Serta experienced a revenue decline in 2009 due to low consumer spending. It also faced high raw material costs caused by high commodity prices, which increased pressure on profitability.

and institutional facilities; it also sells to retailers in Alaska, Hawaii and Australia. Select Comfort’s business strategy is largely based on marketing and retailing its innovative independent air chamber technology that allows couples to adjust mattress firmness to their preference. Customizable mattress firmness differentiates Sleep Number beds from one-size-fits-all products. Select Comfort offers mattresses at a range of prices between from $999.0 to $4,699.0. Recently, the company has also been active in acquisitions. In January 2013, Select Comfort purchased Comfortaire Corporation, a privately held company with revenue of $10.5 million before it was bought out. Like Select Comfort, Comfortaire was a manufacturer and marketer of adjustable air-supported sleep systems. Financial performance Over the five years to 2014, IBISWorld estimates that Select Comfort’s US manufacturing revenue has increased at an annualized rate of 14.0% to $945.0 million. The company was heavily impacted by the recession, closing 98

Mattress Manufacturing in the USJanuary 2014   29

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Major Companies

Player Performance continued

underperforming stores in 2008 and 2009. In 2010, sales increased, primarily through the company’s retail channels, and have grown every year since. IBISWorld estimates Select Comfort’s revenue will grow in 2014 due to the

continued strong performance of company-owned stores. Consumers are increasing their spending on household goods and alternative mattresses, such as Select Comfort’s, are gaining popularity with customers.

Select Comfort Corporation (US mattress manufacturing) – financial performance* Year

Revenue ($ million)

(% change)

Net Income ($ million)

(% change)

2009

489.8

2010

545.1

-10.6

32.0

129.8

11.3

28.4

-11.3

2011 2012

668.9

22.7

54.4

91.5

841.5

25.8

70.3

29.2

2013

874.8

4.0

63.1

-10.2

2014

945.0

8.0

78.7

24.7

*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD

Player Performance Simmons Bedding Company Market share: 11.7% Industry Brand Names Beautyrest Beautyrest Black Nuflex Foundation ComforPedic BeautySleep

Founded in 1870 in Kenosha, WI, Simmons Bedding Company is the third-largest mattress manufacturer in the United States. Simmons is currently headquartered in Atlanta, has 2,800 employees and, along with Serta, is a subsidiary of AOT Bedding Super Holdings. Simmons makes mattresses and accessories under its flagship Beautyrest brand, as well as under the Beautyrest Black, Beauty Sleep ComforPedic and Nuflex Foundation labels. The company currently operates 15 manufacturing facilities in the United States and Canada and sells to over 11,000 furniture outlets, department stores and specialty shops in nearly 100 countries. Simmons also distributes branded products directly to institutional users of bedding products, such as the hospitality industry and certain agencies of the US government. The company generates 87.0% of its revenue from its

domestic segment; total revenue in 2014 is estimated to be $1.0 billion. Simmons mattresses are priced between $199.0 and $5,000.0. Most recently, Simmons released the Beautyrest Recharge mattress model, which features pocketed coil springs, as well as AirCool Memory Foam and TruTemp Gel, which allows air to flow freely through the mattress to keep the customer cool. In November 2009, the company filed for bankruptcy because it was over $1.0 billion in debt, which was brought on by lower sales than expected and poor financial management. In January 2010, Simmons emerged from bankruptcy after being purchased by Ares Management LLC and Ontario Teachers’ Pension Plan. Ares and Ontario Teachers’ Pension Plan are also owners of Serta, and combined Serta and Simmons to form AOT Bedding Super Holdings. Serta and Simmons have

Mattress Manufacturing in the USJanuary 2014   30

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Major Companies

Player Performance continued

continued to operate as independent entities that compete with each other in order to comply with antitrust laws. In late 2012, Advent International agreed to buy a majority stake in AOT Bedding Super Holdings; Ares and Ontario Teachers’ Pension Plan will continue to hold significant stakes.

and 5.2% in 2009 and 2010, respectively, from which the company has not fully recovered. Adding to the company’s troubles, the cost of raw materials rose during the recession as steel and oil became more expensive. To offset these costs, the company lowered some workforce salaries and closed two conventional bedding manufacturing facilities. The International Sleep Products Association estimates that Simmons’ revenue grew in 2010, but at a slower rate than Serta’s revenue. IBISWorld expects Simmons’ industryspecific revenue to grow to $891.8 million in 2014, as consumers increase their spending and the company launches new products.

