South African multinational retail giant, Steinhoff International Holdings, has agreed to buy Mattress Firm, North America’s largest mattress retailer for US$2.4 billion.
The deal gives Steinhoff instant market leadership in a retail category in its first foray into the US and creates the world’s largest bedding retailer.
Early this year, Mattress Firm completed the $780 million acquisition of America’s second largest mattress retailer, Sleepy’s, creating a 3500-strong store network and 80 distribution centres spanning 48 states.
“This transaction will allow Steinhoff to not only enter the US market with an industry leading partner and a national supply chain, but it will also expand Steinhoff’s global market reach in the core product category of mattresses,” said Markus Jooste, Steinhoff CEO, in a statement.
Last month, the South African company revealed it was buying UK discount chain, Poundland, for US$794 million.
The US deal is expected to be completed by the end of the third quarter.
Neil Saunders, CEO of Conlumino, said the rise of Mattress Firm has been meteoric.
“Over the past five years the company has increased its sales by almost 415 per cent, with operating income expanding by a shade over 345 per cent. This growth has been attained by a string of acquisitions, both large and small, which has transformed the company from a moderately sized, regionalised player, to the dominant force in mattress retail,” Saunders said.
According to Saunders, the market share numbers speak for themselves. Back in 2010 Mattress Firm held a 7.9 per cent share of all spending made on mattresses in the US. Last year, it held over a third of the market with a share of 33.8 per cent – a number boosted by its acquisition of Sleepy’s.
But, he said, while the headline numbers look impressive, not all aspects of Mattress Firm’s operations have been quite so polished.
“Underlying growth, as measured by same-store sales has been weak, falling into negative territory in the latest quarter,” Saunders said.
Saunders said one potential reason for this dip is the increased level of cannibalisation within the chain, “something we believe has arisen because of Mattress Firm’s rather haphazard approach to growth”.
“This has involved acquiring many different fascia as well as organically opening more and more stores. As a consequence, there is an overabundance of Mattress Firm (and its related fascia) stores in some areas.”
“Going forward we believe that Mattress Firm needs to take a comprehensive look at its store fleet and remove duplicate and unnecessary outlets. In our view, there is scope for Mattress Firm to consolidate its assets,” Saunders said.
Saunders said another weakness of the company is the fairly poor return.
“In actual terms, net income and operating income have both increased rapidly as the company has grown; however, in percentage terms they are far from spectacular. Indeed, at the close of the last fiscal year net income stood at 2.1 per cent of sales; a figure that is far lower than rivals like Select Comfort – which manufactures as well as retails mattresses through its Sleep Number stores.”
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