On the webcast, I'm Mark Rubin, Vice President of Investor Relations here at the company. Joining me today are Mark Sarvary, President and CEO of the company, and Dale Williams, Executive Vice President and CFO. We're going to go through a formal presentation. You have the slides in front of you, and for those of you listening on the webcast, slides are posted. After the conclusion of the presentation, we're going to take Q&A, both in person and from the webcast. Participants on the webcast can email questions to investor.relations@tempurpedic.com. We have a lot of content to go through, so I'm going to read the forward-looking statement, and then we'll get started. Forward-looking statements that we make during today's event are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that forward-looking statements, including the company's expectations regarding sales and earnings, involve uncertainties. Actual results may differ due to a variety of factors that could adversely affect the company's business. The factors that could cause actual results to differ materially from those identified include economic, competitive, operating, and other factors discussed in today's presentation. These factors are also discussed in the company's SEC filings, including the company's annual report on Form 10-K under the heading "Special Note Regarding Forward-Looking Statements and Risk Factors." Any forward-looking statement speaks only as of the date on which it is made. The company undertakes no obligations to update any forward-looking statements. In addition, the presentation is filed this morning in Form 8-K. With that introduction, it's my pleasure to turn the presentation over to Mark.
Thank you, Mark.
Thank you.
Good morning, everybody. Thanks for coming. Welcome to the 2012 Tempur-Pedic Investor Conference. It's great to have you all here. As Mark just said, we've got a lot to cover. We're going to go through it. You've got copies of the materials in front of you, and we'll have a Q&A at the end. What I'm going to cover are these three topics. I'm going to give a brief overview of Tempur-Pedic to those of you who are not as familiar with us as others. I know many of you are, but I'm going to give a brief overview just to bring everybody up to the same level of knowledge. I'm going to spend a few minutes giving a perspective on the macro industry.
Again, relatively brief, but the purpose is, I think, it is important because it's necessary to set a context for what we're trying to do in terms of driving our initiatives for growth, which is the final element and the bulk of what I'm going to talk about. Tempur-Pedic overview. This is what we call the company thesis. It's the logic of our company on one page, and it boils down to five items. We are established. We are an established company. We're the worldwide leader in non-spring mattresses and premium mattresses. We're the leader in a $6 billion segment of the $20 billion global mattress and pillow market. Indeed, we are already the largest brand of mattress in the world. We're differentiated because we have a consumer-preferred and branded product line.
We have, as many of you know, the most highly recommended brand by owners, and we have invested very significantly in advertising to build our brand. We're spending nearly $1 billion over the past decade in advertising. We are innovative. We have a uniquely consumer-focused and marketed product. We have a systematic track record of inventing and introducing new successful products, like, for example, the Sensation, the Cloud, and the Contour. I'll talk more about each of these in my comments. We're profitable. We have industry-leading margins and very, very significant cash flows. Dale will talk a little more about that in a few minutes, but it's a very important part of our overall thesis. Finally, and perhaps most importantly, we're growing. We have been growing, and we project to continue growing. There are a variety of reasons why we're very confident in that growth.
Fundamental to that is that in our most penetrated market here in the U.S., we still only have about 3% market share, measured in units. We have enormous potential ahead of us. This is the Tempur vision, and this really does govern the way we run our company. This is, on one page, how the whole company is run. It's premised on the recognition that people who sleep on Tempur sleep better than those who don't. As a result, our objective, our goal, is to become the world's favorite mattress and pillow brand, which means that we aim to have more people sleeping on Tempur mattresses and pillows than any other brand. To achieve this goal, there are four key initiatives that we, throughout the company, follow.
Number one is to make sure that everyone knows that they would sleep better on Tempur , which means that we need to invest in brand awareness, advertising, and encouraging the word of mouth, which is a very powerful part of our marketing strategy. Secondly, we need to make sure that there is a Tempur mattress and pillow that appeals to everyone. We need to make sure that we understand the consumers, what they want, and make a product that meets the needs of every consumer. We want to make sure that Tempur is available to everyone. That means that it has to be in broad distribution. It has to be available on the web. It also means that it has to be in a very high-quality distribution. It has to be sold by people who understand our products very well. Available means in every aspect of availability.
Finally, we have to make sure that we continue to deliver the best sleep, which means that we have to continue to invest in both consumer research and R&D in order to maintain our lead. All of this is built on an ethos of cost focus, making sure that our cost structure is optimized so that we can afford to invest in the marketing and the R&D that these strategies imply. That is the Tempur vision. That is our strategy. At two Investor Conferences ago, in 2009, we introduced what we called at the time our five-year plan, our goal for 2014. At that time, our sales were about $830 million in 2009. You can see, you can read there, gross margin at 47% and operating margin at 17%.
We said that by 2014, it was our objective to have sales of $2 billion, to have a gross margin of 50%, and an operating margin of 25%. Obviously, we're only about halfway there, but we've made good progress. We're, in fact, well on our way to achieving these goals. In 2011, our sales were $1.4 billion, well ahead of track to hit the $2 billion that we've set as our target for 2014. Our gross margin of 52%, 52.4%, was higher than the 50%, and our operating margin at 24%, just a little bit below our 2014 goal. Given that performance over time, if you look at 2011 on its own, 2011 was quite a year. We're quite proud of what happened in 2011. You can read the numbers, but sales grew 28%, gross margin improved by 220 basis points. EBITDA and profit were up.
EBITDA and income were up, but our EPS was up 47%. Overall, 2011 was quite a year on our path to the 2014 goal. Let me talk a little bit about the products that we sell. Some of you will be familiar with these, but I just want to set the context for everybody. The product in the center of the presentation there is the TEMPUR-Cloud Supreme, which is a product that we introduced a couple of years ago. It's been extremely successful from a sales point of view. It's, without doubt, our most successful product introduction. I think we're fair to say it's the most successful product introduction in the mattress industry. It's been extraordinary. On the top left, you can see the Sensation mattress. That's the product that we sell overseas in the rest of the world.
That, too, was introduced a couple of years ago and also doing very well. On the top right is the Ergo adjustable base, the adjustable foundation. That's something that has been around for a little while, but has been growing. Just a few years ago, less than 10% of the beds that we sold had an Ergo base attached to them. Today, many of our customers have a 50% attach rate. It is astonishing how much that has grown and continues to grow. In the bottom left is the TEMPUR-Contour collection, and that is our original line. I'll talk more about that because that was something that we reinvented last year, and we're quite pleased with the results of that. The Simplicity in the bottom right there, that's the new product, and I'm going to talk more about that. That's just been launched, and we're very excited about that.
You can see around the periphery a variety of different pillows. We sell a good variety of pillows, and we continue to expand that. We believe that, too, is a very important part of our growth opportunity. If you look at how our sales, that collection of products, it's an important contributor to what has driven our growth. As I described each of those products, I said when they had been introduced and how they were growing. Although there are several components to what drives our growth, our expanding product range is a very important component of it. In 2009, when we had this Investor Conference that I referred to, we had essentially just the Tempur products and the Tempur HD products. We announced the Cloud at that time. In 2010 and 2011, our growth went from $1.1 billion to $1.4 billion, largely driven by the success of the Cloud.
We have just announced, and I'll talk more about it, the Simplicity, which is going to start rolling out in April. We're very excited about the Simplicity, and we believe it's going to be a material contributor to our growth this year in 2012. Combined with the Simplicity and other products that we're currently working on, we believe we're very well on our path. We're very well on track to achieve our 2014 goal of $2 billion with the rollout of the Simplicity and with other new products that we're working on but have yet to announce. We believe the time is right to set ourselves a new goal. Today, we're setting a new five-year plan goal for 2016. Our objective is by 2016 to have $3 billion of sales and to have an EPS of $8 a share, approximately.
Dale will talk more about this in a few minutes, but I'll just say that that $8 a share assumes no material improvement in margins, which perhaps is conservative. We have found that setting the five-year goal works very well for us. We're going to continue to do that. We're well on our path to the 2014 goal, and now we're setting this $3 billion 2016 goal. That will move us from being the most highly recommended bed in America, we hope, to the most highly recommended bed in the world. Nothing is not ambitious here. We have the manufacturing capability to do this. We have three plants, one in Denmark, one in Virginia, and one in New Mexico. Today, they have $2.5 billion of sales capacity, give or take, right now. They're operating at approximately 50% utilization.
