Mattress maker Tempur Sealy International has terminated its contracts with its largest customer Mattress Firm Holdings after it was asked for “significant economic concessions.”
According to Tempur Sealy estimates, Mattress Firm accounted for around 21% of its net sales in 2016.
Mattress Firm has been under new ownership since September last year after South African retailer Steinhoff International Holdings bought the US store for $3.8bn.
Tempur Sealy said it issued formal termination notices to Mattress Firm after Steinhoff warned they would end the contracts with the US retailer if they did not agree to the proposed changes.
The companies declined to disclose the detail of the negotiations, citing confidentiality, but Tempur Sealy said Steinhoff had asked for “significant economic concessions”.
Tempur Sealy CEO Scott Thompson said in a statement that after several failed attempts to enter a mutually acceptable supply agreement, the company decided to end all contracts with Mattress Firm.
“Over the course of the week, we conducted discussions with representatives of Mattress Firm and Steinhoff and we considered their request for significant change in economic terms,” he said.
“Ultimately, we concluded that it was in the long-term interest of all our stakeholders to terminate our contracts with Mattress Firm.”
For Mattress Firm, the contract termination not only means the loss of one of its largest suppliers but also its most popular product line Tempur-Pedic mattresses, a memory foam line that drives premium sales.
According the Reuters, Mattress Firm CEO Ken Murphy declined to comment about the contract dispute but said in a statement that the company was planning to revitalise its stores with new products from retailer Serta Simmons in the light of Tempur Sealy’s decision.
In the wake of the announcement Tempur Sealy’s stock suffered a drop in value, forcing the mattress company to approve a shareholder rights plan to protect the business from any potential hostile takeover attempts.
Tempur Sealy said it expects to cease doing business with Mattress Firm during the first quarter of 2017.
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