With consumer spending cooling off, mattress sellers may need to adjust their strategies.
Nothing lasts forever—and, unfortunately for the mattress retail industry, that includes record-breaking consumer spending. While the mattress and home furnishings categories saw unprecedented demand throughout the height of the pandemic, new metrics indicate that the once sky-high levels of spending are finally starting to cool off. In some ways, this is good news for a wider economy—slowing demand will allow for delayed supply to catch up, which in turn will hopefully lessen inflated prices for everyday goods. But what does this mean for the mattress market? And what can manufacturers and retailers do to continue their sales growth amidst these shifts? We dive into the details.
Big Picture Stats
There is no doubt that the mattress and home furnishings industries got a major sales boost during the pandemic, even with early production delays and supply disruptions. According to the US Bureau of Economic Analysis, consumers in the US spent roughly $298.5 billion on furniture and furnishings in 2021. This was up 22% from 2020 and 31% from 2019.
And for the time being, a lot of that spending remains strong! The US Department of Commerce is reporting that revenue from furniture and home furnishings stores rose 5% in Q1 of 2022 over the year prior. And according to Mastercard’s recent SpendingPulse report, April was the seventh consecutive month of positive growth for the furniture and home furnishings category: it was up 3.8% year-over-year and 25.7% compared with 2019.
Yet, despite these overarching gains, experts are starting to anticipate that the pace of growth will slow through the rest of the year ahead. A recent Wall Street Journal article piqued our interest, as it outlined the ways in which a decline in demand is already prompting some of the biggest mattress players to trim costs and delay product launches.
While no outcome is set in stone just yet, keeping an eye on the various metrics at play will be key for retailers looking to preparing for the future.
Mattress Sales Are Already Starting To Slow
While sales may still be strong for the wider home furnishings category, the news from the publicly traded mattress companies is painting a quieter picture for the first quarter of the year. According to the Wall Street Journal, Sleep Number saw net sales decline 7% during Q1 of 2022, with customer demand falling 3%. The company cut $10 million from its planned expenses for this quarter—reducing spending on marketing and bonuses in particular. Tempur Sealy also recently reported lower than expected sales numbers. The company still expects its year-over-year sales to grow 15%—but that will be a slow down from its 2021 upswing, which saw sales increase by 29%. And, in a recent earnings call, Purple Innovation reported a loss of $13.5 million in Q1 of 2022—though, despite being a downturn, this was in fact better than analyst expectations for the company.
“I think mattresses are an early tell on a spending slowdown,” said Peter Keith, an analyst at financial-services company Piper Sandler Cos. He and other experts are predicting that the dip in demand may be the start of a more significant decline in spending on all “durable discretionary items,” which includes mattresses, furniture and other home items. Case in point: Wayfair also saw a 13.9% decline in sales in Q1 of 2022.
So what’s the deal? It looks like there are a few different factors at play right now when it comes to the slow down of consumer spending.
Inflation & Consumer Confidence
Overall inflation has shot up 8.5% in the past year—with furniture and bedding prices up nearly 16%. And while total annual inflation may have slowed in April, the “core price measure” (which excludes both groceries and gas) increased 0.6% from March, when it grew by 0.3%.
While the higher prices everywhere have not deterred consumers from spending, it has weakened their confidence over the past few months—especially as inflation continues to outpace wage growth. This will likely have an impact on big-ticket purchases, like mattresses and furniture, experts say.
“Consumers need to feel confident about themselves,” said Atul Maheswari, an analyst at UBS Group AG. “Overall consumer confidence matters a lot for this type of purchase.”
After such sustained price increases, the Federal Reserve has stepped in to increase interest rates in the hopes of tamping down rising prices. By making it more expensive to borrow money, the hope is that spending will cool off and give supply more leeway to catch up with demand. This is a delicate maneuver though, as they try to thread the needle of lowering demand without triggering a recession.
As we’ve previously discussed, the housing market is one of the biggest corollaries of the bedding and home furnishings market performance. When more people buy new homes, more people buy new mattresses to go in them. That is why the housing boom of the past two years has been good news for the bedding industry.
But, as with anything, with booming demand comes higher costs; the US housing market has seen prices increase by 35% over the past two years. The Fed’s decision to raise interest rates is supposed to help dampen the demand and eventually lower prices. Between the still sky-high price tags and the now higher borrowing rate, many consumers are expected to be price out of the house-buying market in the coming months. And, as it goes, with less people buying new homes, less people will be buying new mattresses.
We can’t forget about the supply chain, either! While many manufacturers were able to diversify their material sourcing, the semiconductor shortage is ongoing—which is a hurdle for companies that use those computer chips to power the adjustability features in its beds. That includes Sleep Number, which has been struggling to keep up with demand amidst these shortages—it currently has a backlog of orders at $200 million higher than normal levels. This will continue to be a headache for the manufacturers of adjustable sleep products, even as many of them have found ways to shift their production and distribution strategies to mitigate the impact. And for some consumers, that means they’re stuck waiting to receive the products they already ordered.
This is a question we’ve been asking ourselves for a while now: what happens when demand slows down? Consumers are no longer sitting around with nothing to do and too much money to spend. And without the built-in guarantee that comes with more people buying new homes, how will mattress manufacturers and retailers entice new customers?
Perhaps this isn’t the start of a downward spiral, though—but simply a cooling off to a more sustainable kind of growth. It’s entirely possible the pandemic-era market shifts will have a lasting effect. Mattresses have traditionally been lumped together with other big-ticket discretionary purchases, but has that changed? Maybe the bedding market has effectively repositioned itself as a more essential purchase, one that needs to be made more regularly.
Will there be a renewed interest in promotional prices as inflation goes down? Or will the mattress market be more resistant to this pendulum swing? With more and more consumers now enjoying the benefits of luxury bedding, are they really going to be willing to go back to something more affordable next time around? Maybe it means the industry will have to work together to protect stronger margins.
No matter what, it’s clear that now is a moment when retailers will need to evaluate their messaging, merchandising and strategies for the next phase to come.