We have the opportunity, with a relatively small amount of capital expenditure, to invest in our New Mexico plant that we could raise its production such that we could get to the $3 billion level of capacity for a relatively nominal amount of money. Basically, we have enough capacity to make this $3 billion worth of objective by 2016. We also have the R&D that we're going to need to develop the products that we anticipate continuing to drive our growth. We have R&D facilities both in Denmark and Virginia working very much hand in hand. We have about 50 people dedicated to R&D. I make the distinction here between R&D and consumer research. We also have a lot of consumer research. Here, I'm just talking about R&D. We have, as I say here, 50 employees with PhDs and advanced degrees and so on.
We have both chemistry and process research and the development and testing that goes with that, as well as commercialization and product development and, obviously, product testing as well. We have a very sophisticated and very unique set of capabilities here in our R&D. This is what has allowed us to invent things like the new products like the Simplicity, which I'll talk about in a minute. Finally, in setting the context of what is Tempur-Pedic , we have a strong and established management team. You can see here the leadership team of the company. I think a couple of things I would call out. The first is that all of us have worked in consumer products. It's important because in an industry which has not been particularly strong at building brands, Tempur-Pedic has really created a brand.
We know that it's one of our most valuable assets, and we're very focused on it. We treat this very much like a consumer packaged goods team would treat a brand. Secondly, we all have international experience, which, again, is a very important thing. Tempur-Pedic is a company that competes in 80 countries. I'll show you some data a little later on. It's not a peripheral activity. It's a fundamental part of our business, and it will be an important part of our growth. As I said, all of us have experience internationally. The last point I want to make on this is that we've now been working together for some time. All of us have been working together as a unit for essentially four years, and we're a well-functioning team. It's a well-established, strong team.
With that as the background, let me just take a little minute here to talk about the industry. I just want to talk for a couple of minutes about the industry to set the context as I talk about our initiative specifically. This industry is big. If you add together the mattresses, foundations, and pillows for the whole world, the industry is about $20 billion. I just want to put a little caveat. It's hard to get this data, and it's not exactly correct. I don't think it's exactly right. It's pretty, you know, I mean, it's as good as we can get, but I'm not going to swear that it's three decimal points correct. It's essentially correct. This is a $20 billion market. Secondly, it's growing. Look at it grow over the years. It suffered after the 2007 recession, I mean, the 2008 recession all over the world.
It is gradually recovering. The other thing I'd point out is that the U.S., which is the blue part of the bars, is an important but not the largest part of it. While we obviously are primarily focused at the moment in the U.S., the importance of the rest of the world is very significant, and you'll see that is part of our focus. If I do drill in deeper now on the U.S., look at this chart. This chart is different because this is just mattresses. This data is more precise. Again, let me call out a couple of things. First of all, this, too, is a big market, $5 billion wholesale in the U.S. Secondly, it's growing. In the last 15 years, it's essentially doubled.
It, too, suffered, obviously suffered in the 2008 and 2009 recession and has, to a large extent, recovered, but it's still on its path to recovery. It has, to a large extent, recovered. There has been significant growth over the last few years. If you look at the green part of the bars, that's the non-innerspring mattress sales. We don't have that data going back as far, but what you can see is that the non-innerspring growth has been what's driving the growth of the overall industry. Obviously, that's the area where we play, and we are a large part of that green bar. Finally, the red line is the sales in units. That's a difference. It's similar, but you can see some differences there. First of all, the peak in units was back in 2004.
The industry continued to grow for a couple of years because of average unit selling prices continuing to rise, which raised the overall sales. We'll talk more about average unit selling price later in the presentation. What you can see is that there was a significant dip during the recession from which there has been some recovery, but it is not completely back yet. While we don't read too much into it and nothing is implied in our numbers, we believe, as we look at this, that there is a latent demand that is still not yet fully realized. The rate of purchasing is still not back to what it was even in the years before the excess peak when you add in population growth and so forth. There's a little bit of latent demand in the category.
With that context, let me now switch to the Tempur-Pedic growth strategies and initiatives. Not surprisingly, our growth strategies and initiatives are taken straight from this page. I'm not going to be pedantic about going through how each one links to each one, but I just want to call out that the initiatives I'm going to talk about in some detail now tie into these first three bullet points: to make sure that everybody knows they would sleep better on Tempur, to make sure there's a Tempur mattress and pillow for everybody, and to make sure that Tempur-Pedic is available to everybody. These are the growth strategies that we are particularly focused on, and I want to spend some time talking about this morning. First of all, is to introduce new products to increase the size of our addressable market.
New products that target consumers that until now we were not targeting, therefore making our addressable market bigger. Secondly, I want to talk about Tempur brand advertising and in three components. Our global investment in advertising, our heavy up local market advertising. I'm going to talk about our general advertising strategy and then what we've been doing and what we call the heavy up, and I'll explain that more in a minute. Our dealer-integrated advertising. I'm going to talk about retailer advocacy. Obviously, our business is selling to retailers, and it's critical that we have strong advocacy from our retailer partners. We have systematically made efforts to make it easier and easier and more and more financially rewarding for our retailers to advocate our products. I will show you how we've done that. I'm going to talk at the end about global distribution.
A lot of the initiatives that I describe apply equally to the U.S. and globally. Some are specific to international. I'm going to talk about those at the end of the comments. New products. For the context here, the TEMPUR-Cloud was a major success. I said it was probably our best success ever. It was our best success ever. It was possibly the best success in the industry. It's been a phenomenon. It had the characteristic of broadening our addressable market. Until we had the Cloud, Tempur beds were perceived to be firm by consumers. The Cloud created a Tempur bed that was perceived to be soft. It has been very, very successful in North America when it was launched in November 2009, and it's still in the process of rolling out internationally. It is astonishing how well it has been accepted in countries across the world.
It has been really, really, really remarkably successful. The Contour is a very different thing. The Contour we just introduced last year, it's a comprehensive line upgrade of our original Tempur offering. These are three of our most longer-serving original products. We're revamped, improved. The design of both interiors and the covers were changed. They were upgraded and improved. They were introduced in June 2011. They have gained incremental distribution, and the turns or the sales per slot have grown. Both of them have done more than we anticipated. We have gained more slots than we thought, and the rate of turn has increased more than we thought. This is an important thing for us going forward because over time, we will continue to increase our addressable market.
We also have this, the Contour for me is exciting because it demonstrates our ability to upgrade an existing set of products and get a lift in sales from those, as well as continuing to broaden. As well as those two big initiatives that we've had in the last couple of years, we've had many others as well. I mentioned the Sensation. The Sensation is equally important. It's a product that's rolled out all across the world. In fact, for those of you who haven't seen it, we've got it in the showroom just over there. You can see it after the presentation. The traditional pillow is a pillow that is more squashable, which a lot of people like to squash their pillows. That one is more squashable. A lot of people love it, and it's doing very well.
The opening price Ergo adjustable, so a slightly lower price and slightly lower function Ergo, has essentially doubled the number of offerings that we have, but has also continued to drive Ergo attach rates. It's been very, very well received. There are other smaller things, like for example, slippers. It's not going to change the size of our business, but it is fun to report that we sold twice as many slippers this year as we did last year because we introduced all these sexy new slippers. We continue to innovate in many different areas. In 2012, our major initiative is what we call fixing the barbell. You've all heard that phrase before, used to describe a market where there is growth at the low end of the price range and at the high end, but the middle is suffering. It applies in this industry very specifically.
The barbell applies to the mattress industry absolutely. Look at this data. On the left-hand side are those sales of beds that cost less than $1,000, nominally the less than premium beds. You can see a couple of things. First is that it's the largest segment and that since 2009 through 2011, it's been growing modestly, about 4%. If you look at the other side, you can see the greater than $2,000 mattresses, which are the not quite super premium, but the high end of premium. Those too have been growing very significantly. They're growing at 18%. In fact, now in 2011, that segment is as large in dollars as the $1,000 - $2,000 segment. You can see that the $1,000 - $2,000 segment, a very large segment, it used to be larger than the greater than $2,000 segment, has been basically flat since 2009.
There are industry articles that have been written about this. This barbell effect is very well understood. Traditionally, this was the place that retailers made the bulk of their profits. This has been an initiative that has been important to our retailers, but also from our point of view, it's a great opportunity for us. We have introduced the TEMPUR-Simplicity collection, the brand new line of products. These are three products. For the first time for us, and I think one of the first times perhaps in the industry, these are three products with different feels, but all at the same price. Every one of the products is at $1,499 for a queen-size mattress, a queen-size set. There is a medium, a firm, a medium, and a soft. These products, although just launched, have been extraordinarily extensively tested. This is a diagram of our dedicated research facility.
