Last you heard from me, we looked at the returns Tyson saw from investing in strategic renewal. A 121% increase in market cap over five years (17% CAGR, baby!), compared to the 76% and 39% increases managed by its peers Hormel and ConAgra.

Today I’m back with another example: Sleep Country. This one not only demonstrates strategic renewal’s ability to deliver results on a much shorter time horizon. It also shows how renewal can ensure the sustainability of your competitive advantage despite economic turmoil.

Renewal can ensure the sustainability of your competitive advantage despite economic turmoil.

Growth in Challenging Times

Like Tyson, Sleep Country is an unquestioned market leader in its sector.

The firm entered 2020 describing themselves as “the nation’s leading specialty mattress retailer,” with a market cap of CAD 741M. That of their main publicly traded peer, Leon’s—which ran a more diversified home furniture business—stood at CAD 1.28B.

A third peer, Sleep Number, which was pursuing a tech-enabled disruptor strategy in the mattress marketplace, had a market cap of USD 1.38B.

Throughout 2019, Sleep Country had been struggling with the over-maturity of its strategy. Growth had long come from opening new stores in underserved geographies, and squeezing out same-store sales growth (SSSG) quarter after quarter. But most geographies had become saturated, and while analysts and investors remained impressed by yet another quarter of SSSG, the rate of growth was slowing.

Meanwhile, the threat of change emerged—in particular from new disruptors selling beds in a box online, and from big-box players like Home Depot and Costco that were taking share at the low end of the market. 

To continue to deliver growth, and create value for their board and investors, Sleep Country’s leadership needed to renew its strategy. In late 2020, as the immediate crisis of the pandemic waned, they got to work.

Like Tyson, Sleep Country followed the strategic renewal playbook.

Sleep Country identified a more fundamental customer need, then redeployed their capabilities and legacy to lead and win this bigger game.

First, they identified the more fundamental customer need behind demand for mattresses: the desire to not only sleep well, but wake up ready to perform as your best self—energized, empathetic, and empowered. 

Focusing on these aspirations for sleep as a whole, rather than functional commodities like mattresses and bedding alone, would greatly expand the boundaries of their marketplace. They quickly identified new growth platforms that would redeploy their capabilities and legacy to create a unique right to lead and win this bigger game.

Twelve months after beginning its strategic renewal, Sleep Country had its best first quarter ever. Revenue was up 13% year-over-year. Gross profit margin increased by 710 basis points. Net income grew by 112%, and diluted earnings per share by 113%. 

By the end of 2021, their market cap had grown by 87%, to CAD 1.39B, while Leon’s—still focused on commodity furnishings—saw only 48% appreciation, to CAD 1.91B. Sleep Number, whose focus on tech-enabled mattresses was misaligned with the true fundamental need, grew only 26%, to USD 1.74B.

Revenue was up 13% year-over-year. Gross profit margin increased by 710 basis points. Net income grew by 112%, and diluted EPS by 113%.

Sleep Country’s old, well-loved jingle—“why buy a mattress anywhere else?”—had evolved to a highly resonant new promise: “sleep well, stay well.” 

They’d started out smaller. But their focus on strategic renewal allowed them to grow at 2X the rate of their legacy competition, and 4X the rate of a new disruptor.

Sustained Advantage Despite Contraction

Sleep Country’s strategy and its associated narrative of value creation also proved more resilient.

Over the next twelve months, as pandemic-related spending on home and home furnishings cooled, all three firms saw share price depreciation. But while Sleep Country ended 2022 with a market cap of just CAD 823M, they had still grown 11% from the 2019 pre-renewal baseline, whereas Leon’s had declined to a total value of CAD 1.17B, 9% less than their 2019 market cap. Sleep Number fared worst of all, shrinking by 67% to USD 572M.

Unlike Leon’s, which ended 2022 with a smaller market cap than it had in 2019, Sleep Country’s promise was fresh and compelling enough to maintain growth in a downturn. 

Basing its strategic renewal on what truly mattered to its evolving customer and marketplace also allowed Sleep Country to beat Sleep Number, whose “growth strategy”-style navel-gazing had it working inside-out from technical capability to product. Focusing on what could be done, rather than what should be done, meant Sleep Number not only earned less than one third of the gains Sleep Country did during the height of pandemic spend—they also took the biggest hit in the following downturn, ending up the smallest firm of the three.

Sleep Country had become much more than just the nation’s leading specialty mattress retailer. They were now the nation’s leading sleep partner—not just selling mattresses, but transforming lives by awakening people to the power of sleep.

Leading the next evolution of their marketplace, they had rallied their customers, investors, partners and organization around a promising new strategic vision, and set the stage for many more decades of rapid growth.

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When times are tough, market-leading firms that fail to engage with strategic renewal, like Leon’s, simply underperform. Those that rely on less enlightened growth strategy, like Sleep Number, can do even worse. Meanwhile those like Sleep Country, who leverage a new, more fundamental need to create a much bigger marketplace, enjoy not only outsized growth, but resilient and sustainable competitive advantage.

Is it your firm’s time for strategic renewal? Our relevance and renewal workshop can help you take stock and take charge. Get in touch if you’d like to connect.