Okay, maybe I am crazy, but the other day as I drove by the third Mattress Firm store within about 500 feet of each other I thought, “Why do we need so many mattress stores?”

The next day I was visiting one of our client work sites in a Macy’s department store and learned that successful Macy’s mattress sales people can make $100,000 per year. I thought, “Excuse me, say that again, I think I misunderstood what you just said.” (But I heard correctly.)

All this mattress business stimulated my sleepy business brain. I had to learn more about why America needs so many mattress stores, how they could afford to pay these kind of wages, and whether internet upstarts like Casper Mattresses were going to disrupt this clearly over-priced industry.

Here are five things I learned.

Industry Size. According to Statistic Brain, an interesting website maintained by statisticians, the mattress industry is a $7 billion industry that ships 36 million mattresses per year. Of these mattresses 90 percent are innerspring mattresses.

Distribution Channel. Eighty-one percent (81%) of mattresses find their way to us via mattress stores and furniture retailers (43% via mattress stores and 38% via furniture retailers.) Another sixteen percent (16%) get to us through department stores (5%), warehouse clubs (5%), and via internet sales (6%). There are about 9,000 mattress outlets or stores in the United States and about 3,500 belong to Mattress Firm, which has made seven acquisitions of competitors in recent years including names like Sleepy’s, Mattress Pro, and Sleep Train.

Profit Margins. According to Utpal Dholakia, a professor of marketing at Rice University in Houston, Texas, the reason there are so many mattress stores is because mattresses are profitable and gross margins are large. A $1,000 mattress set only costs about $250-$400 to make, so the retail store has a gross profit of between $600 and $750. And most mattress salespeople are paid on commission, which keeps those expenses truly variable and tied to volume.

Brand Names. The largest five brands by market share account for 68 percent of industry sales and are Sealy (19%), Serta (17%), Simmons (15%), Tempur Pedic (12%), and Select Comfort (5%). One brand strategy, that seems top secret and certainly confuses consumers, is how these companies put different product identification names on the same mattresses that appear in different retail outlets.  According to Jerry Epperson, an experienced industry analyst speaking in a Freakonomics podcast, “Most of your larger, name-brand mattresses try to put an identity on a mattress that it sells on this corner, that has a different identity to the mattress that they sell on the opposite corner, to a competitor. So this one might be the Westchester, and the one across the street might be the Winchester.”

But they are the same mattress.

Epperson goes on to advise consumers to “Look at the spring count, look at the foam density, look at the material on the outside. And finally, just look into the features of that mattress. Compare the features — don’t look for the same identifying name. And when you talk about a Serta, a Sealy, a Simmons, almost all of the big guys, they sell a broad mix of mattresses from very inexpensive up to extremely expensive mattresses.”

On-Line Stores. The on-line segment of mattress sales is very new and growing. As noted above only about six (6) percent of mattresses are sold on-line, but this segment is growing and changing demographics should keep it so. One of the fastest growing on-line mattress retailers is Casper, which was founded in 2014 and now has annual sales of around $100 million.

To appreciate what investors think of Casper’s future just note that venture-capital firm, IVP, paid $55 million for just 10 percent of Casper, which is still privately held. That means it is currently valued at $555 million.  Mattress Firm, which has sales 25 times larger than Casper is valued at $1.3 billion or only three times that of Casper.

It shows us that investors are betting that we do not need the volume of brick and mortar mattress stores we have now.

But who really knows, I guess we’ll just have to sleep on it.

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