If you’re looking for a tipping point in the mattress-selling business, it really doesn’t get any more obvious than this.
Casper, the mattress disrupter par excellence, announced it will open 200 stores over the next three years.
Mattress Firm, the largest retailer in the category by far and chief keeper of the status quo, is bordering on filing for Chapter 11 bankruptcy.
Mattresses and their related products (i.e., frames, sheets, pillows) have been, well, a sleepy category for decades. Independent shops, often with semi-clever names à la Mattress Firm, and department stores dominated the retail distribution model. On the supply side, a few behemoth manufacturers — Simmons, Serta, Sealy and more recently Tempur-Pedic — controlled most of the vendor market share.
Consumers shopped for mattresses every decade or so in one of retail's most uncomfortable, uninformed and confusing experiences. And everyone made a ton of money in the process.
Then, the internet came along, and the sleepless nights began for the traditional sleep business.
Casper was one of the earliest to realize you could sell mattresses online and ship them like rolled up burritos via UPS. Even if the return rates were often ridiculous, it didn’t matter. The margins were healthy, and the media loved a good disruption story, particularly one with hundreds of millions in funding.
All of this became easier with the increased popularity of the memory foam mattress, which was often made inexpensively in China and could fit into a shippable box, unlike a conventional innerspring mattress that needed two large ex-World Wrestling Federation wranglers to be delivered.
Casper was the first to jump on this, but others followed. Today the field is full of disrupters like Tuft and Needle and Purple, each trying to follow the same basic business model.
But give credit to Casper for constantly raising the bar. The company quickly discovered that online alone would not be enough to scale the business, and it inked a deal with West Elm to sell through its physical stores.
That didn’t move the needle fast enough, so next came a deal with Target to put Casper mattresses and bed linens in its stores.
But wait, there’s more: Casper opened its first permanent store earlier this year, in New York City, and also has 18 pop-up or temporary stores. They will be converted to permanent locations as this store ramp-up progresses.
For Casper, the motive is simple: customer acquisition cost. It is finding out, as Warby Parker and other digital-first retailers are, that a physical location can be a more effective, less costly way to get new customers. It’s the Achilles heel of e-commerce, and there’s nothing to suggest it's going to change anytime soon.
Mattress Firm only wishes its heel were its biggest pain. In 2015, it bought its largest competitor, Sleepy’s — see, I told you about the preponderance of cute names — adding just over 1,000 stores at around the same time most retailers were looking for ways to get rid of excess real estate. With around 3,500 physical locations, the newly enlarged Mattress Firm had a dominant position on the retail landscape — and a massive monthly rent bill.
But wait, there’s more here, too. In 2016, the South African conglomerate Steinhoff International paid $3.8 billion to buy Mattress Firm. Last year, the company’s chairman and CEO both resigned after Steinhoff reported “accounting irregularities,” two words you never want to see together if you’re a stockholder. Shares dropped 80% in just two days, and investigations remain ongoing.
Too many stores and potentially cooked books at its parent company are being cited as the reasons Mattress Firm could file for bankruptcy sometime soon. It has brought in advisers to take it wherever it’s going, but the consensus isn't good.
There’s more to the Casper-Mattress Firm dichotomy than meets the eye, but the symbolism is too just delicious to resist: another industry caught doing things the way it always has while a bunch of upstarts come in to show it how dumb that is.
The dreams of the new and the nightmares of the old are likely to last far longer than just one night.
