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MATTRESS/BEDDING Q & A

Lilly Management Group Answers the Tough Questions

By: Dale T. Read , Editor-in-Chief
 

After senior-level mattress/bedding industry leaders Ed Lilly and Susan Ebaugh launched Lilly Management Group (LMG) in 2005, the initial impression on the part of some in the industry was that LMG was mostly a consulting service geared to helping suppliers, manufacturers and retailers implement an effective FR compliance program to meet the new federal FR regulatory standards. While the Lilly team certainly did demonstrate expertise and a considerable depth of knowledge in the entire FR compliance area, the fact is that LMG offers a much wider and expansive expertise that reaches into all aspects of designing, manufacturing and marketing mattresses and foundations. LMG is a first-of-its-kind consulting practice to retailers, manufacturers and suppliers of the mattress industry. LMG offers a comprehensive range of programs and custom services based on more than 70 years’ combined wholesale and retail experience. LMG draws upon that base to provide a broad range of clients with “ ‘creative solutions to their complex problems’ using knowledge, strategy and vision.” More and more mattress/bedding retailers have benefited from working with LMG and BEDROOM believes there is no better way for retailers to understand the depth of services offered than to have the Lilly team answer some critical business questions.

Smaller Retailers

The economy aside, what is one of the biggest challenges facing smaller mattress retailers today? One of the developments we’ve seen is the emphasis on transaction marketing (pure sales promotion) at the exclusion of relationship marketing (the longer job of building brand and store relationships within a community among current and potential customers). Today, with limited budgets and tougher competition, it’s imperative to reach out to customers in ways that may not have been necessary years ago.

First, more than ever small stores are competing in markets with major retailers, which have far more resources and well developed store brands. It’s much more important, then, for these smaller stores to develop their own identities within their communities. To do that, they need to know their customers and what they care about, and to develop a store brand based on that relationship.

Second, along with reinforcing that relationship in advertising, local retailers need to demonstrate it: Offer special in-store or in-home customer services; hold preferred customer events; sponsor community activities or get involved in local philanthropic causes. Your web site should be an active place: Post new products, promotions or other store news, and encourage customer dialogue. Every sale can be followed up with a phone call, e-mail or letter to ensure satisfaction. The point is, get in front of your customers and stay connected with them.

Retailer Importers

My store imports finished mattresses. Does that make me the “importer of record” under the new federal flammability regulation? What are my responsibilities?

If no middleman is involved and a retailer receives his mattress goods directly from the overseas manufacturer, the CPSC considers that store the Importer of Record (IOR). According to the 1633 standard, IORs have the same responsibilities as US mattress producers. If inspected, they need to provide burn test results, Reasonable Criteria and other record-keeping required by the CPSC regulation. The mattress manufacturer (your exporter) should provide that documentation, and the products you import also should carry the proper labeling.

Retailer-importers can review their status under the regulation at www.cpsc.gov or submit specific questions to Heather Sonabend at hsonabend@cpsc.gov.

Minimizing Cost Increases

The industry is seeing unprecedented price increases in everything from steel and foam to the cost of FR compliance. What strategies can be used to minimize the impact of these increases?

We think the answer for manufacturers is two-fold. First, they need to adjust their operations to meet reduced demand. Their factory floors can yield significant savings. Large manufacturers have spent years increasing plant efficiencies and reducing operating costs. Every dollar saved in reduced material handling, effective machine utilization, factory floor evaluation and decreased materials waste can add a lot to the bottom line.

Second, producers can look to the range of products and SKUs they currently produce. With continued pressure on component pricing, SKU efficiency and smart purchasing make a lot of sense.

For retailers, price increases from manufacturers have generally been minimized by the strategy of remerchandising product lines. The industry is experiencing the big downside to the global market that has been talked about for years. In the US, bedding sales have never been softer. At the same time, component prices are increasing dramatically.

This year, the timing and scope of the increases can’t be adjusted by a remerchandising strategy. Retailers need to analyze all areas of their business to reduce costs and increase efficiencies wherever possible. Balancing proper margins, the costs of running a business and retail sales velocity will be a critical part of surviving in a troubled year.

Green Marketing

The mattress market is saturated with “green” mattress products and components. What does green really mean when everything is green?

It’s true that green marketing is sweeping virtually every consumer product category. It’s also true that most consumers are confused by environmental marketing terminology and claims. But definitions do exist that distinguish between terms like “eco-friendly,” “natural,” “organic” or “green.”

For example, “green” is currently used to describe products made using processes that don’t waste natural resources or create a lot of waste. “Organic” means that the product was derived from either a plant or animal which was not exposed to synthetics. “Natural” products are derived from plants, animals or the earth with minimal processing (think granite). “Eco-friendly” has been primarily associated with goods and services that do minimal harm to the environment.

A recent Nielsen study indicates that more and more consumers want companies to explain the real environmental benefit or impact of their products. Currently, the FTC is updating its existing “Green Guides,” which offer guidance on green marketing practices.

Price Competition

I know that building my store name and reputation is good for business. But with every other store competing on price alone, how can I accomplish that and still generate traffic and sales?

Price wars do more than destroy retail margins; they can erode a store’s credibility over time. As prices spiral lower, store differentiation is minimized and the product is devalued in the consumer’s mind. An economic downturn—such as the industry is currently seeing—is often a catalyst.

The answer lies in realizing that while some consumers will always be motivated by price, many others respond to values: The promise and delivery of a great shopping experience; helpful, well-trained salespeople; quality sleep accessories that make for convenient, one-stop shopping; unique in-store amenities or services; meaningful sales promotions, etc.

No doubt, establishing a reputation along these lines takes time and effort. But if your advertising message consistently reinforces a dedication to store values and customer benefits rather than price alone, you’ll build a level of awareness and recognition—driven by the power of positive word-of-mouth in your market—that will sustain your business and help protect your margins, whatever the competition is doing.

This may seem simplistic, but in the end, you either have something more to sell than price…or you don’t.

Economic Outlook

What’s your prediction for the mattress industry for the remainder of this year and into 2009?

Currently the industry is experiencing negative numbers in the high single digits and teens, which separates this downturn from others we’ve seen in recent decades. Unless the housing industry achieves some stability, which could take awhile, a recovery isn’t likely in the near term.

We also believe the current contraction in consumer spending may be affecting broader segments of the population than even the mortgage crisis. You needn’t look far to see how this pullback has impacted all kinds of retailers, especially those selling easily postponed products like home furnishings.

We’ve been advising retailers to carefully evaluate and project their local market economies for the rest of the year. This is also the time to fine-tune product, merchandising and pricing strategies where possible, and to sharpen advertising and sales practices. Innovation or improvement, whether intended to attract business or differentiate your store, is essential in a downturn and pays big dividends in the upturn.

On the manufacturing side, producers should prepare to operate on diminished sales volume and to focus on becoming better low-cost producers. We’re currently working with several mattress operations to improve their quilt transition rates and reduce materials waste. Factories also can be concentrating on streamlining SKUs or improving employee skills and productivity.

Retailers, manufacturers and suppliers are invited to call Lilly Management Group at (630) 377-2424 or visit www.lillymanagementgroup.com.