We have a full-time research facility that looks a little bit like that. As you can see, we're laid out with two rooms full of beds. We have the ability to view the people using the beds, and we also collect statistical data from them. Literally, every week, we're passing hundreds of people through this facility. We are testing beds all the time. For the last couple of years, as we've been working on a Simplicity, the bulk of our testing has been focused on a Simplicity and its comparable set. We did 15 months of consumer research on this, 12 rounds of consumer testing. We built prototypes and modified the prototypes, came back the following week with another prototype, and kept going until we got the results that we want. In the end, we had 2,500 people test it and 14,000 individual prototype evaluations.
We're very pleased with the results we got at the end. It didn't happen immediately. It took quite a long time, but eventually, we got the results that we wanted by modifying the product until it met the needs that we wanted. Most importantly, if you look at these, these are four charts that come from the final testing. The blue bar is TEMPUR-Simplicity , and the green bars are the primary competitors that we compared against. We bought best-selling items from each of our major competitors, both spring and non-spring, and compared them. This is their data. Obviously, it's blinded for these purposes, but they're compared to them. We measured a whole variety of different things. The most important, obviously, is seriously likely to consider, but also overall comfort, motion separation, overall back support, all of which we won and won with a statistical advantage.
A couple of things I'll point out here is that the consumers that we bring through this testing facility are all different types. For the purposes of this testing, we specifically targeted those people who were in the price range of the $1,000 - $2,000 range. We compared their preferences against other products in that same range, and this is how it scored. We also, however, brought in a lot of people who had expressed their intention to buy a bed that cost between $800 and $1,000. We put them through the same test. We had them compare a Simplicity at the $1,500 to other beds at $800 - $1,000 and asked them what was their preference.
This is not that data, but we also got significant lift from people saying they had planned to buy an $800 - $1,000 mattress, but they want to now buy the Tempur-Pedic at $1,500. We believe this is the key to the fixing of the barbell market effect, bringing the people who would otherwise have spent $1,000 to spend $1,500. That's the very exciting data. We win against the other $1,500. From the purposes of growing the barbell, the key is we bring people up from the $800 - $1,000 range. The technology for these new beds are three new layers, each of which were invented by our R&D team. They're similar in design, but different in order to get the different feels, to give the firm, medium, and soft. They absorb motion, just like I said, and they have a 10-year full warranty.
This is a picture of our product range. You can see a couple of things. First of all, it's very simple to understand, which is important because it's hard for people who are selling these beds, many different types of beds. It's important to make this very simple, both for the consumer and the person selling it. You can see that it's divided into the firm, medium, and soft. On the firm are our Contour products with the TEMPUR-Simplicity at the bottom. The soft on the other side are the Cloud products with the TEMPUR-Simplicity soft at the entry level of that. The medium with the HD products topped by the GrandBed at $7,999. You can see now we have a range from $1,499 - $7,999.
You can see that it is divided relatively simply into three different fields and then a good, better, best, and entry level in each one. One thing that the picture doesn't do very well, but I would remind you, is that the size of the market for the gray part of the bar, the gray part of the diagram at the bottom, is as big as the size of the market for everything above. While it looks like that's one piece and the other the three pieces above are bigger, in terms of market potential, the Simplicity is targeting a market as big as all of the ones above target. The other thing I'd like to say about this chart is this is where we are today. We continue to know that there are ways that we can continue to expand.
We're not going to go to 100 products, and we're going to continue to refine how our products meet the needs of different consumers. We have more to go. We have more to go beyond this. In fact, I've got a picture of one right there. I drew that. I was so proud of it that I drew it in 2009. I brought it back because it's still the same diagram, but last time it was a Simplicity. Now it's something else. We have more we're lacking from. Let me switch topics. Brand advertising. If you compare our advertising with our primary competitors' advertising, Tempur-Pedic 's advertising, and this is in the U.S., with those added together of all of our primary competitors, we have essentially, according to this chart, 94%. This is estimated from published data from 2011 for the first 11 months.
We have the vast majority of TV, all advertising, brand advertising. That continues. This is fundamental to us as a differentiation of our company. Our products are clearly important, but this communication of the difference of our products via direct consumer communication is the backbone of our company. We spent $149 million last year globally on advertisements. We project to spend significantly more than that this year, taking it as high as 13% of sales is our projection for this year. In the last decade, we've spent nearly $1 billion on building our brand. This is a very important part of our business. It has been for a long time. Although we dipped during the recession, you can see we continued to invest at very significant levels.
In fact, if you look at how much we spend as a percent of sales, you can see that we are kind of true to our intention of building an iconic brand. Our spending in 2011, and even more so in 2012, which is shown here in the dark-colored parts of the bars, is comparable as a ratio to that of Nike, Procter & Gamble, and Coca-Cola. Our commitment to spending on building our brand is very important. It will continue to be important. As important as our products and making sure that they're consumer-tested is, it is important to communicate directly to the consumers those advantages of our products. It's two parts of our strategy. We have done that with advertising over the years that has been very, you know, we have different advertising. For the last nearly three years, we've been using this advertising, the Ask Me commercial.
I want to show you, I know many of you have seen it, but I'm going to show you a couple of commercials. Bear with me. I'd like to just describe, I just want to call out a couple of things and the reason that I wanted to show you. Please run those commercials.
Ask me. Even if you think your mattress is just fine. Ask me what it's like to get your best night's sleep every night. Why not talk to someone who's sleeping on the most highly recommended bed in America? It's not a Sealy or a Simmons or a Serta. Ask me about my Tempur-Pedic . Ask me how fast I fall asleep. Ask me about staying asleep. These are actual Tempur-Pedic owners. Ask someone you know. Check out Twitter. Try your friends on Facebook. You'll hear it all unedited. Ask me how it feels after two years. Ask me if it's a good value. Just ask me. There are over 4 million Tempur-Pedic owners, and they're more satisfied than owners of any traditional mattress brand. Ask me why I feel better every morning.
Ask me why someone who's never had an ache or a pain is in love with this bed. Start asking real owners. Ask me how we took the first step. Take the first step. Call today for your free information kit with DDT, one eight eight eight eight one one fifty fifty three, or visit tempurpedic.com. Tempur-Pedic, the most highly recommended bed in America. Ask me how I've never slept better. Why not talk to one of the 6 million people who've switched to the most highly recommended bed in America? It's not a Sealy , a Simmons, or a Serta. Ask me about my Tempur-Pedic . Did you know there's a Tempur-Pedic for everybody? Tempur-Pedic beds now come in soft, firm, and everything in between. Ask me how I can finally sleep all night. To learn more or find an authorized retailer near you, visit tempurpedic.com.
Tempur-Pedic, the most highly recommended bed in America. Ask me. Did you know there's a surprising new Tempur-Pedic ? Ask me about my TEMPUR- Simplicity. These real owners are talking about their new TEMPUR- Simplicity beds. They're surprisingly affordable and come with a 10-year warranty. Ask me what a step up this is from my spring mattress. All the comfort and support of a Tempur-Pedic in a simple, clean design. Tempur-Pedic owners are more satisfied than owners of any traditional mattress brand. Find out more about the TEMPUR-Simplicity beds. Tempur-Pedic , the most highly recommended bed in America.
Thanks. I wanted to show you those for two reasons. First of all, the first one you saw was the very first one we made of those. The one that you've just seen is the most recent one. A couple of things I want to point out. First is this continues to work. We obviously measured it. It continues to work. It continues to break through. It is an effective advertising message. The second is that this idea, everybody, by the way, everybody who you see is a real user. Everybody volunteered to do it. Nobody is being paid. They're all in doing this for fun. In fact, I see a couple of raised eyebrows. It is a thing that we haven't communicated as well as we need to in the commercial. Everybody is, and people love to do it. People want to do it.
We have many people we turn away who would like to do it. The second thing is it's flexible. We can communicate, it's a tool that can break through. I've done a lot of advertising. It's quite hard to find an advertising campaign that can break through and be flexible. It can break through, but it also is flexible. It allows us to do different things. You saw how the first commercial was merely to tell people about Tempur-Pedic . The second one, the last two were two puts back to back, was to tell people that there's a soft, medium, and firm. The key thing there is not really that there is a specific soft, medium, and firm. It's just that there's more than one. One of our big objectives is to make people realize the breadth of range.
The fact that there's a soft, medium, and firm by itself is enough information for people to say, "I'm going to see, I want to try the variety." The third one was the Simplicity, which introduces the concept of a surprisingly affordable product. It took a lot of iterations to come up with the word that really clicked, but surprisingly affordable was the way that could break through. It's a powerful tool, and it's very flexible, and it continues to work. We're quite pleased with that. It works. You can see there's a lady there with the soft sign from the soft, medium, and firm part. The other one that we ran recently, which has been phenomenally successful, is the one for the Ergo, the one that shows the Ergo bed bending. That has been very, very, very well received. It has been flexible.
