How Do Mattress Stores Stay In Business

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Why are there so many mattress stores? How do they stay in business?

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There aren’t as many as there used to be.

If you read the trade journals for the bedding industry there has been an acknowledgement going back several years that there were too many mattress dealerships.

That situation is changing. In October 2018, Mattress Firm, the largest mattress retail chain in the U.S., filed for Chapter 11 bankruptcy.

In a statement issued by the company:

Houston-based Mattress Firm plans to close as many as 700 of its 3,230 company-owned stores. Those stores are located "in certain markets where we have too many locations in close proximity to each other."

They are not the only mattress retailer that is downsizing. Online mattress sales are growing .

Online retailers are offering longer and better warranties than the brick and mortar retailers and have been generating excellent reviews from their customers.

As a result, more and more consumers feel that it is no longer necessary to try out mattresses in stores.

Why are there SO MANY mattress stores — and how do they stay in business?

Everywhere you look — you can’t escape them. The stores appear to be deserted yet there is a new one opening almost every week.

Mattress stores have taken over your city.

It’s the nationwide phenomenon that has stumped all of us: Why are there so many mattress stores? The showrooms appear to always be empty — how do they stay open? And why do we need a mattress store on every corner?

According to data from IBISWorld, there were less than 8,000 mattress stores in 2011. This year, there are over 9,200 mattress stores open across the U.S. with close to 10,000 stores projected by 2018 (Note: This figure is an estimate and may not include smaller companies that are not part of larger retail companies).

Dave Perry, bedding editor for the trade magazine Furniture Today, told WBEZ the customers who once purchased mattresses in department stores now purchase at specialty mattress chains.

Mattress Firm, Sleepy’s, and other mattress chains have 50 percent of the market, compared to just 19 percent in 1993, Perry said. Earlier this year, Mattress Firm completed its acquisition of Sleepy’s and related entities for $780 million. The combined companies now have 3,500 stores in 48 states.

This map shows ONLY the American Mattress locations in the Chicago area (Credit: American Mattress)

A hilarious example: Mattress Firm has five stores less than a mile apart in Schererville, Indiana, according to a report from The Times of Northwest Indiana.

It’s also important to note that smaller companies, like American Mattress, may not sound as familiar as Mattress Firm. The company only has stores in three states (Illinois, Indiana, Wisconsin), but they have over 80 locations. Similar mattress companies with less than 100 locations operate in nearly every state.

But the real question is — why do we need so many stores? And how can they possibly stay in business?

High-margin and low overhead

Mattresses offer one of the best profit margins in retail. While some grocery store chains might earn a 5 percent profit margin, mattresses have a markup in the 40 to 50 percent range, according to Consumer Reports. According to one study, a $3,000 mattress might only cost $300 to manufacture — a 900 percent markup.

Credit: Tribune Broadcasting via Piktochart

Mattress stores often have low overhead, often dealing with factory-direct products and paying employees a commission-based salary. This might explain how mattress stores can support those seemingly empty showrooms with only one employee sitting behind a desk.

“If you sold three or four beds a day and your average ticket is $1,000, that’s a $4,000-dollar day, times 365. All of a sudden you’ve got more than a million-dollar business there,” Sam Woods, Senior Vice President of Sales for Mattress Firm, told WBEZ.

According to a report from PsychologyToday, a mall location may only need to sell 20 mattresses a month to cover its

Stores often cluster in groups and intentionally open across the street from a competitor

Why does Walgreens always open on the same corner as a CVS? And why is Lowes always across the street from a Home Depot?

The approach, often called “agglomeration,” makes the number of mattress stores appear even more numerous. Direct competition is important for branding and sales.

According to a report from PsychologyToday, a mall location may only need to sell 20 mattresses a month to cover its rent.

Map shows the states with the highest density of mattress stores (darker color represents high density). Map may not take into account smaller mattress stores not affiliated with larger retail companies. Note: Interactive map available at bottom of this story.

“Clustering or agglomeration is found common in the retail industry, particularly in areas where high foot traffic is encountered. The attraction of firms towards enclaves of commercial spaces or in the malls or wet markets as well as along shopping streets is usually guided by the capability of such areas to attract consumers intending to do one-stop-shopping and benefit from the wide array of items made available for their selection.”

Aaron McDermott, president of Latitude Commercial, told The Times of Northwest Indiana branding is really important when placing mattress showrooms close to where the consumer is already shopping.

“Since the consumer is probably already going to shop at an anchor tenant like Walmart, Home Depot, Kohl’s, they just want to have their brand seen like a billboard near there so they know when they go to shop for a mattress they will remember where they are located,” McDermott said.

Cheap real-estate

Commercial real estate prices remain relatively low across the country and the mattress business has never been more profitable.

One of few businesses where people to prefer to buy in store versus online

Most customers purchase a new mattress about once a decade. Because this is considered a big purchase (both in price and importance), customers prefer to buy mattresses in person instead of online — similar to when purchasing furniture or a vehicle.

Even Google knows what’s up.

