Select Comfort (NASDAQ: SCSS) makes and sells premium mattresses and pillows. Their "Sleep Number" mattresses differentiate themselves from the competition by allowing customers to customize the firmness of their beds. This features allows the company to charge nearly double the price on average ($1,700) compared to a traditional innerspring mattress ($900). Select Comfort is the fifth largest mattress manufacturer in the world with 4.9% market share of industry revenue and 1.5% of industry units.
Select Comfort is vertically integrated, meaning that it has a hand in manufacturing and selling its mattresses. In fact, 90% of its sales are made directly to consumers, most of which come through 400 stores in the U.S. and Canada.
The company will likely benefit from the aging of baby boomers, many of whom are willing to pay premiums to ease the pains of growing older and sleep more comfortably. Already, consumers such as these have made the specialty sleep market the fastest growing segment of the $6 billion U.S. bedding market. However, a slowdown in the U.S. housing market could decrease the number of upgrades to larger homes (with more bedrooms) and second home purchases, both which directly drive mattress sales.
Select Comfort operates a mostly vertically integrated business, meaning that it does everything from manufacturing to distributing and selling its mattresses (the company does rely on a few raw materials suppliers). Select comfort owns 403 stores and has partnerships with 11 home furnishing retailing and specialty bedding retailers, which gives them access to more than 700 retail locations.
The bedding company distributes its Sleep Number beds and accessories through four channels:
The mattress industry consists a few large national players, Serta, Sealy (ZZ), Select Comfort (SCSS), Simmons, Tempur-pedic International (TPX), and Spring Air. These six leaders account for more than 60% of the industry's sales and lead approximately 500 U.S. bedding manufacturers. According to International Sleep Products Association, industry wholesale shipments of mattresses and foundations were estimated to be $5.7 billion in 2009, a 9.0% decline compared to $6.2 billion in 2008.
Bedding products fall in either traditional and/or specialty sleep products and most companies have developed products in recent years to address the faster growing specialty segment. Sealy (ZZ), the largest bedding manufacturer in the world, and Simmons Bedding offer air mattresses that directly compete with Select Comfort's Sleep Number Beds.