The Real Reason There Are So Many Mattress Stores in Your Town
With brick and mortar stores suffering their painful deaths as we speak, have you ever wondered how so many mattress stores manage to survive — or even thrive — when they’re all situated within a five mile radius of one another?
Think about it. A mattress isn’t something you buy every day or even every year. Yet somehow strip malls often include stores devoted to nothing but mattresses. These retail destinations often face one or two other stores selling the exact same thing just a stone’s throw away.
According to one source, there are 9,000 specialty bed and mattress stores nationwide. That’s a lot of stores for something people only purchase every ten years on average. So why are there so many mattress stores, and how do they cut it in today’s world? The answer may surprise you.
1. Mattresses are high-margin items
You don’t need to sell many to make a profit. | vadimguzhva/iStock/Getty Images
In the grand scheme of retail, you don’t need to sell as many mattresses to make a huge profit. At grocery stores, profit margins hover right around 5%. Meanwhile, a $3,000 mattress costs about $300 to make — giving mattress stores a whopping 9,000% profit when they sell one.
Next:This is why you only see one salesperson there all the time.
2. They don’t need many employees
Fewer customers means fewer employees. | JackF/iStock/Getty Images
Unless they’re having an 80% off sale, you won’t typically find mattress store swarming with customers. Less foot traffic means fewer employees, and fewer employees means less overhead for the store.
Plus, the stock isn’t constantly changing like it is at clothing retailers or grocery stores, so it’s cheaper to keep the store stocked.
Next:Here’s the reason online sales aren’t dominating.
3. People want to touch them
People want to know what they’re buying. | Igor-Kardasov/iStock/Getty Images
You may know someone who ordered their mattress online. Companies like Casper and Leesa are popping up left and right, hoping to cut the middleman out of mattress selling and offer mattress-in-a-box offerings at cheaper prices.
But like a few other things, mattresses are a hard sell for the internet. People like to touch them and test them out, which is something they can only do at — you guessed it — brick and mortar mattress stores.
Next:The one place mattress store owners don’t spend money.
4. Stores are their own advertisement
The stores sell themselves. | ablokhin/iStock/Getty Images
Mattress store owners don’t have to spend tons of money on radio or newspaper advertisements or billboards. With their gigantic neon signs lit up 24 hours per day, plus their self-explanatory store names, mattress stores advertise just by existing.
Next:This is the weird thing about competition.
5. They steal each other’s customers
They run lots of sales. | smodj/iStock/Getty Images
Ever notice how McDonald’s usually has two or three other competing fast food restaurants nearby? The concept of multiple mattress stores in a small area is similar.
Once someone decides to buy a new mattress, they usually want to shop around and make sure they’re getting the best deal. Mattress store owners know that shoppers will typically visit several stores before breaking out their credit card. It’s simply a matter of staffing the best salespeople and having the lowest prices in town.
Next:Here’s why so many people buy mattresses at the same time.
6. The recession created demand
During the recession people put off buying mattresses. | Naypong/iStock/Getty Images
Mattresses are expensive. During a recession, people put off buying new mattresses, creating a sort of mattress store boom once the economy started to turn around. This happened between 2008 and 2012, and the bubble resulted in supply meeting demand in the form of more and more mattress stores.
People typically purchase new mattresses when they move or get married, or every eight years on average.
Next:Buying a mattress is special for this reason.
7. People care about mattresses
Quality sleep is important. | sergeyryzhov/iStock/Getty Images
At the end of the day, most people put a lot of thought into purchasing a new mattress. They ask their friends where they bought theirs, they solicit Facebook opinions, they read reviews, they shop around. For such a large, expensive item that you’ll use almost every day, that kind of meticulous planning makes sense.
The reason mattress stores may survive the retail apocalypse is that people care about the product. After all, a good night’s sleep is worth the cost.
ELI5: Why Is there a matress firm on every corner? How do they possibly make enough money to keep that many stores in business??
ELI5: Why Is there a matress firm on every corner? How do they possibly make enough money to keep that many stores in business??
I’ve often wondered that myself. I’ve been married for 21 years, and am only on my second mattress.
For comparison, I’m in my third home, and have had 10 different cars between my wife and I.
There is NEVER anyone in the showrooms shopping, too..
Wife says its a money laundering front for someone
Well they buy them for pretty cheap and sell them for hundreds of dollars, with the more expensive brands and features costing you thousands of dollars.
Yeah that’s what I was wondering. Or a giant drug cartel. Imagine how perfect it would be, just stuff the matress’s with drugs then you can easily transport them anywhere.
But honestly if they arnt laundering money, or running a cartel how the fuck do they do it.
You should probably think about moving onto your third. Matresses are designed to last ten years.
Selling mattresses is pretty profitable. They are not that expensive or complicated to produce, so the mattress firms can get them for cheap, but they are a necessity that has a high market price, so there are huge profit margins. If you get one sale a day, you’re probably good.
That’s just so weird. It doesn’t really add up to me.
People generally purchase mattresses new. There isn’t a huge market for used mattresses. It’s something pretty much everyone has or wants, with almost no resale value.