Even the customers who intend to buy a mattress online will often visit a retail store before making their purchase. It’s called “showrooming,” which means a customer examines merchandise in a traditional brick and mortar retail store before buying online. This means additional foot traffic in stores and a chance for companies to offer deals to customers who were only looking to browse.

Post-recession mattress “boom”

Between 2008 and 2012, a lot of Americans were not spending money on big purchases. The mattress industry is seeing an influx of people who delayed buying a new mattress and are now looking to purchase.

According to Sleep Retailer, the global mattress market saw a decrease in sales around 2008. However, the rebounding economy has caused “remarkable” growth in the industry with the global market expected to reach $25 billion over the next two years, according to the report.

How long will the “boom” last?

According to IBISWorld, the number of units peaked a few years ago, but the industry’s total revenue has never been higher. As long as profit margins remain high, it’s likely stores will continue to open. The only real threat to mattress retail locations would be a large retail company offering mattresses at lower costs to the consumer and accepting a smaller profit margin.

Time to wake up!

So the next time you see new construction down the street and you think, “Oh… maybe it’s a Chipotle? Or Chick-fil-A?!”

Wake up. It’s a mattress store — and you know it.

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.

Why are there SO MANY mattress stores — and how do they stay in business?

Everywhere you look — you can’t escape them. The stores appear to be deserted yet there is a new one opening almost every week.

Mattress stores have taken over your city.

It’s the nationwide phenomenon that has stumped all of us: Why are there so many mattress stores? The showrooms appear to always be empty — how do they stay open? And why do we need a mattress store on every corner?

According to data from IBISWorld, there were less than 8,000 mattress stores in 2011. This year, there are over 9,200 mattress stores open across the U.S. with close to 10,000 stores projected by 2018 (Note: This figure is an estimate and may not include smaller companies that are not part of larger retail companies).

Dave Perry, bedding editor for the trade magazine Furniture Today, told WBEZ the customers who once purchased mattresses in department stores now purchase at specialty mattress chains.

Mattress Firm, Sleepy’s, and other mattress chains have 50 percent of the market, compared to just 19 percent in 1993, Perry said. Earlier this year, Mattress Firm completed its acquisition of Sleepy’s and related entities for $780 million. The combined companies now have 3,500 stores in 48 states.

This map shows ONLY the American Mattress locations in the Chicago area (Credit: American Mattress)

A hilarious example: Mattress Firm has five stores less than a mile apart in Schererville, Indiana, according to a report from The Times of Northwest Indiana.

It’s also important to note that smaller companies, like American Mattress, may not sound as familiar as Mattress Firm. The company only has stores in three states (Chicago, Indiana, Wisconsin), but they have over 80 locations. Similar mattress companies with less than 100 locations operate in nearly every state.

But the real question is — why do we need so many stores? And how can they possibly stay in business?

High-margin and low overhead

Mattresses offer one of the best profit margins in retail. While some grocery store chains might earn a 5 percent profit margin, mattresses have a markup in the 40 to 50 percent range, according to Consumer Reports. According to one study, a $3,000 mattress might only cost $300 to manufacture — a 900 percent markup.

Credit: Tribune Broadcasting via Piktochart

Mattress stores often have low overhead, often dealing with factory-direct products and paying employees a commission-based salary. This might explain how mattress stores can support those seemingly empty showrooms with only one employee sitting behind a desk.

“If you sold three or four beds a day and your average ticket is $1,000, that’s a $4,000-dollar day, times 365. All of a sudden you’ve got more than a million-dollar business there,” Sam Woods, Senior Vice President of Sales for Mattress Firm, told WBEZ.

According to a report from PsychologyToday, a mall location may only need to sell 20 mattresses a month to cover its

Stores often cluster in groups and intentionally open across the street from a competitor

Why does Walgreens always open on the same corner as a CVS? And why is Lowes always across the street from a Home Depot?

The approach, often called “agglomeration,” makes the number of mattress stores appear even more numerous. Direct competition is important for branding and sales.

According to a report from PsychologyToday, a mall location may only need to sell 20 mattresses a month to cover its rent.

Map shows the states with the highest density of mattress stores (darker color represents high density). Map may not take into account smaller mattress stores not affiliated with larger retail companies. Note: Interactive map available at bottom of this story.

“Clustering or agglomeration is found common in the retail industry, particularly in areas where high foot traffic is encountered. The attraction of firms towards enclaves of commercial spaces or in the malls or wet markets as well as along shopping streets is usually guided by the capability of such areas to attract consumers intending to do one-stop-shopping and benefit from the wide array of items made available for their selection.”

Aaron McDermott, president of Latitude Commercial, told The Times of Northwest Indiana branding is really important when placing mattress showrooms close to where the consumer is already shopping.

“Since the consumer is probably already going to shop at an anchor tenant like Walmart, Home Depot, Kohl’s, they just want to have their brand seen like a billboard near there so they know when they go to shop for a mattress they will remember where they are located,” McDermott said.

Cheap real-estate

Commercial real estate prices remain relatively low across the country and the mattress business has never been more profitable.