Financial performance Since the company’s bankruptcy in November 2009, financial information for Simmons Bedding Company has not been made publicly available. Over the five years to 2014, IBISWorld estimates Simmons’ US-specific revenue has contracted at an annualized rate of 0.8% due to steep revenue declines of 19.9%

Simmons Company (US mattress manufacturing) – financial performance* Year

Revenue ($ million)

(% change)

Net Income ($ million)

(% change)

2009

858.0

N/C

-15.4

-343.2

2010

813.8

-5.2

16.3

N/C

2011

824.5

1.3

29.7

82.2

2012

847.6

2.8

3.4

-88.6

2013

870.0

2.6

39.2

1,052.9

2014

891.8

2.5

23.4

-40.3

*Estimates SOURCE: IBISWORLD

Player Performance

Tempur Sealy International, headquartered in Lexington, KY, is a leading manufacturer and distributor of high-end mattresses and pillows made from its patented memory foam. Tempur-Pedic was founded in 1989. Tempur-Pedic employed about 1,950 people prior to its acquisition of Sealy in 2014. Tempur Sealy sells its products in about 80 countries worldwide under the Tempur and Tempur-Pedic brands

through retail (furniture and bedding stores, specialty retailers and department stores), direct (direct order and online), healthcare (chiropractors, medical retailers and hospitals) and wholesale channels. Total revenue for TempurPedic (not including Sealy) is expected to be $1.5 billion in 2014. Tempur Sealy operations are divided into two segments: North America and International. The domestic segment

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Major Companies

Player Performance continued Tempur Sealy International Inc. Market share: 9.2% Industry Brand Names Tempur Tempur-Pedic Sealy Posturepedic Optimum Stearns & Foster

consists of two US manufacturing facilities that supply products to the Tempur-Pedic distribution subsidiary and certain third-party distributors in the Americas. The international segment includes the company’s manufacturing facility in Denmark, which supplies the company’s European distribution subsidiaries and thirdparty distributors. In March 2013, Tempur-Pedic acquired close competitor Sealy Corporation. The combined company now has a diversified product portfolio with a presence in major market segments internationally and across the pricing spectrum. Already a leader in high-end foam mattresses, the acquisition gives Tempur-Pedic a foothold in the mid- to lower-end traditional spring mattress category. The combined company will benefit from Sealy’s complementary portfolio of top products and brands, such as Sealy Posturepedic and Stearns and Foster. The combination also strengthens the company’s global presence and distribution capabilities along with potentially delivering cost savings through combined research and development and management teams.

Financial performance IBISWorld estimates that over the five years to 2014, Tempur-Pedic’s US industry-specific revenue has grown at an annualized rate of 15.9% to $703.7 million. The company has benefited from its leading position in the high-end foam mattress segment, which was the fastest growing market over the past five years in terms of unit sales and dollar volumes. Despite its favorable market position, its higher priced products saw significant declines in demand during the recession. With limited financing and low consumer confidence during the recession, US consumers were less willing to purchase high-end mattresses and opted for cheaper standard mattresses. As a result, domestic revenue declined an estimated 11.0% in 2009, respectively. Revenue quickly rebounded in 2010 with improved consumer sentiment, which was particularly beneficial to Tempur Sealy; many consumers had grown more willing to pay for high-quality mattresses with better body support as a result of increasing health consciousness. In 2014, IBISWorld anticipates the company’s growth will continue and be boosted by the Sealy acquisition with revenue of $703.7 million.

