Mattress Manufacturing Industry Analysis

MATTRESS MANUFACTURING

INDUSTRY ANALYSIS

Course: Business Strategy

Group B6

Alexandria Webb

Duc Chau

Charlie Zignego

Liam Narozanick

William Fluharty

Word count: 800

Overall, the US mattress manufacturing industry is an attractive industry. Even though the rivalry threat is high, the threats of supplier, of substitutes, of buyer and of new entrants remain either low or medium.

Supplier threat is quite low – the various supplier industries (urethane foam, steel, labor…) are fragmented. These suppliers produce goods using commodity materials with low switching costs and low inputs differentiation. Players in these industries are not likely to forward integrate into mattress manufacturing due to low margins, required expertise and heavy initial investment. Similarly, the threat of substitutes is low as there are so few - couches, futons, or the ground. Consumers tend to perceive none of those as good long-term options for health and with the increasingly healthy lifestyles, mattresses will stay prominent.

The mattress industry has a high rivalry threat. Despite the industry is quite consolidated, with three biggest players control roughly 75% of the revenue in the industry^[1], there is little different between them. Most firms operate in the same ways in terms of product offers and distribution model. Only a few firms have differentiated themselves like Casper, who also sells directly to the customer from an online storefront along with a handful of Casper and Target brick and mortar locations. In the industry, price competition is very common, as the products are relatively undifferentiated – mattress types and sizes are similar and are not predicted to see significant changes. The industry has quite low growth rate, at a CAGR of 0.2% from 2012-2017 and 1.0% in the 2017-2022 period^[2]. This issue of low growth is exacerbated by the nature of high fixed cost over value added of the industry and the increasing amounts of imported mattress, making it a fierce competition. These imports, which are set to make up 15.3% of the industry by 2022^[3], compete on price, compounding previous price competition, and.

New entrants’ threat is medium. In general, overall capital requirement and low switching cost seem to increase the entry threat to the industry. New entrants would need enough capital to build a manufacturing facility big enough to enjoy the economies of scale, to acquire distribution networks, and to learn advanced manufacturing technology of mattress production. However, capital expenditure is not necessarily required every few years to produce new models of mattresses as mattresses do not vary much over time. That also makes buyers switching cost low. But the mattress industry may be unattractive for newcomers due to the strong brand identities of the major players. Consumers infrequently purchase mattresses, every 5-10 years, based on price and comfort; and the three major brands have gained consumer trust while delivering on one or both requirements. New entrants need to have substantial effort to build their brands in the long-run and under the expected retaliation of incumbents, proved through recent M&As. One key component of the mattress industry is that a large majority of mattresses are sold through retail stores and specialty furniture stores, most of them are already bounded by biggest players^[4]. This barricades the access to distribution network and decreases the threat of entry. Nonetheless, the recent shift toward e-commerce opens the door for new entrants to establish unconventional distribution network, increasing the threat of entrants.