It allows us to do a lot of different things with a single tool, and it builds upon the awareness. Now, that's the sort of ground-level advertising, the optimization of the message that we use. The question has been, how much should we invest behind that? Over the last two years, we've been testing some heavy-up advertising. We actually got some input from a third party about how to evaluate what is the optimal amount of money to spend on advertising. They told us a great deal more than you are spending. We thought, thank you very much for that input. We tested it. We took four markets and we tested what they said. That worked. We broadened the test last year to 25 or 26 markets. We measured it month by month compared to the other markets where we weren't doing marketing.
In both cases, the growth in the markets with the heavy-up advertising essentially doubled the growth rate of the markets without. It was enough to say this works. What we're going to do is we're going to expand it in 2012. By expanding it, we're going to spread it across the country. The advantage of that is it gives us the economies of scale by spreading across the country. Therefore, we can use a prime-time network heavy-up. Here's an example of the advertising we've been running as an overlay to our normal advertising during the most recent President's Day weekend. This is some media highlights from February of this year. You can see the programs that we were running on. These are really the highest-rated prime-time programs. This is not samples. This is what we were on. It's a very significant thing. We obviously measure everything.
We will continue to measure it. The testing so far has proved it's very good. It's very important to raise awareness of our product because when people come to the store, it really drives sale. It pays back very quickly. There are two groups advertising in this industry. There's us, obviously, and there's the retailers. It's important now to talk about retailer advertising. Here's a statistic that will boggle your mind. If you add together the advertising of the retailers in the United States in 2011, and we've tried to do this from a variety of different angles. I'm not going to swear this is three decimal points correct, but it is very close to right. It's right. Whether it's exactly precise, I don't know. It's $750 million, $0.75 billion . More money than was spent by Apple.
More money, as much money as was spent by Coca-Cola, as nearly as much as Nike and Pepsi. It's astonishing. It is vast. The advertising spend of retailers in this industry is amazing. Now, there are many of them, and they're all advertising their own stores primarily, as well as special offers. Collectively, this is a vast number. Unfortunately, as the retailers would be the first to agree, a great deal of that is spent on advertising that they don't particularly like because it encourages people to come to their store to buy the cheapest products that they have. Here's a sample, you know, $377 with free delivery. Nobody's making much money on that. It's like a mutually assured destruction. If everybody's doing it, I have to do it too.
It's one of these things where everybody does it, and it's a game of if you don't do it, you won't play, but you have to do it. You have to advertise this. Here's this particular one. Obviously, I've blacked out the name of the retailer. It has Simmons and Sealy and us all on the same page. The thing it says about Tempur-Pedic is free pillows. It's very, it's really, they don't like it. Here's another one. 50% - 70% off. Save $500. Only $999 at the top. If you can see just in the corner, $0.97 a piece. This is, you know, but $750 million a year is being spent to do this. What we've been testing over the last couple of years is what we're calling an integrated advertising fund. This is where a retailer ad is integrated directly with Tempur communication.
We've tested it because our hypothesis was if you could make the commercial from Tempur look like the ad from Tempur look like the ad from the retailer. Essentially, the message would be Tempur announces a new product, and at the same moment, the retailer says, "And I've got it in my store." The two work together. From a consumer perspective of, "I heard about the Tempur , and it's in that store," it should have a beneficial effect, an effect more valuable than either one of them operating independently. One and one is three. We've tested this. We've tested it extensively, and we've tested it with a variety of retailers across the country, not big and medium-sized. It has worked. The lift is higher than they would have anticipated with that amount of money being spent on a regular ad. It works. It's better.
It is better because it brings people in with the expectation to buy a $1,000, $2,000, $3,000 bed, not a $377, you know, deliver it for free on Thursday. To make this work, the ad has to exclusively feature Tempur and be consistent with our guidelines. We have advertising guidelines, which we always have with our retailers. It has to exclusively be Tempur and be consistent with our guidelines. If that happens, we will contribute modestly to help fund this ad. As I said, it was tested in 2010 and 2011. It is going to be expanded in 2012. Here is an example. This is a print example of what we mean. First of all, you can see that there is the Tempur national ad and that retailer integrated ad that was running at the same time. They look like they are different versions of the same ad.
They look like they are the same as each other. They are different versions of the same ad. The retailer ad obviously focuses on price because that is the part of the job of what the retailer is trying to do. You can see that the same copy, the same people, the same imagery is used. The second thing I would point out about this is that look in the top right. You can see that this says Ergo, save up to $200. First of all, we do not have discounts on our products, on our mattresses, as you know. From time to time, we will have a discount on our foundations. This is an Ergo foundation campaign. The interesting thing about this is, although it does not show it on the left-hand chart, we were advertising that nationally too.
We were advertising nationally an Ergo event, which again is something we can do because we can have a national promotion that can apply to everybody. It means that if a retailer who ties into that gets the double whammy. Tempur has a new product and a promotion, and I have it here. It has worked very effectively. In the showroom, we have got a couple of, or we have got an example which really brings it to life. For now, I just want to show you a very brief example of how this can be brought to life in a TV commercial. This is just very brief. Can you run that for me?
Ask Denver Mattress why Tempur-Pedic is the most highly recommended bed in America. Come see our complete line today.
See how that running in concert with our ads at the same time? It says, why come Denver Mattress? They're a very big and very successful customer of ours. They're a great customer of ours. That's advertising, getting our message across. Now, once we've made the products, which we've tested with consumers and proven to be superior to their competitive set, and we've advertised, we've got the consumers to come to the store and ask the retailer for the RSA, the Retail Sales Associate, in the store for the product. Now we need to be sure that we get good advocacy from the person in the store. We have, I'm going to talk about three areas where we're going to be focused. We have been and will continue to be focused on raising dealer advocacy.
The first is consumer education because any dealer, any RSA will tell you a well-informed customer is a good customer. They want the people to know about it. They want it to be well-informed. They want them to realize, to have a kind of concept of what they want when they come in. We'll talk about consumer education. Clearly, profitability for the retailer is a very important factor too. The associate themselves, training and making sure that they are well-prepared to advocate for the product. Now, while there are a lot of things that we do on consumer education, the most significant is our website. We had 9 million U.S. website hits last year and 5 million internationally. You can see it was up 50%, and it continues to grow. This is growing like crazy.
It is clearly we sell products on our website, and we're proud of it, and it's a good margin product. The most visited pages are the dealer locators. People learn about the products and then go and find out where can I buy this because they want to see it. There's a lot of information. One of the advantages, again, is that the promotion that you see here, this is coincident with the ad I just showed. You saved up to $200 on Ergo. It will be consistent. When they go to the dealer store, it will be consistent there too. The prices that they will see on the website are consistent with what they will have when they get to the retailer. They will realize that these are the correct prices. The information comparing the different products will be available to them.
They can print it out and take it with them. They will have the dealer locator there too. They can find where is the nearest one to go to. The second thing, though, apart from educating the consumer and bringing them to the store, clearly is dealer profitability. There are two halves to this dealer profitability issue or dealer profitability element of our strategy. The first is, and it sounds like bragging, but I think it's true. In fact, I know it is, is that we have raised the average unit selling price of beds in America. It sounds like braggadocio, but it's actually true.
If you look at the average unit selling price of beds over the last decade, the data, again, this is estimated, it's roughly right, but this says that the beds have gone from about $327 - $518 on average for a queen set, for a mattress. A steady 6% average unit selling price through the recession and everything else. You know, we talk about this. There aren't many industries that you can point to where the average unit selling price has gone up systematically for a decade at 6%. If you look at the red line, that's the sales of Tempur-Pedic mattresses over that same period. You can see that one is correlated with the other. I think that I'm not really stating anything very controversial here because if you ask retailers, they will say that the introduction of these products has raised the average unit selling price.
That is a very important thing. Here is an industry where the average unit selling price is going up. The data I showed you earlier, the $2,000 and above, which is where we compete, is growing at 18%. From a retailer's point of view, this is a good thing. We're raising the value of the incremental customer coming into their store. As well as increasing the value of the dollars or the sale, we also want to increase the value of the margin that they make on each sale. This chart's a little complicated, and I've disguised it a bit because I don't want to give away stuff that would be internally valuable to different, you know, from one retailer to another. I've just disguised this. I can make the point without giving you the full data here.
If you take the bottom, the base of the bar, what that is, the base of the diagram, is the baseline is the lowest, the margin that our retailers made on our lowest margin product in 2005. That is the margin that the retailer made on our lowest margin product in 2005. What you can see is that at the same time in 2005, the margin that they made on our highest margin product for them was 8 points or 800 basis points higher than that lowest one. In 2009, the margin that they made on our lowest margin product was 500 basis points, 5 points higher than it had been in 2005. On the highest margin product that they had at that time, it was 11 points higher.