Tempur Sealy International (US mattress manufacturing) – financial performance Year

Revenue ($ million)

2009

336.9

N/C

85.0

N/C

2010

539.2

60.0

157.2

84.9

2011

693.4

28.6

219.6

39.7

2012

666.6

-3.9

106.8

-51.4

2013

679.9

2.0

138.2

29.4

2014*

703.7

3.5

173.7

25.7

(% change)

Net Income ($ million)

(% change)

*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD

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Major Companies

Other Companies

King Koil

Estimated market share: Less than 1.0% King Koil was founded in 1898 under the name United States Bedding and is headquartered in Willowbrook, IL. In the 1930s, US Bedding changed its name to King Koil. The company offers several mattress brands, including King Koil, iMattress, The Dr. Breus Bed, Laura

Ashely and Sleep iD, while currently working on Natural Response. King Koil operates retail stores and distributes products in 80 countries via licensing agreements. The company has nine manufacturing facilities in the US and one in Canada, each of which is responsible for servicing a particular region. In 2014, revenue is expected to be $1.0 million.

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Operating Conditions

Capital Intensity   |   Technology & Systems   |   Revenue Volatility Regulation & Policy   |   Industry Assistance Capital Intensity Level The level

of capital intensity is M  edium

The Mattress Manufacturing industry has a moderate level of capital intensity, which is determined by the ratio of capital to labor. For every one dollar spent on labor, industry operators invest about $0.13, on average, on capital. The industry has seen capital intensity increase over the past several years. This is due to the increase in equipment purchases as the industry turns more to automating the mattress production process. The need for labor is reflective of the manual tasks required for the assembly of mattresses and the need for qualified personnel to design mattress components and engineer the production process. In addition to the

Capital intensity

Capital units per labor unit 0.5 0.4 0.3 0.2 0.1 0.0

Economy

Manufacturing

Mattress Manufacturing

Dotted line shows a high level of capital intensity SOURCE: WWW.IBISWORLD.COM

industry’s six major companies, the industry consists of many small- to

Tools of the Trade: Growth Strategies for Success Investment Economy

Recreation, Personal Services, Health and Education. Firms benefit from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation.

Information, Communications, Mining, Finance and Real Estate. To increase revenue firms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Rubber Product Manufacturing Department Stores

Traditional Service Economy Wholesale and Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore firms must use new technology or improve staff training to increase revenue growth.

Warehouse Clubs & Supercenters Plastic Products Miscellaneous Manufacturing Textile Mills Old Economy

Mattress Manufacturing

Change in Share of the Economy

Capital Intensive

Labor Intensive

New Age Economy

Agriculture and Manufacturing. Traded goods can be produced using cheap labor abroad. To expand firms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products. SOURCE: WWW.IBISWORLD.COM

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Operating Conditions

Capital Intensity continued

medium-size firms. Generally, smaller establishments have higher labor intensity and lower capital intensity, as

these firms may not have large enough production runs to justify major expenditures on automating equipment.

Technology & Systems

Product technology Technological change and development within the industry is considered moderate. Many firms invest heavily in research and development of new products such as coil development, foam technology and adjustable electronic mattresses. These investments are common at the premium end of the market. Recent developments in the industry include the increasing use of synthetic products such as viscoelastic foam (also known as memory foam, which was first developed by NASA), polyurethane foam and latex foam. In addition, mattresses with built-in fans help prevent the re-breathing of carbon dioxide. This technology was developed specifically for the crib-mattress product line. These fans include a replaceable filter designed to alleviate asthma and allergies through the removal of airborne particles. The mattress itself also focuses on airflow, with an air-permeable structure built in to the mattress; this keeps the baby at a comfortable temperature and also keeps bacteria from growing inside the mattress. Additionally, mattress manufacturers have added features that promote mattress cleanliness. Another technological innovation is that of adjustable mattresses that the customer has control over. The Sleep Number line by Select Comfort. The customer can control the temperature, angle of both the top half and bottom

half of the mattress and the firmness. Tempur-Pedic has also introduced this type of mattress.

