Stressed middle class crashes sleep industry growth to flattish

The sleep industry in India is witnessing significant transformations, especially post-Covid, characterised by a marked growth in both the premium segment and the entry-level market, while the middle mass segment remains relatively stagnant.

The middle segment, traditionally the core market for many digital companies and mass prestige as investment bankers call it, is experiencing sluggish growth for the last 8-9 months.

"The belly of the market remains flattish or at best growing at 2-3%," says Chaitanya Ramalingegowda, co-founder of Wakefit.

One significant reason is the rising financial burden on the middle class. Hypothesising, he points out saying, "70% of all iPhones in India have been bought on no-cost EMI or EMI transactions of 12-18 months," reflecting a broader trend of middle-class consumers increasingly relying on financing options for aspirational purchases. Additionally, household savings have been dipping over the last few years, making it harder for this demographic to afford mid-range products without incurring debt.

The increase in interest rates over the past two years has exacerbated this financial strain. He highlights that the rate of interest consumers are paying today is significantly higher than it was two years ago, impacting their purchasing power. This economic environment has led middle-class consumers to prioritise their spending on highly aspirational items such as smartphones and vehicles, while delaying or compromising on other purchases, including mid-range furniture and sleep products.

"Premium price points, which include mattresses over ₹20,000, sofas over ₹25,000, and dining tables made of solid woods like teak or sheesham, are growing very well," says Ramalingegowda. This segment caters to affluent consumers who seek high-quality, durable products for their homes. These affluent consumers, driven by a heightened awareness of good health habits in recent years, are willing to invest significantly in products that offer superior comfort and aesthetics, propelling the growth of the premium market.

Consumers are prepared to invest substantially in a high-quality mattress, with premium orthopedic models offering benefits such as spine alignment, posture support, and temperature control, priced between ₹30,000 and ₹70,000, and some even surpassing ₹1 lakh.

The sleep industry is experiencing a dual growth trajectory. On one end, there is a surge in demand for premium products. On the other end, the entry-level segment is also expanding. These are customers transitioning from unbranded, local products to branded goods for the first time.

"The opening price point is doing very well. These customers used to buy unbranded local store products and are now upgrading to a ₹7,000-8,000 mattress or a ₹5,000-6,000 coffee table," says Ramalingegowda. This shift indicates a growing trend of first-time buyers in the organised, branded market, spurred by increasing disposable incomes and an aspiration for better quality products.

As of 2023, the mattress industry has generated revenues of over $200 million, according to a report by Mordor Intelligence and it is expected to grow at a CAGR of nearly 8% by 2028.

Resurgence of retail

But the silver lining in the industry is the resurgence and transformation of retail.

"True craziness is happening in retail, where the average ticket size is nearly two times the average ticket size of an online purchase," says Ramalingegowda.

Wakefit, a company with ₹1000 crore in revenue—30% of which comes from furniture—forayed into the retail market only two years ago and now has around 65 stores across the country.

"The speed at which the payback happens, the speed at which customers end up trusting a store has taken us also by big pleasant surprise," says the founder while adding that he doesn’t believe this to be just revenge buying from COVID, or the notion that retail will never die.

Rather, this resurgence is driven by consumers seeking an integrated omnichannel experience. Modern consumers desire the flexibility to order products online and pick them up in-store or to visit a store to make decisions and have items delivered to different locations.

"People now want complete flexibility. They want to be able to order on a website, pick up from the store, or go to the store, decide everything, and order there for delivery to various locations," explains Ramalingegowda. It’s a whole different ball game of retail, it appears.

Wakefit does not track data and revenue between retail and online sales. Instead, the company monitors performance through its own channels versus external channels. Its own channels, including its website and physical stores, constitute the largest segment, accounting for nearly 70% of total sales.