Which country will Mattress Firm call home? Better sleep on it
If South African conglomerate Steinhoff International makes Houston-based Mattress Firm a wholly owned subsidiary, should Americans still consider it a U.S. company?
Steinhoff International, originally based in Germany, headquartered in Cape Town, South Africa, and legally domiciled in the Netherlands, has operations throughout Africa, Europe and Australia. Mattress Firm has been buying up competitors across the U.S., creating the largest multibrand mattress retailer in the nation. Combining the two would create the largest bedding retailer in the world.
Politicians promising a new economic nationalism based on renegotiating trade deals and curtailing foreign trade make Mattress Firm’s identity an interesting question, and one that reveals the complexity of international commerce.
Steinhoff ’s bid, which is double Mattress Firm’s previous stock price and just below the year-to-date high mark, shocked many analysts who had written off Mattress Firm as a fiscal
mess after a recent binge of acquisitions. But there is a business case for the deal based on the old German adage that a person should never skimp on a good mattress or good shoes, because if you are not in one, you are in the other.
American spending on mattresses is closely tied to household formation and population growth, and U.S. consumers have shown more interest in higher-end models. The International Sleep Products Association, a trade group, reports that U.S. mattress shipments were up 4.5 percent in 2015, with wholesale values up 6.8 percent.
New-home construction is on the rise in the U.S., and mattress sales will rise with it. Mattress Firm’s purchase of Sleepy’s and other competitors have left the company with high debt and low profits, but the company stands to dominate retail sales if it can efficiently consolidate its 3,500 stores under one brand.
Steinhoff has been dominating mattress sales in Africa for years. In the 19 African countries I’ve visited, selling mattresses was always one of the most reliable businesses next to shoes. Several regional retail empires were built on selling thin sheets of foam at high margins to poor people.
Using developingworld profits to move into more developed markets underlies Steinhoff ’s business plan. The company closed a deal for Britain’s equivalent of a dollar store, Poundland Group, just before announcing the Mattress Firm deal. The company now has 6,500 retail stores in 30 countries under 40 brand names.
Steinhoff ’s $2.4 billion bid for Mattress Firm is intended to give the company a fully developed distribution and retail network in North America, CEO Markus Jooste said in a statement.
“This transaction will allow Steinhoff to not only enter the U.S. 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,” he said. “The Mattress Firm brand and specialty retail concept are a strong complement to the Steinhoff group retail brand portfolio in the many geographies where the group operates.”
So does this mean that Steinhoff will begin shipping foreign-made goods to the U.S.? That’s likely. Will Steinhoff ship U.S.-made mattresses to its stores in other countries? Also possible. Only time will tell. One thing is sure, the South African company plans to inject $2.4 billion into the U.S. economy.
Jooste promised to keep Mattress Firm’s headquarters in Houston and maintain the current management team. Mattress Firm CEO Ken Murphy promised no layoffs for the company’s 11,000 employees.
So does it matter that the company will be owned by a South African conglomerate? Is Miller High Life beer any less American because it’s owned by London-based SABMiller? Or that SAB stood for South African Brewing before it moved to London in 1999?
If the residence of a company’s owner matters, then Mattress Firm hasn’t been a Houston company for a long time. The biggest shareholders were private equity firms based in Massachusetts, New York and Los Angeles.
Is local content important? Most mattresses sold in the U.S. are made here, which makes Mattress Firm very American. But sometimes local content can be misleading.
The automobile with the most American-made components while being assembled in the United States is the Toyota Camry, according to Cars.com. Toyota buys 75 percent of the parts for the Camry from U.S. manufacturers, and the cars are assembled in Kentucky and Indiana.
Foreign trade and investment has always been integral part of Houston’s economy, from crude oil arriving from the Middle East and refined products going to Latin America. Houston corporations own hundreds of foreign companies and employ millions of workers around the world in the oil and construction industries. The line between American and foreign is becoming harder to distinguish as companies learn that going international is the key to growth.
Money flows in and out of this nation because it is the primary hub for global commerce. Stymie that flow with false patriotism, and we will all suffer.