In 2012, it is now the lowest is 700 basis points higher than it was in 2005, and the highest is 15 points. Over this period, we have materially raised the margins on the retailer's sales while we're lifting the average unit selling price and the average value of a consumer coming into the store. This is something that we're very intent on continuing. It's important for us to make sure that as we grow, the dealer's profitability grows with us. The third and final on this topic is making sure that the guys and girls in the stores are well trained and prepared to sell our products, that they're well informed and know them well, and a variety of things we're doing here. The first bullet there is, in some way, the most important.
We have doubled the number of people calling on stores, doubled the size of our sales force since 2009. It's for the single purpose of making sure that people can call on stores more frequently. Our sales force is now armed with tools, customer relationship management tools on iPads, which can help them have good information to share with the customers, help them keep track of who they're calling on and when they're calling, help them know what their schedule should be. It's very powerful tools, both to train them and help them, and to help them help the retailers. We have online training, online training programs, which, again, are going to be very useful for retailers in the stores. They have a lot of downtime. If these things are well done, retailers, the guys in the store are very keen to use them if they're well done.
These are being very well done. We also have a big truck there. You can see the Tempur-Pedic mobile, where we go from town to town, and we will rent a ballroom in a hotel, and we will train 100 people at once in a big razzmatazz show. It's great fun and brings a lot of people, and it's very effective and gets a lot of people through. We're very dedicated to helping support and train the people in the stores. This is the three parts of making sure that our dealer advocacy informs the customer, makes it more profitable for the retailer, and has the guys and girls in the stores well trained to sell the products. Finally, we've introduced a new program just this year, just a few weeks ago, called the Elite Retailer Program.
It's a program that allows us and the retailers to differentiate those premier elite retailers, the ones who have the best and widest range, who have the best service, and who have the best, you know, high level of sales in their store so that they can call out to their customers that they are an elite dealer recognized by Tempur . Importantly, on our website, we will call out that they are an elite dealer. When these people who go to visit the webpage with the dealer locator, they will see very prominently featured those elite dealers. It's a new program. We've just started it, and we think it's going to be quite exciting. Now let me switch subjects here. I'm going to talk about international. As I said at the beginning, much of what I said applied to international.
For example, a lot of the things that we're doing, for example, with the sales force, we're using them in different countries, almost exactly like we do it in the U.S. In fact, some of it was learned from other countries. We're doing that very similarly. There are some things, though, that need to be called out slightly differently. First of all, I think it's important to set this in context. International is 30% of our sales, and on a margin basis, it's more profitable than North America. International is a big deal for us. Dale will share some data with you. We're very focused on making sure it grows. Although we have a low share in the United States, we have an even lower share in international. It's a $13 billion market. In the chart, you can see that the light-colored green are our wholly owned subsidiaries.
We compete in about 80 countries. We have wholly owned subsidiaries in about 20. What's happening is over time, we systematically have been bringing these third-party retailers to become, we've been bringing them into the fold and making them subsidiaries. Over time, we've brought more and more in. You can see that over the last few years, we've brought in a whole bunch there. Just last year, we brought in South Korea. It is working very well, and it allows us to bring in well-developed markets, take them over, and expand them, invest in growing them when they're well established. In international, they have the same structure that we have in the U.S. in terms of the different collections of products, but they're slightly different. Instead of the three that I showed you in the U.S., they have the original, the Sensation, and the Cloud.
They also have, as you can see, Basic, Deluxe, Royal, or Good, Better, Best. They have the same logic. The numbers there refer to the sizes of the different dimensions. There are more products available internationally than there are in the U.S., first of all, because different countries have different preferences. It's surprising how one neighboring country has quite different preferences than another. It also gives us the opportunity at different retailers to have different products with different finishes and different sizes. The same principle of the collections is important. It's more, in some ways, important in international, even than in the U.S., because although we have good distribution in international, we don't have as many slots per store as we do in the U.S. By introducing the collections and encouraging retailers to have multiple representations of each collection, we're growing the number of slots. It's been a big focus.
It's been successful. This collection strategy, as we call it, has worked very well. We have extensive distribution. I say here with significant opportunity for future growth. Future growth in the sense largely from increasing our slot presence using that collection strategy. We also have in international a small number of flagships, company-owned flagships, one or sometimes two per country. You can see pictures of them here in, for example, Japan in the bottom right-hand corner in the Ginza district. What we found is that in those areas where we have good distribution, if we can put a flagship store in, it can raise the sales of all the stores around it. It's an adjunct to our advertising strategy.
The thing in international that is our fundamental focus is raising awareness because we have been in international as long as we have been in the U.S., but our awareness is much, much lower. At the last Investor Conference, I described how we were going to invest in advertising to raise awareness. We had distribution. We wanted to raise awareness. We have used a different campaign. I'm going to show it to you in a minute, the weightless campaign to raise awareness. We believed, although at the time we met last time in the last Investor Conference, we hadn't done it yet, we believed that by investing in advertising in those countries which had good distribution but low awareness, we could lift sales. It has worked. Awareness has grown meaningfully in those places where we've invested in advertising, those major countries we've invested in advertising. Look at the sales.
Sales growth has been 26% in those markets where we have invested in marketing, in advertising. Quite frankly, it's faster than we anticipated. We expected a lift, but this lift is very good. What we're doing is we're going to continue to invest in those markets. In fact, we're going to expand, increase it. We're also going to expand the number of markets where we're advertising. We're broadening the number of countries where we advertise. It seems to work very well. This is the weightless grand campaign. The challenge in most of the rest of the world is that people don't know what Tempur is. We have to just tell them what it is, as opposed to it's a mattress. We have to tell them, we have to give them a feeling of what it is.
We did a lot of different testing on this to try and find out how is the best way to convey the uniqueness of Tempur. A word and a phrase and a concept that work well in a variety of very different countries, and we were surprised to see how well it worked in very different cultures, was this concept of sleeping on Tempur is like being weightless. You can read the ad there that says, "A mattress so supportive, the only thing you feel is weightless." Clearly, it's hyperbole, but it conveys the feeling, and it works well. If you would run the TV commercial, let me show you how it looks on TV.
Because every body is unique, every Tempur mattress behaves uniquely too. Soft where you want it and firm where you need it. Tempur conforms to the shape of your body, not the other way around. It lets you find your most comfortable position and supports you there, giving you a feeling of complete weightlessness and the best night's sleep possible. Visit tempur.com.
To those of you interested after this, I'll tell you how we filmed that because it was bloody difficult. Anyway, that works well. That's obviously in English. That's the English one. We have that in German, in Japanese, and in Korean. We have it in every language you can imagine, and it works very well. Here's the print ad in German. Thank you for your attention. Before I hand over to Dale, let me just summarize the key points of what I've been talking about here. I'm going to go back to the thesis that I used at the beginning. We're established with the industry leader in a $20 billion growing market. We have a differentiated product line, a unique preferred product, and a strong brand supported by ubiquitous advertising. We are innovative. We have a proven track record of introducing multi-hundred million dollar new products. We're profitable.
We already have industry-leading profitability, and we have a clear path to improvement. We're growing. We're well on track to achieve the five-year goal that we set in 2009, and now we're setting a new goal to double the size of the company by 2016. With that, let me hand you over to Dale.
Thanks, Mark. Mark's taken us through the industry and our strategy, and I'm going to talk about how that's reflected itself in our financials and where we look to go from here. If we look at the top line, very good sales performance last year. Globally, sales increased 28%, 30% in North America, 24% internationally. Key about the international sales growth was it accelerated as the year went on. We saw improving performance as the year went on. You can see it from a historic standpoint. We had very good growth prior to the recession and crisis, but have responded very quickly afterwards and seen the business really get back on a proper growth track, up 31% over the last two years compounded. If we look at the sales in a little bit more detail, on the left side, 2009, that's the crisis.
That's when no one was sure what was happening in the world and how bad it was going to get. As we started to get into 2010, you saw a significant rebound in the business, particularly in the North American business. North America obviously responded sharply. Also, you had the Cloud starting to impact North America. You saw phenomenal growth in North America in 2010. As we got into 2011, still extraordinarily strong growth right at that 30% level, but maintaining that level. Internationally, you saw a little bit of a rebound coming out of the crisis, but it was fairly stable until we got into 2011 and the combination of the advertising that Mark just mentioned.