That’s without even considering entire cities filled with hotels/motels, and many people who have guestrooms or buy bigger beds as their kids grow, etc.
But why are their 7 of them in a 4 mile radius (and three of them are in the same intersection)
Why Are There So Many Mattress Stores in America?
For that matter, why do we have so many stores, period?
Posted Sep 22, 2015
One of my MBA students who recently moved to Houston from Europe was genuinely puzzled by the preponderance of mattress stores she found here. She said that in America, there appear to be more mattress stores than there are Starbucks shops. This means a lot, because Houston alone has 135 Starbucks stores (not counting those in its numerous suburbs). She wondered whether the density of mattress stores indicated something about Americans, mattresses, or something else entirely.
I was mystified by the question. Despite driving past numerous mattress stores regularly, I never considered why they appeared to be popping up like weeds. So after some research and a bit of thinking, here is why I think there are so many mattress stores in America.
The answer can be attributed to at least 4 separate things: the economics of running a mattress store (and a mattress retail chain), the psychology of shoppers’ decision making for mattresses, the release of pent-up demand for mattresses after the recession, and the scale of American retailing.
1. Favorable economics.
Retailing is notorious for wafer-thin profit margins. Grocers, for example, typically earn margins of less than 5%. This is not the case for mattresses. Compared to its listed price, it costs relatively little to make a mattress.Consumer Reportsreports that markups in the 40-50% range are standard in the industry—and once a mattress crosses the $1,000 threshold, markups are even higher. One assessment of a $3,000 mattress found that it cost about $300 to make—an astonishing900%markup.
That is a lot of profit when you consider that the average mattress sold is priced well over $1,000. What’s more, most mattress stores carry very little inventory (they deliver directly from a central warehouse or from the manufacturer) and pay salespeople mainly through commissions. So overhead costs are quite low by retail standards. The result: In a typical strip mall, a store would have to sell fewer than 20 mattresses each month to cover its costs. Beyond that, the store should turn a profit.
Some stores run by national chains may not even need to clear this hurdle. As such chains expand throughout the country, they count on awareness and recognition generated by their stores’ signage and visibility to bring in customers. In fact, each store moonlights as a giant billboard, brightly lit 24 hours a day. Even when some stores in a market remain unprofitable, the chain will keep them open for advertising power.
Finally, stores of the major retail chains tend to cluster together in prominent locations to feed off the increased customer traffic produced by such congregation. (This approach is also used by other retailers; it’s called “agglomeration.") This makes mattress stores appear even more numerous than they actually are.
2. Americans prefer to buy mattresses in a store rather than online.
In colonial America, the bed was considered a family’s most important possession. In a fire, it was the very first item to be moved to safety by firemen. Today, beds (and mattresses) are nearly as important. Most people purchase mattresses rarely—about once every decade—and do so with a lot of thought and effort. After all, most of us spend a greater part of our lives in bed than anywhere else, so it is natural that we would want to choose wisely.
Not surprisingly, unlike sales of clothes and consumer electronics, which have largely migrated online, most Americans still prefer to try out different mattresses and make the purchase in a store. The phenomenon ofshowrooming, in which shoppers try the item in a store and then buy it online from the cheapest e-retailer hasn’t yet hit the mattress industry.
One reason for consumers’ insistence on buying in a store is that each mattress chain commissions unique models from major manufacturer, available only in its stores—and nowhere else. In truth, these models vary only superficially, but the naming differences make it difficult to compare prices and quality across different stores. Also, without truly objective measures of mattress quality, the shopping process is a crapshoot. Should I pick the Dual Effects® gel memory foam from one manufacturer, Posturepedic™ foam from a second, or the SmartClimate™ System with Tempur® foam from a third? (Notice that all the names are trademarked.) Many shoppers find they can’t answer such questions without consultation with a salesperson.
3. The recession created a lot of pent-up mattress demand.
Even though retailers prod us to replace mattresses every eight years, they are durable products, easily lasting 10 years, 15 years, or longer. Unless you are moving out of your parents’ house or returning from an extended world tour, mattresses are also discretionary purchases: You don’thaveto buy a new one. The upshot is that when consumers are in bad financial shape or pessimistic about the future, they postpone mattress-buying, choosing to sleep on the lumpy or stained bed they already have. This happened during the recession of 2008 to 2012, as most Americans concentrated on putting food on the table, paying their rent, and keeping their cars fueled. There was no spare cash for new mattresses.
Further, newlyweds are major mattress buyers, but the recession put the brakes on marriage plans for a lot of people; in fact, many twenty-somethings movedbackinto their parents’ homes rather than moving out. Homeowners also stayed put because they couldn’t sell their houses. So, not surprisingly, mattress sales dried up over the five-year period.
All this changed during the last three years. More people are getting married and having children, forming new households, and moving out on their own or just moving. The pent-up demand created by the recession has freed up, providing momentum to mattress sales. (The nationwide bed bug epidemic which started in 2010, also boosted mattress accessory sales as well as reducing the supply of used mattresses.)
Mattress retailers are responding all over the country by opening new stores to capture these new customers. Some observers argue that we may be heading towards a glut of mattress stores; time will tell if this is true.
