Startups Are Giving the Bedroom a Makeover
With traditional retailers merging and ecommerce startups growing quickly, this particular industry isn't getting much sleep these days.
This story originally appeared on FOX BUSINESS
With traditional retailers merging and e-commerce startups growing quickly, the mattress industry isn't getting much sleep these days.
Earlier this month, retailer Mattress Firm announced it had agreed to buy competitor Sleep Train for $425 million. With 2,000 showroom locations in 40 states, the combined entity will be the largest specialty mattress retailer in the U.S. And though Mattress Firm is doubling down on its brick-and-mortar approach, startups such as Casper and Tuft & Needle are drawing shoppers with their direct-to-consumer model.
Tuft & Needle, which launched in 2012, is on track to do approximately $12 million in sales this year, according to co-founders JT Marino and Daehee Park. Casper, meanwhile, launched in April, and cofounder and CEO Philip Krim said the company sold $1 million in mattresses in its first 28 days.
The two startups share a very similar model, though Casper's price point is higher (Tuft & Needle sells a 10-inch, queen-sized mattress for $500, while Casper's version goes for $850). Both have developed proprietary designs that promise to satisfy all types of sleepers. And both companies are doing sales entirely online, which their founders say allows them to offer a high-quality product at a relatively low cost.
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"We took my mattress apart and figured out the components and who could make those pieces. The mattress I bought for over $3,000 – the cost to make it came to $300," said Marino. According to him and Park, Tuft & Needle is growing ten times year-over-year; the self-funded company, started with $6,000 of the founders' own money, achieved profitability in its third month.
Are Mattress Showrooms Over?
The two startups claim that traditional mattress retailers use sneaky sales tactics to get shoppers to shell out thousands on overpriced mattresses.
"You don't need 80 varying levels of firmness – we looked to the hotel industry to validate that," said Krim, who closed a $13.1 million Series A round of funding last month led by NEA . He said that Casper's mattress, made with several layers of foam, suits nearly all sleepers' needs. The vast selection available at showrooms, he argues, only serves to confuse shoppers.
Mattress manufacturers offer so many styles, Krim says, "Because they want to occupy as much of showroom floor as possible to take advantage of consumers." By dragging out the shopping experience, he says commission-based salespeople are better able to upsell shoppers on a higher-end model, promising a better night of sleep.
But given that a mattress is still a large purchase – even at these startups' discounted prices – both Casper and Tuft & Needle may find it challenging trying to convince the majority of shoppers to buy a new mattress from an e-retailer, sight unseen.
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Mattress Firm CEO Steve Stagner says his business does have an e-commerce component – but most buyers still like to head into stores before handing over their credit cards.
"Consumers like to look up and gain information on the web, but they typically like to go into the stores, because it's a big-ticket item that lasts eight years in the home. It's tactile – they like to touch it and feel it, and there's still a very heavy emphasis on that," said Stagner. He added that over 95% of Mattress Firm's sales are done in-store.
Stagner also takes issue with the startups' thesis that one mattress can work for nearly every kind of sleeper.
"The reality is every body of every human has a different shape and size. Just like wines, people have far different palates when it comes to mattresses," said Stagner. "To speak candidly, the quality of those mattresses that we've seen [from Casper and Tuft & Needle] don't service every customer's needs by a far stretch."
But Stagner did admit, however, that Millennials are more comfortable purchasing items online – and his company will be directing efforts to boost its online business.
"There will always be a dominant presence in stores, but there's a high-growth opportunity online," said Stagner.
And though there may be criticisms coming from mainstream mattress sellers, the startups aren't knocking down each other. In a $7.6 billion industry, the entrepreneurs say there's more than enough room for both Casper and Tuft & Needle to succeed.
"It's great to see other companies trying to disrupt the mattress industry," said Park. "The customer will win through better experiences that are different from what they're used to dealing with, with local retailers."