You saw the growth differential between the markets where we put the strategic advertising in place and the markets where we didn't, and the impact of the Cloud going up broadly internationally also helped build that international growth rate. Key is right by the end of the year, both North America and the international will grow in about the same. That's kind of what we expect on a go-forward basis, is they will be growing about the same rate. In fact, at some point, we think the international growth rate will exceed the U.S. However, the U.S. team will do its best to prevent that from happening. New products like the Simplicity may be something that allows the U.S. business to continue to outpace the international business. Mattresses do drive the business.
You can see from a mix of business, 69% of the business in North America is mattresses, 61% internationally. Pillows are a little bit bigger internationally. When Mark showed you the globe chart, those dark green markets, the distributor markets, those are more pillow markets. Typically, when we enter a country through a distributor, pillows are the easiest way for that distributor to start getting some traction in that market. That's why internationally, pillows are a bigger piece of the business. Over time, as the distributor spends more time developing the market, or conversely, when we go in and take over, we still want to grow the pillow business, but we put a tremendous emphasis on developing the mattress business within those markets. Over time, we see the mattress market in those dark green countries improve. Obviously, that's things that go along with a mattress.
We've had significant growth in other, primarily because of the growth of the Ergo and the growth of the Ergo attach rate. It's been a phenomenal success for us. Between the new products and the advertising continuing to build the brand, we continue to see good growth globally. If we step down the income statement a little bit and look at gross margin, back in 2008, 2009, when we first set out our 2014 goals, we were not happy with our gross margin. We were not happy with our operating margin. We had seen during the recession a significant turndown in business, cost pressure in the business, volume pressure in the business, and the profitability of the business was not where it needed to be. It wasn't where we wanted it to be.
We put in place significant effort to improve the profitability of the business and improve the productivity of the business. You can see that we've made a dramatic recovery. As Mark indicated earlier, we've already exceeded our gross margin goal that we put in place back in 2008. We wanted to get back to 50%. We're at 52.4%, and we're not stopping. In our guidance for this year, we said we expect gross margins to be up another 200 basis points this year. We see a long runway of opportunity to continue to improve the margin of the business. Let's talk about that in a little bit more detail. If we look at 2009 to 2011, we had about 500 basis points of improvement in gross margin. Positive drivers from the productivity program, positive volume leverage. We've had positive price and mix. We've had negative impacts from commodities.
Commodity prices are higher than they were in 2009. We've had a lot with all the new product introductions. We've had a lot of floor model discounts that pegged the impact margin.
Also, we've h ad the geographic mix. As Mark mentioned, our international business, from a gross margin standpoint, is higher than our U.S. business. Two reasons for that: one, like all other premium consumer products, our prices are a little bit higher internationally than they are in North America. Secondarily, due to consumer preference, consumers internationally prefer thinner mattresses. In the U.S., for whatever reason, we like big, thick mattresses. At a slightly higher price and less material in the mattress because they're thinner, we have higher gross margins internationally. We have had, for a long time, a negative geographic mix, meaning the lower margin U.S. business is growing faster than the international business, which is higher margins. That gives us a negative geographic mix. As we look at 2012 and into the future, we will continue to have productivity. It is a significant effort, a significant program.
We'll talk a little bit more about that in a moment. We'll continue to see volume leverage price mix as one of those on an annual basis. Until you get into it, you don't really know exactly. It could be positive some years, could be slightly negative some years. We always expect commodities to be negative. We think that's a prudent way to plan. We think that's a prudent way to look at the business because we have zero control over commodities. If we anticipate that commodities are always going to be a drag on the business, that makes us work harder in other areas to offset it. If in a given year commodities don't happen to be negative, then it just gives us a little bit extra. In the geographic mix, that's an unknown.
As I said, it feels like, it looks like the international business growth rate wants to start to exceed the U.S. growth rate. If that happens, we'll get positive. If, say, the simplicity is a lot more successful than we have in our plans, it may be a negative because the U.S. business will be growing faster than the international business. That's one that we'll just have to see as it goes. Let's talk a little bit more about this productivity program. We've talked a lot about it over the last couple of years. It's been a major source of conversation for us. I think it is important to continue to explain and help you understand that this is not simply turning the machines faster. This is not simply trying to get more out of the same thing.
It's a very broad, comprehensive program that covers, you know, you can see a range of areas: operational excellence, sourcing, engineering, supply chain, how we develop new products, and the fixed cost leverage opportunity of volume. I'm going to just, out of the whole mix of examples of these projects, give you a little bit more insight on a couple. Certainly, we can talk at other times about all the other aspects of how we continue to drive cost, productivity in the business. For example, I think we talked about this one a couple of years ago, but we'll pick on it again: yield. What does that mean?
Yield is we take our chemicals, a certain amount of chemicals goes into the process at the beginning, how much good product do you get out at the end? There are a lot of different impactors on what that yield is. There are a lot of different ways to manage and improve that yield. One thing that's important is to understand when we make the material, how it works. You start with a little puddle of chemicals. Those chemicals react and they rise. They form a bun. From an explanation standpoint, we like to equate it to baking bread. If you've ever baked bread or have seen it, you know, you start with some flour and yeast and a couple of other ingredients, and you have this small little ribbon of dough. You put it in the oven, it heats up, and it rises.
The same thing happens as we're making material. The chemical reaction creates heat, the material rises and forms a bun, just like bread is in a bun. Also similar to bread, bread has a crust. Our material has a crust when the process, the chemical process, is completed. A big driver of yield is, can you make your bun more precise, more even, more square? If you think of a loaf of bread, it's wavy. That's not good for us because those waves, you have to cut all the way down to get rid of all the crust. If you have a more square bun, you get more precise cuts. You're wasting less material when you cut off the crust. Another key component is maybe through process control or through chemistry control, you can make some tweaks that allow you to make the bun a little bit taller.
If the bun's just 1 cm - 2 cm taller, you may get a whole other plate out because you've got this bun and we're slicing plates out of that material that we then put back together in different mixes to make the mattress. If you can get just a, with the same chemical input but slight change to the formula, a little bit higher rise on the bun, you get extra material out of the same input. All things that we do and that we work on with the engineers, with the process control people, with the chemists to improve the yield of the business. We've seen dramatic improvement in yields, and we all sitting here today continue to see a lot of opportunity to improve yields in the business. Just picking one more just for time's sake.
We talked a couple of years ago about our supply chain efforts and how we're working on supply chain. At the time, if you may recall, go back about three years ago, we had 22 warehouses around the U.S. Today, we have five. We went through a major network optimization study with a consultant on how we could improve and optimize our network, improve the delivery capability of our network, at the same time, reduce the cost of our network. We went from 22 small warehouses down to five warehouses. We've kicked off a second optimization study. We'll see how that turns out. Something that we've done along the way, and this is something actually we started here in the last year, is, you know, when you think about our distribution system, our plants produce the product.
They ship it to these warehouses who have to take it off the truck, put it in shelves, and then when the order comes, they have to pull it back off the shelves, put it back on a truck, and send it to the retailer. We have some large customers that do a lot of volume. We embarked on a program a little over a year ago, and last year, I think we saved $7 million doing this, where we're routing the orders for our larger, high-volume retailers directly to the factories as opposed to our warehouses. The factories are shipping direct to our bigger, higher-volume customers. We are removing two whole steps in the process. It doesn't have to go from the factory to the warehouse, from the warehouse to the customer warehouse. It's going direct from our factory to our customer warehouse.
These kinds of activities, we find opportunities all over the business. Just a couple of examples we've talked about in a little bit more depth here, but we continue to have significant opportunities across the business to keep driving efficiency, keep driving process improvement. That is why we're very comfortable and very confident that we will continue to get 175 basis points- 200 basis points of productivity a year for the foreseeable future. Our teams are committed to it. Our teams have years of projects lined up, and we think that is something that we will be able to continue to deliver. Moving on to operating margin, stepping down the income statement, we've seen significant improvement in operating margin over the last four years as we've improved gross margin, as we've gotten volume leverage in the business.
In fact, in 2011, saw 180 basis point improvement in operating margin, even though we increased advertising 175 basis points. The cost management is not just tied to gross margin, but it's tied to other components of the business as well. Again, in our guidance for this year, we said that even though we're significantly increasing advertising again as a percent of sales, we do expect this year for operating margin to be up about 100 basis points. From an overall company standpoint, we'll see operating margin this year at or just about at our long-term target of 25% that we set a number of years ago. Another key component of the business is because of the growth, because of the limited need for capital in the business, we generate a lot of cash.
From 2000, over the last three years, we have taken 27 days out of our cash cycle. Cash cycle is how many days of inventory do you have, how many days of receivables are outstanding minus the days of payables. In the last three years, we've taken 27 days out of our cash cycles. We're not at our goal yet. Last year, our cash cycle was about 45 days. We have plans to continue to improve that. We're looking for our cash cycle ultimately to get down to around 30 days. It is an area that generates a lot of cash for us that contributes to the overall cash flow of the business.