4. America doesn’t have too many mattress stores; it has too manystores.
There are three primary reasons why there are so many mattress stores in America:
- Running a mattress store instead of another type of retail establishment is often more profitable.
- Mattress stores are not threatened by online shopping to the same degree as other retailers.
- There was a lot of pent-up demand for new mattresses that is now being released as the economy improves and Americans feel more optimistic about their future.
But I want to make one final point which might explain my European student’s consternation: America has 46 square feet of retail space per capita. The equivalent per capita number in the UK is 9 square feet—less than one-fifth as much. And the U.K. has themostretail space of any country in Europe. So, seen with European eyes, America not only has too many mattress stores, it has too many stores period—from nail salons and donut shops to payday lenders and pharmacies. And, interestingly, it also has too many self-storage facilities. possibly for Americans to store away all those mattresses they are stocking up?
Thanks to Rice MBA student Zara Zain-Emmerson for asking the question.
Update:Freakonomics Radio ran an episode titled "Are we in a mattress-store bubble?" in June 2016. In that radio show, you can listen to me talk about some of the things I wrote about in this post.
I teach core marketing and pricing to MBA students at Rice University. You can find and download a lot of my academic and some of my practitioner-oriented writing at SSRN. If you can’t find something old I have written, shoot me an email and I will send it to you. Some of my writing for managers and business people can be found at HBR.org and I also write a blog called “The Science behind Behavior” on Psychology Today.
You can connect with me on LinkedIn or Facebook, or you can send me an email. All questions, comments, thoughts, and ideas for future blog pieces or academic research projects are welcome.
How Do Mattress Stores Stay in Business?
People don’t buy mattresses that often, but the stores are everywhere.
How do mattress stores manage to stay in business? They’re all over the place, but the average adult buys a mattress once every five to ten years. With high overhead and infrequent purchases, how are they around? (This question was inspired by a friend, Bethany.)—Not Bethany
I see your query, NB, and raise you. To my mind, it’s not just about how these stores manage to stay in business: The question is, moreover, how are there so goddamnmanyof them—particularly right now? Where I live, in Chicago, entire blocks are all but overrun with the places, which frankly don’t do much for a street’s aesthetics. In June, aTexas Monthlyarticle described the worrisome proliferation of mattress stores in Houston, where the venerably groovy Montrose neighborhood has become known as “the Mattrose” on account of all the new sleep shops. An April headline in theNorthwest Indiana Timesasked, apropos the town of Schererville, “Why the heck are so many mattress stores opening?” So: You and I aren’t the only ones wondering. What gives?
One thing that jars about this state of affairs is that, in the age of Amazon, there’s something very old-economy about mattress stores, beyond their relentlessly cheesy look. No one goes to bookstores to buy books anymore, right? Well, not exactly. A 2014 report by the consulting firm A.T. Kearney found that despite the digital hype, overall a full 90 percent of retail transactions still take place in physical stores. And according to an investor presentation by industry giant Mattress Firm, dedicated mattress stores account for 46 percent of total mattress sales, handily beating out furniture stores (35 percent) and department stores (5 percent) for the largest share of the market.
So mattress delivery by drone is still a ways off. But again, these stores aren’t just surviving, they’re flourishing—that market share has more than doubled in the last 20 years. Why open a mattress store when there’s another just down the street? Turns out the economics make perfect sense:
Running a mattress store doesn’t cost much.Since each store is essentially a showroom, with the product delivered to your home from a warehouse, sellers don’t keep a lot of inventory around. And the salespeople generally work on commission. So contrary to your assumption, overhead is actually pretty low. Plus, the uninhibited signage at these places provides constant free advertising.
The industry is benefiting from postrecession catch-up.According to the trade journalSleep Retailer, the global mattress market saw a decrease in sales in 2008 and 2009; in the years since, the rebounding economy—including increasing home ownership—has occasioned “remarkable” growth in the industry, saysSR, expected to reach $25 billion globally by 2017. The U.S. is the largest retail mattress market worldwide.
The markup is stupendous.This is the big one. Mattress markups are notably higher than for other furniture items:Consumer Reportsputs gross profit margins on mattresses at 30 to 40 percent, both for wholesalers and for retailers, and up to 50 percent for makers of super-luxe products. One estimate (from a boutique mattress upstart, so take this with a grain of salt) claimed that mainstream retailers can charge $3,000 for a mattress (after wholesale and retail markups, marketing costs, and commissions) that actually cost only $300 to produce. What accounts for this? It’s your classic oligopoly, where the market is dominated by just a few makers—think familiar names like Serta, Sealy, et al. More on this below.
How do mattress stores stay profitable selling products that are bought so infrequently?
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I am assuming that your question relates to the fact that people normally purchase mattresses only once every 8–10 years on average.
That is only one (relatively minor) factor in whether or not a retailer can be profitable. For example:
- Almost everyone (including children)needs and uses mattresses. In addition many people purchase additional mattresses for occasional visitors. A substantial percentage of homes have more mattresses than inhabitants.
- Profitability is based on ROI (Return on Investment.) The investment required for a mattress store is relatively low. For example:
- Mattress stores a.