Level The level

of Technology Change is M  edium

Production technology Recent developments in assembly technologies and sourcing have helped maximize production efficiency. For example, some companies manufacture conventional bedding to order and have adopted just-in-time inventory techniques. These techniques optimize manufacturers’ sourcing and storage processes to keep the costs associated with inventory low. As a result, bedding orders can be scheduled, produced and shipped within five days of receipt. Rapid delivery capability allows a company to minimize its inventory of finished products and better satisfy customer demand with prompt shipments. Companies in the industry have also implemented a warehouse management system. This system provides network-wide scan, bar code and electronic processing capabilities for receipt, movement and shipment transactions for all distribution center activities. This setup allows regional centers to juggle demand from high volume retail customers and second tier distribution centers. Some players have retail, direct marketing, customer service and e-commerce applications interfaced together to provide a fully integrated view of their customers and their activities across sales channels.

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Operating Conditions

Level The level

of Volatility is M  edium

Revenue volatility in the Mattress Manufacturing industry is largely caused by changes in disposable income, the strength of the domestic economy and residential construction levels. These factors affect consumer demand for mattresses and can influence the timing of consumers’ buying decisions. As the average price of a queen-size mattress and foundation is about $1,000, any change in disposable income can cause consumers to delay their purchases. Consumers need to feel confident about their ability to finance the product. This industry is also sensitive to changes in the US housing market. Mattresses are household goods so when A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment. When a firm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.

houses are being built or sold, the demand for new mattresses increases. The value of residential construction has surpassed its recessionary level and housing starts have surpassed their recessionary level. These dynamics have contributed to the relatively stable state of demand compared to 2009. As such, industry revenue has displayed a moderate level of volatility in the five years to 2014, with year-onyear revenue changes averaging 4.8%. Revenue volatility was enhanced by a decline of 4.4% in 2009 as well as a sharp pickup of 9.8% in 2011. It has been moderated by minor gains in 2012 and 2013.

Volatility vs Growth 1000

Revenue volatility* (%)

Revenue Volatility

Hazardous

Rollercoaster

100 10

Mattress Manufacturing

1 0.1

Stagnant –30

–10

Blue Chip 10

30

50

70

Five year annualized revenue growth (%) * Axis is in logarithmic scale SOURCE: WWW.IBISWORLD.COM

Regulation & Policy Level & Trend  he level of T

Regulation is Mediumand the trend is S  teady

The Mattress Manufacturing industry is subject to several environmental laws and regulations. These cover discharges into the air and waterways, and storage and disposal of chemicals, waste and by-products. Specific regulations that govern these areas include the Federal Water Pollution Control Act, the Resource Conservation and Recovery Act, the Clean Air Act and The Comprehensive Environmental Response, Compensation and Liability Act. As with other

industries, mattress manufacturers must also abide by US patent and trademark laws that relate to the protection of intellectual property rights. Penalties are imposed on mattress manufacturers that violate US labor and wage laws. Companies must also adhere to Occupational Safety and Health Administration standards for their employees. Additionally, manufacturers must properly label bedding merchandise to comply with regulation standards.

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Operating Conditions

Regulation & Policy continued

Regulators enforce proper labeling of new and used mattresses to control hygiene and other aspects of product handling and sale. These regulations have been increasingly stressed due to growing consumer awareness of the hazards of breathing mold spores, which may reside in mattresses. One of the newest regulations for this sector includes the US Consumer Product Safety Commission’s new standard on flame-retardant mattresses

(16 CFR Part 1633). This law became effective July 1, 2007. It states that all mattresses must comply with this standard to reduce the severity of mattress fires ignited by open flame sources such as candles, matches and lighters. The mattress must also be labeled with the city, state location, month and year of production. Mattresses that are treated with a flame retardant chemical must be labeled with the letter “T”.

Industry Assistance

Imports of the industry’s products are subject to relatively low tariff levels. According to the US International Trade Commission, the tariff rates for mattresses made of cotton, rubber or plastics are 3.0% under Normal Trade Relations (NTR); those made of other materials are levied at 6.0%. However, mattress supports are not subject to any tariffs under NTR. With little tariff protection for the industry, manufacturers receive assistance from the International Sleeping Products Association (ISPA) as part of a membership package. Examples of assistance made available include a

forum for networking that allows for the dissemination of industry-specific knowledge, regulations and other pertinent information. The association also acts as a lobbying group to push for conditions that will benefit the industry as a whole. Recently, the influence of this association has been undermined by the resignation of several large manufacturers. Sealy is no longer an ISPA member, nor is Serta. The resignation of these two players cost the association about $600,000 in lost dues. The association has also lost members through the recent resignation of the Carolina Mattress Guild.