Because we don't have a lot of capital needs that we'll talk a little bit more about in a moment, we have a lot of cash that we have a choice on what are we going to do with it. Our choice has been and continues to be, we want to return that to shareholders in the form of share repurchase. Last year, in 2011 alone, we bought 6.5 million shares for $368 million. Since 2005, we've bought $1.2 billion worth of stock. In 2005, we had 104 million shares outstanding. Today, we have 66 million. That's even with some dilution on an annual basis for the employee share program. We're a company that is serious about returning value to shareholders, and we feel like the best way to do that is through share repurchases, and that's going to continue into the future.
If we look at CapEx, as Mark mentioned, we still have plenty of capacity. We're at about 50% capacity utilization today. We spend capital on an annual basis. Somewhere in the mid-20% is kind of our current view of what our normalized level is. That mid-20% represents maintenance. It represents general growth items, upgrading systems, improving systems. Mark mentioned the new CRM system that our sales guys have. They go into the stores and they've got their iPad and it's got all this critical information that they can share with their retailers. You have to put some money into systems to create that. Those are the kind of things that we do with our systems. This year is a little bit unusual. In 2012, our CapEx will be about double normal because we are building a new building for the company.
We just ran out of room in the building we had. It was not suitable for us. We are building that. Hopefully, we'll have that done by later this year. We're making very good progress on it. As you can see, limited capital needs, high depreciation and amortization over time additionally contributes to cash flow. As we look to the future, over the last couple of years, we've had a compound growth rate of 31%. Pretty nice results. Not something that you generally plan on a routine basis. As we look forward, we have our 2014 goal of being $2 billion. We're well ahead of the pace that we had set out when we set that goal. We now have a new $3 billion goal for 2016. From where we ended in 2011 to 2016 requires 16% growth on a compound basis.
Certainly, when over the last couple of years, we've been growing at 31% on a compound basis, it's not something that looks like it's horrible. That's a lot of growth on an annual basis. What I will say is, as we rolled out that, similar to what we did with the $2 billion plan, when we conceived the $3 billion plan, we rolled it out to our organization. We asked them to go off, think about it, look about it, talk about it. We got the top leaders of the company back together, and we had detailed plans by market of how that was going to be achieved. The organization is just as they were on the $2 billion. They're already working the $3 billion. They're driving hard for the $3 billion.
As a nice kind of side benefit, one of the things that the top leaders of the company came back to us with was, you know, as we're thinking about this $3 billion number, that means we need to do this and we need to do this, and that's going to make $2 billion even easier because we're looking forward. We're looking long term. To achieve something long term, you have to start it now, which helps along the way. That's why we think it's important to set stretch long-term goals for ourselves because it makes us think differently. It makes us look at things differently. It makes us question, push, and therefore, it delivers better results. Mark showed earlier he had a page almost exactly like this. I made one minor change. Sales of $3 billion, EPS of $8 is what Mark's page showed. Mine says $8 + .
I don't know if you caught the comment Mark made. What he said was $8 assumes very modest improvement in margins and no share repurchase. Now, my $8+ means we're not going to be satisfied with very modest share repurchase and very modest margin improvement. We want to continue to drive margin improvement in the business. The one thing that we didn't have on that gross margin page that Mark spent a lot of time talking about and is a very important component of how we run the business, and we've been doing it for several years, we just haven't talked a lot about it, is sharing with the retailers. This has to be a win-win game. As we win, the retailers have to win. As the retailers win, we win. It becomes a virtuous cycle.
We will continue to, as we improve our business, share some of that with the retailers as we have for the last several years and as we plan, and we plan to continue to do that going forward. Even with that, we will, should, and will drive to continue to improve the overall profitability of the business. With the cash flow performance of the business, we do plan and expect to continue to increase and return value to shareholders through share repurchases. That's the conclusion of our prepared remarks. We'll take questions.
We're going to use microphones for the webcast purpose, so please wait for the microphone to come to you.
Thanks. Just to follow up on the commentary about the longer-term drivers of operating margin, you gave us a great deal of clarity on how to think about the drivers of gross margin. You're clearly going to be reinvesting in advertising. As you think about it, what's the likelihood that we get to a 30% operating margin versus stay at this 25% level?
If we look at our incremental margins, our incremental margins over the last several years have run in the mid-30%. As we continue to improve gross margins, we should see those incremental margins also improve. The key unknown for us is what is the right, what's going to be the right optimal advertising spend? Mark mentioned that we had a study done, and this was several years ago. This organization told us this is how much you should be spending. This is the optimal level. We gasped and gulped and tested it over the last couple of years, and it seems to be working. Certainly, as we move along here, we're going to keep increasing that spend until we find it not to be efficient.
Once we find that spend, that may set a cap on the U.S. spend, but internationally, it's going to be a long time before we find an optimal spend internationally. Bottom line is today, several years ago when we set these margin targets, we were not happy with the performance of the business. Today, we are happy with the performance of the business from a margin standpoint. We want to continue to improve it, but we're not so unhappy that we're going to set an arbitrary target out there. We want to just be able to improve it as we go.
You said that the Simplicity has the same support and comfort as the Contour and the Cloud. Why wouldn't that cannibalize consumer purchasing behavior?
It has, it has, it is, you can find it in a minute in the other room. It's right next door, but you can try it. It is Tempur. It's a unique material. It has been tested, as I said, very, very extensively. Clearly, that was one of our concerns, the risk of cannibalization. As much as we could, we tested it. The way we tested it was by comparing, it feels different. I should kind of preface this by, although it feels unique and like Tempur, it feels different to the other beds. What we did was we conducted the best trials that we could work out of how to test what if a consumer who came in, who would choose to buy a Tempur bed, was then presented with a different set of choices, including the new Simplicity. Would they switch?
We found the cannibalization was very, very low. In fact, so low that we didn't use that data. We didn't use that analysis because it seemed unrealistic. We have backed it in a degree of cannibalization, but we don't believe it's going to be very significant. The fact is, if you look at our product range, it's always been good, better, best. We now just have one more entry-level range. Products do not, the rate of sales of products is not, is relatively evenly spread, and it is certainly not disproportionately at the low end. While there will inevitably be some cannibalization, we factored it in, and in our testing, the cannibalization levels that we tested were that. However, until we've sold some of these, I don't know for sure.
Yeah. Mark, maybe you can, or Dale, you can give us some feeling as to how that $3 billion is going to parse out internationally versus domestically, maybe new products versus existing products, to the extent that you want to put some color on that, even if the $2 billion, and maybe talk a little bit about Asia versus other parts internationally because that's a focus as well. To the extent that you can give us some color on that would be appreciated.
I mean, I'll give it to you exactly as you asked with color, okay? Rather than specifics, because, you know, colorful. I'm going to use red as my primary color. This is the one I'm going to use. No, we think that it'll be about $2 billion, $1 billion, give or take. $2 billion U.S., $1 billion international, roughly. If it's $1.2 billion and $2 billion, you know, I don't know. It's of that order. As Dale said, we have had a situation where U.S. has been growing faster than the rest of the world for some time. You saw the chart that Dale showed. We are finding that we can make the rest of the world grow. First of all, we can make the rest of the world grow just with awareness.
I mean, the cloud has been important in the rest of the world, but awareness is important too. If you look at Asia, for example, there's a whole other thing. There are whole new geographies there. Rough and ready, of the order of two to one, rough and ready.
Asia versus the rest of it.
Asia is a complete, you know, as you know very well. Europe is a big established market and is, well, good distribution, but relatively low awareness. We're raising it. Asia is different by country. It's hard to group it. Japan is a very well-established country, but has very disproportionate sales of pillows. We are growing our mattress business in Japan, and that's going quite nicely recently. Australia is very similar to the U.K. and the U.S. in, you know, the things that people like to buy and the way they buy and so on. We've been there relatively, you know, in a proper way, relatively recently. How long? Four years. It's going very, very well. It's very comparable to the, you know, to the U.K. or to the U.S. China, we're learning. We're in China. We're learning. At the moment, it's small.
We believe it will be big, but it's still a learning process for us. Asia is a hard grouping for us. We just bought Korea, and Korea is going like a train. That's very good.
Yeah. The consumer data testing on the Simplicity, I think you said that data was not for consumers who were looking for an $800- $900 mattress. When you pull data from them, how does it look similar? How does it look different than what you showed?
