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Retail isn’t all dead: Which corner of the market is booming?


Published 16-OCT-2020 10:59 A.M.


5 minute read

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Retailers are doing it hard. The combination of the closing of bricks and mortar stores and the impact of the heightened unemployment on consumers has seen the retail industry hit the hardest in ABS recorded history.

And being global pandemic, this is a situation not unique to Australia.

In the USA — the world’s largest consumer market, previously contributing US$20 trillion to GDP — retailers are struggling and bankruptcies spiking.

That said, there is one segment that is booming: bedding.

Increased spending on homewares, and bedding products in particular, seems to be driven by shifting consumer spending, with spending on holidays, sporting events, restaurants and bars, and clothing taking a backseat. This makes sense — we are saving money in other areas and spending more of our time at home, so we want to be comfortable.

Working from bed, it seems, is a real phenomenon.

After months of shutdowns the mattress business is now bouncing back in the US. USA Today report that the bedding industry is enjoying a year-over-year sales increase of more than 30%.

That’s a massive boost to an already mammoth market.

Prior to COVID, estimates were pointing to the US bedding market, consisting of products such as mattresses, bed linens, pillows, and blankets, being worth US$86 billion by 2025.

Underscoring the resiliency of the bedding industry is the performance of one of its largest players: Tempur Sealy International (NYSE: TPX). After its stock fell sharply in an initial response to COVID, the US$4.9 billion NYSE listed company is now up almost 300% since mid-March, having erased its losses.

Serta Simmons Bedding (SSB), a 150-year-old privately owned manufacturer that controls nearly 40% of the US mattress market, is also seeing a lift in demand.

SSB Chief Marketing Officer, Melanie Huet, said mattress demand is rising as workers relocate from population centres to larger, more remote houses that can accommodate home offices. “Their living space goes up and that triggers new mattress purchases,” she said. Huet also reported “a tremendous surge” in mattresses for RVs and campers.

Opportunities on the ASX

There’s been a similar trend in Australia. The $690 million capped manchester and homewares retailer, Adairs Ltd (ASX: ADH), has benefited from local lockdowns, rallying 700% to $4 per share from its March low of 50 cents.

Adairs acquired online-only homewares and furniture retailer, Mocka, in December 2019 for $75.5 million and Mocka revenues increased by more than 30% over the past 12 months.

Like Adairs, Australian homewares retailer Temple & Webster (ASX: TPM) is up almost 700% over the past six months, rising from less than $2 per share to $13.50 today. That performance saw the $1.6 billion capped company added to the S&P ASX 300 Index in September.

Also trading on the ASX, albeit at the smaller end of the market and with arguably much more upside potential, is the $38 million Alexium International Group (ASX: AJX).

The small cap has a share price of just 6 cents and seems to have largely managed to fly under the radar of ASX investors.

While not a bedding manufacturer or retailer itself, Alexium has partnered with an industry leading bedding product manufacturer that supplies Serta Simmons Bedding (SSB), the largest manufacturer and distributor of mattresses in North America.

The agreement provides Alexium with a channel to some of the world’s most recognisable retailers, such as Bed Bath & Beyond, Amazon, J.C. Penney and Dillard’s.

Based in South Carolina, USA, Alexium is a specialty chemicals company that is developing and commercialising high-performance, environmentally friendly, nonhazardous flame retardants and phase change materials (PCM). It provides performance chemicals for advanced materials applications with a focus on flame retardancy and thermal management.

The company recently developed a new technology for thermal management in textile- and foam-based consumer products — the PhononTM perpetual cooling technology, which enhances the rate of cooling by up to 200% over current products and being perpetual its cooling never stops.

The breakthrough cooling technology is poised to disrupt markets by continually regulating and removing heat from consumers, creating a constantly comfortable experience

Cooling technologies such as this, as well as the company's Alexicool® Total Mattress Cooling System, have become a critical selling feature for premium mattress manufacturers in recent years.

Alexium CEO Bob Brookins, says, “Alexium has garnered a deserved reputation for leading technical innovation and analytics via its Alexicool products.”

He says that given technical innovation is generally incremental in nature, the company’s “truly disruptive platform technology, change the narrative in relation to thermal management solutions not just for the global mattress industry but also for several other performance applications in consumer products”.

Along with bedding products, the company's environmentally-friendly solutions have applications across multiple other markets including military uniforms and workwear, and they can be customised to meet customer needs.

Alexium has also partnered with a major flame retardant chemical company, Israel Chemicals Ltd (TASE/NYSE: ICL), for the market launch of its proprietary flame retardant (FR) for the treatment of cotton and cellulose-based textiles. It also has an agreement with Pine Belt Processing to develop flame retardant uniforms for the US military.

Along with its bedding products, these are all high growth markets in which Alexium has built trust. For this reason, and given that it is still capitalised at just $38M, Alexium could be the best opportunity in this space on the ASX.

Wise-Owl recently initiated coverage on Alexium — that report can be found here.

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