Level & Trend  he level of T

Industry Assistance is L owand the trend is S  teady

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Key Statistics Industry Data 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Sector Rank Economy Rank

Revenue ($m) 8,041.3 8,548.7 8,442.3 7,460.6 7,074.7 6,846.7 7,371.4 7,440.1 7,485.8 7,607.6 7,852.1 7,990.6 8,058.8 8,188.5 8,270.4 155/402 666/1308

Annual Change 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Sector Rank Economy Rank

Revenue (%) 6.3 -1.2 -11.6 -5.2 -3.2 7.7 0.9 0.6 1.6 3.2 1.8 0.9 1.6 1.0 283/402 990/1308

Key Ratios 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Sector Rank Economy Rank

IVA/Revenue (%) 18.27 15.86 14.74 14.71 10.72 14.93 7.50 11.08 14.74 12.43 12.05 11.85 11.49 11.75 11.30 382/402 1215/1308

Industry Value Added ($m) 1,469.2 1,355.4 1,244.4 1,097.1 758.1 1,022.5 552.9 824.0 1,103.5 945.7 946.3 946.9 925.6 961.8 934.2 216/402 907/1308

Establishments 567 562 554 536 495 473 466 457 451 441 432 421 412 407 402 151/402 939/1307

Industry Value Added (%) -7.7 -8.2 -11.8 -30.9 34.9 -45.9 49.0 33.9 -14.3 0.1 0.1 -2.2 3.9 -2.9 394/402 1291/1308

Establishments (%) -0.9 -1.4 -3.2 -7.6 -4.4 -1.5 -1.9 -1.3 -2.2 -2.0 -2.5 -2.1 -1.2 -1.2 354/402 1209/1307

Imports/ Demand (%) 2.72 3.23 2.78 3.19 3.03 4.45 4.55 5.65 5.77 5.38 6.07 6.25 7.25 7.94 8.60 317/372 349/429

Figures are inflation-adjusted 2014 dollars. Rank refers to 2014 data.

Enterprises Employment 466 22,770 462 21,383 456 19,018 441 18,766 410 18,444 398 18,766 403 18,565 402 18,128 402 17,878 401 17,390 400 17,241 398 17,061 396 16,908 398 16,811 399 16,625 145/402 156/402 896/1307 793/1308

Exports ($m) 118.9 128.0 131.4 150.8 119.9 127.4 139.1 139.0 140.7 134.6 141.0 139.1 140.2 145.8 146.0 286/372 329/429

Imports ($m) 221.1 280.8 237.7 241.0 217.5 312.9 345.1 437.0 449.4 424.8 498.0 523.6 618.7 693.8 764.7 236/372 269/430

Wages ($m) 1,035.0 902.3 822.3 798.6 786.4 782.9 762.0 727.3 699.2 660.4 651.9 643.2 635.5 629.3 620.6 183/402 836/1308

Domestic Demand 8,143.5 8,701.5 8,548.6 7,550.8 7,172.3 7,032.2 7,577.4 7,738.1 7,794.5 7,897.8 8,209.1 8,375.1 8,537.3 8,736.5 8,889.1 155/372 185/429

World price of steel ($) 159.7 174.2 182.9 220.6 165.2 191.7 216.2 208.0 197.7 192.3 196.8 200.6 205.6 214.8 220.9 N/A N/A

Enterprises Employment (%) (%) -0.9 -6.1 -1.3 -11.1 -3.3 -1.3 -7.0 -1.7 -2.9 1.7 1.3 -1.1 -0.2 -2.4 0.0 -1.4 -0.2 -2.7 -0.2 -0.9 -0.5 -1.0 -0.5 -0.9 0.5 -0.6 0.3 -1.1 252/402 358/402 919/1307 1232/1308