It's similar. I just wanted to be true. That data was from the kind of the mass group. I just wanted to be clear. For the $800 to $1,000 group, we don't expect that we're going to get 100% conversion, that everybody says, "I don't want an $800 mattress. I only want the $1,500 mattress." What we saw was a substantial proportion of those people switched to a $1,500 mattress. The way we do it is we do a test with it in and with it not in. Here's a range of products. Which one do you want? Here's another range of products. Which one do you want? In some pool, the simplicity was not there. In another pool, the simplicity was there. The proportion was significant. I just want to be straight.
It's not like everybody who was going to buy an $800 is now going to buy a $1,500, but a substantial portion were enough to make it very meaningfully attractive to a retailer.
Is $1,500 a breakpoint?
Not really. I don't think so. $1,000 is a breakpoint, but I think $1,000 is a breakpoint in the mind of the retailers more than the consumers. The $1,000 is the magic number. $1,500 or $1,499, you know, which it was, again, much researched, much tested. That's a good number.
Is there any plan to take Simplicity or a lower price bed into all or any international markets? How would the opportunity internationally compare when you talk about the U.S. opportunity, one to two being equal in dollars to greater than two? Thanks.
Without doubt, we will ultimately roll Simplicity. The question is when. We rolled the Cloud about a year later or a year and a half later. There is one difference, though, and it relates to the establishment of the brand awareness. If people are aware of Tempur like they are in America, if you stop somebody in the street and ask them to describe Tempur, as you know, as I'm sure all of you know, if you ask somebody, "What is Tempur?" they'll tell you. Among the things they'll tell you is it's quite expensive. They'll tell you it's very good. My friend has it. They love it, etc., etc. It's quite expensive. That's what they'll say, some version of that. In Europe, we are not as established. We're not even established at that. We want to get there before we start introducing an entry-level product.
That's why Dale says our prices are actually, if anything, higher in Europe. Ultimately, we will go there. Ultimately, it'll be even bigger because I think it has the potential to be even bigger. It's just not this week. We're going to go there, but we want to make sure we'll do it country by country. We won't do it all of rest of the world at a time, all the rest of the world at a time. We'll do it in the most established countries first. There are some countries, like, for example, Benelux, where we are as well known as we are here. Benelux sounds like a small country, but they're rich and they buy a lot of beds. There are material places we can go. We won't go everywhere simultaneously.
It seems like historically you've dominated the non-spring mattress market. Can you talk about the evolving competitive landscape in non-spring and how you see that going forward between now and 2016?
There have been competitors in non-spring even before we came here. There have always been competitors, and there have been strong competitors from our strongest products from our strongest competitors. It is not a new phenomenon, and it continues today. I think one of the things that's changing is that the proportion of people buying premium products and specifically specialty, because specialty has a disproportionate share of premium products, is growing. I think the barbell market effect that I described is growing. I think the size of the potential market is growing, both for premium and for specialty. I think the competitive set is coming in. There are competitors who come in. However, we continue to fight on the basis that we always have, which is the product performance and the awareness.
As I said when I described the research that we did on Simplicity and we do on all our products, we're not just comparing to spring. We're comparing to spring and the best selling of the non-spring competitors. Clearly, there are others in the market. There have been before, there are now, and I anticipate it will continue to grow. What I think is going to happen is the specialty market is going to grow as well as we grow, as well as we grow.
I guess, asked differently, is the market going to be more competitive in a year from now than it was a year ago?
Yes, it always gets more competitive. Yeah, probably. Probably.
A lot of people listening on the webcast as well, so we've got a few questions from there. Here's one. What early anecdotes can you share as it relates to retailer feedback around Simplicity? A follow-up on that is, can you speak to the rollout plan in terms of any slots or what the cadence of that rollout would be?
Retailer reaction is, you know, we launched it in Las Vegas in the big industry show a few weeks ago. Retailer response was extremely positive. I mean, it was very, very positive. People are excited. We have anticipation of a very fast rollout. There are three products. Most of the people that we are speaking to are anticipating taking all three of the products. It's going to roll out very fast. One of the things is because we're going to be running advertising soon after the launch, a lot of people want to make sure that they have it in their stores so that they can get the benefit of it. Anecdotally, to answer the question truthfully, it looks like it's going great until we actually get some dollars in the bank.
We won't know for absolutely sure, but you know, I want people to buy it and sell it and see how it goes. Anecdotally, so far, it looks like it's going well.
This question has come in from the webcast a couple of times. Dale, it's probably one for you, as it relates to the EPS goal, $8 and no large assumption for buyback, what about targeting for leverage ratio?
Yeah, from a leverage ratio, at least as of today, our view has been for the last several years, we want to stay basically in a 1.5x - 2 x that even. It's a ratio we said on a routine basis, we would be at the lower end of that range. We feel like that gives us, A, a very good capital structure from a cost standpoint. B, it gives us a lot of flexibility should something come up where we needed to increase it or a unique opportunity, significant market out of balance or something that gave us the opportunity to really take a bigger slug stock or something else. We do target, continue to target that 1.5 times to 2 times at the high end that we think that's optimal for us.
Hi. Yesterday, I was at Macy's for their President's Day sale. I went to the bedding department, and all the salespeople were in the other brands because they were 50% off, and they were trying to sell those. I was wondering if, given the change that's taking place at JCPenney with a lower every day, if that's one of your major distributors. Another question separately is that Nike is changing its advertising. They've gone much less television and general advertising to social network advertising. As they found out, much more productive, in fact, more than half of their spend is in that area. In these two areas, what do you intend to do?
We won't speak about strategies with specific customers, but there are those customers who have as their kind of method of operation to have very high, low pricing as their method of operation. Obviously, as in all of our customers, we sell for the same fixed price. It makes it challenging. In some of those customers with the high, low pricing, we have been and continue to be growing our business. It can work. It does have an effect during the present, you know, during big sales periods when people are focused on other things. It can work. However, it's a relatively modest part of our business just for that, almost for that reason. Over time, I think it's going to grow. I think that there's going to be, you know, this recognition.
I don't know if the, you know, the idea to get away from price promotion in the department stores is a good idea. Good luck. I mean, no, I mean, in fairness, it's a good idea. It'll be good for everybody, but it's not, it's a challenging thing to do. From the Nike, from the advertising point of view, I was thinking the other day, it is in fact quite, for me, I've been in, you know, doing advertising for a long time, 20 years. The interesting thing is, almost from the beginning, people have said, "Oh yeah, this advertising on TV is done. Any minute now, it's all going to be on, you know, whatever they call it, 360 advertising or, you know, on the internet or whatever." Everybody said, "Oh yeah, yeah, it's nearly done." This 30-second spots, it's gone historical.
Every year you measure the effectiveness and you measure the effectiveness, and it's not even a close-run thing. It's just overwhelmingly the most important and effective way to advertise is an ad on TV. This last year, we have seen that ads on the web, for example, banner ads are very effective. They are as if they are comparably effective. That's not what you asked. You asked about social. The web has gone from being, you know, it has been for some time, by the way, as you all know, Google advertising or that type of search advertising works. It's effective because it, but it's targeted. It isn't general, you know, it has, it serves its function. It's economic, but it doesn't, it's not a broad-based type of advertising. Banner or advertising on the internet has not worked.
Until now, it's starting to work, which I think is quite a revolution. I'm quite excited about this. It could be big. When it comes to social, we are trying to do it, and we are sort of doing it in a specific way, very consciously and very thoughtfully. We think it's right, but we're learning as we go. We have approximately 20,000 friends on Facebook, but not one of them was paid to join. Nobody was given a prize for coming. Nobody was encouraged to do so. It wasn't the result of some competition. They just chose to.
There are 20,000 people who, of their own volition, come onto our website and say, "I'm a friend of this brand." The thing about it is that they are like spokespeople for us because we will comment, we will correct, we will say who we are, and we will say if there's some factually incorrect statement. Whatever people say, we leave it there. Often, the other people who come onto this thing are people who are critical. You'll have the people who are very positive, and then you'll have people who are critical, and they'll say very critical stuff about us. If it's not factually incorrect or obscene, we will leave it there. What happens is the people, the 20,000 people who are our friends, will start to correct them. It's much more credible than us correcting them.
It's a funny experiment because it's sort of like a black and white. You don't get the middle of people. You get the people who are really positive and the people who are really negative. It's sort of honest. We're just looking at it, and we're not, so we're learning from that. We will continue to learn. Social media and the internet is clearly, it is, I think, finally now changing. It's now becoming the thing.
All right. We'll wrap it up there. Thanks for those dialing in on the webcast, for dialing in. For those of you here in attendance, thank you for coming. We do have lunch provided outside. We have a product showroom and also a pillow giveaway. Management will also be around.
Good job.
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