Exports (%) 7.7 2.7 14.8 -20.5 6.3 9.2 -0.1 1.2 -4.3 4.8 -1.3 0.8 4.0 0.1 356/372 411/429

Imports (%) 27.0 -15.3 1.4 -9.8 43.9 10.3 26.6 2.8 -5.5 17.2 5.1 18.2 12.1 10.2 354/372 410/430

Wages (%) -12.8 -8.9 -2.9 -1.5 -0.4 -2.7 -4.6 -3.9 -5.5 -1.3 -1.3 -1.2 -1.0 -1.4 385/402 1284/1308

Domestic Demand (%) 6.9 -1.8 -11.7 -5.0 -2.0 7.8 2.1 0.7 1.3 3.9 2.0 1.9 2.3 1.7 266/372 303/429

World price of steel (%) 9.1 5.0 20.6 -25.1 16.0 12.8 -3.8 -5.0 -2.7 2.3 1.9 2.5 4.5 2.8 N/A N/A

Exports/ Revenue (%) 1.48 1.50 1.56 2.02 1.69 1.86 1.89 1.87 1.88 1.77 1.80 1.74 1.74 1.78 1.77 352/372 398/429

Revenue per Employee ($’000) 353.15 399.79 443.91 397.56 383.58 364.85 397.06 410.42 418.72 437.47 455.43 468.35 476.63 487.09 497.47 176/402 398/1308

Wages/Revenue (%) 12.87 10.55 9.74 10.70 11.12 11.43 10.34 9.78 9.34 8.68 8.30 8.05 7.89 7.69 7.50 316/402 1073/1308

Employees per Est. 40.16 38.05 34.33 35.01 37.26 39.67 39.84 39.67 39.64 39.43 39.91 40.52 41.04 41.30 41.36 214/402 309/1307

Average Wage ($) 45,454.55 42,197.07 43,237.99 42,555.69 42,637.17 41,719.07 41,044.98 40,120.26 39,109.52 37,975.85 37,811.03 37,700.02 37,585.76 37,433.82 37,329.32 351/402 896/1308

Share of the Economy (%) 0.01 0.01 0.01 0.01 0.01 0.01 0.00 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.00 216/402 907/1308

SOURCE: WWW.IBISWORLD.COM

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Jargon & Glossary

Industry Jargon

INNERSPRING MATTRESSA type of mattress that has internal springs. LEAN MANUFACTURINGA production strategy that focuses on low inventory, quick delivery and efficient supply chain management; also known as just-in-time production.

VISCOELASTIC FOAMAlso known as memory foam, a material used in mattresses that molds to the shape of the body and increases comfort. The material returns to its original shape once pressure is removed.

MATTRESS TICKINGThe fabric that is used to cover a mattress, which influences the level of comfort and quality of the mattress.

IBISWorld Glossary

BARRIERS TO ENTRYHigh barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry. CAPITAL INTENSITYCompares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of labor. CONSTANT PRICESThe dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the “real” growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator. DOMESTIC DEMANDSpending on industry goods and services within the United States, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports. EMPLOYMENTThe number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers and executives within the industry. ENTERPRISEA division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control. ESTABLISHMENTThe smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise. EXPORTSTotal value of industry goods and services sold by US companies to customers abroad. IMPORTSTotal value of industry goods and services brought in from foreign countries to be sold in the United States.

INDUSTRY CONCENTRATIONAn indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%. INDUSTRY REVENUEThe total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded. INDUSTRY VALUE ADDED (IVA)The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry’s contribution to GDP, or profit plus wages and depreciation. INTERNATIONAL TRADEThe level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%. LIFE CYCLEAll industries go through periods of growth, maturity and decline. IBISWorld determines an industry’s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry’s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services. NONEMPLOYING ESTABLISHMENTBusinesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals. PROFITIBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax.

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Jargon & Glossary

IBISWorld Glossary continued

VOLATILITYThe level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.

WAGESThe gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure.

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