One of few businesses where people to prefer to buy in store versus online

Most customers purchase a new mattress about once a decade. Because this is considered a big purchase (both in price and importance), customers prefer to buy mattresses in person instead of online — similar to when purchasing furniture or a vehicle.

Even Google knows what’s up.

Even the customers who intend to buy a mattress online will often visit a retail store before making their purchase. It’s called “showrooming,” which means a customer examines merchandise in a traditional brick and mortar retail store before buying online. This means additional foot traffic in stores and a chance for companies to offer deals to customers who were only looking to browse.

Post-recession mattress “boom”

Between 2008 and 2012, a lot of Americans were not spending money on big purchases. The mattress industry is seeing an influx of people who delayed buying a new mattress and are now looking to purchase.

According to Sleep Retailer, the global mattress market saw a decrease in sales around 2008. However, the rebounding economy has caused “remarkable” growth in the industry with the global market expected to reach $25 billion over the next two years, according to the report.

How long will the “boom” last?

According to IBISWorld, the number of units peaked a few years ago, but the industry’s total revenue has never been higher. As long as profit margins remain high, it’s likely stores will continue to open. The only real threat to mattress retail locations would be a large retail company offering mattresses at lower costs to the consumer and accepting a smaller profit margin.

Time to wake up!

So the next time you see new construction down the street and you think, “Oh… maybe it’s a Chipotle? Or Chick-fil-A?!”

Wake up. It’s a mattress store — and you know it.

Why are there SO MANY mattress stores — and how do they stay in business?

Everywhere you look — you can’t escape them. The stores appear to be deserted yet there is a new one opening almost every week.

Mattress stores have taken over your city.

It’s the nationwide phenomenon that has stumped all of us: Why are there so many mattress stores? The showrooms appear to always be empty — how do they stay open? And why do we need a mattress store on every corner?

According to data from IBISWorld, there were less than 8,000 mattress stores in 2011. This year, there are over 9,200 mattress stores open across the U.S. with close to 10,000 stores projected by 2018 (Note: This figure is an estimate and may not include smaller companies that are not part of larger retail companies).

Dave Perry, bedding editor for the trade magazine Furniture Today, told WBEZ the customers who once purchased mattresses in department stores now purchase at specialty mattress chains.

Mattress Firm, Sleepy’s, and other mattress chains have 50 percent of the market, compared to just 19 percent in 1993, Perry said. Earlier this year, Mattress Firm completed its acquisition of Sleepy’s and related entities for $780 million. The combined companies now have 3,500 stores in 48 states.

This map shows ONLY the American Mattress locations in the Chicago area (Credit: American Mattress)

A hilarious example: Mattress Firm has five stores less than a mile apart in Schererville, Indiana, according to a report from The Times of Northwest Indiana.

It’s also important to note that smaller companies, like American Mattress, may not sound as familiar as Mattress Firm. The company only has stores in three states (Chicago, Indiana, Wisconsin), but they have over 80 locations. Similar mattress companies with less than 100 locations operate in nearly every state.

But the real question is — why do we need so many stores? And how can they possibly stay in business?

High-margin and low overhead

Mattresses offer one of the best profit margins in retail. While some grocery store chains might earn a 5 percent profit margin, mattresses have a markup in the 40 to 50 percent range, according to Consumer Reports. According to one study, a $3,000 mattress might only cost $300 to manufacture — a 900 percent markup.

Credit: Tribune Broadcasting via Piktochart

Mattress stores often have low overhead, often dealing with factory-direct products and paying employees a commission-based salary. This might explain how mattress stores can support those seemingly empty showrooms with only one employee sitting behind a desk.

“If you sold three or four beds a day and your average ticket is $1,000, that’s a $4,000-dollar day, times 365. All of a sudden you’ve got more than a million-dollar business there,” Sam Woods, Senior Vice President of Sales for Mattress Firm, told WBEZ.

According to a report from PsychologyToday, a mall location may only need to sell 20 mattresses a month to cover its

Stores often cluster in groups and intentionally open across the street from a competitor

Why does Walgreens always open on the same corner as a CVS? And why is Lowes always across the street from a Home Depot?

The approach, often called “agglomeration,” makes the number of mattress stores appear even more numerous. Direct competition is important for branding and sales.

According to a report from PsychologyToday, a mall location may only need to sell 20 mattresses a month to cover its rent.

Map shows the states with the highest density of mattress stores (darker color represents high density). Map may not take into account smaller mattress stores not affiliated with larger retail companies. Note: Interactive map available at bottom of this story.

“Clustering or agglomeration is found common in the retail industry, particularly in areas where high foot traffic is encountered. The attraction of firms towards enclaves of commercial spaces or in the malls or wet markets as well as along shopping streets is usually guided by the capability of such areas to attract consumers intending to do one-stop-shopping and benefit from the wide array of items made available for their selection.”

Aaron McDermott, president of Latitude Commercial, told The Times of Northwest Indiana branding is really important when placing mattress showrooms close to where the consumer is already shopping.

“Since the consumer is probably already going to shop at an anchor tenant like Walmart, Home Depot, Kohl’s, they just want to have their brand seen like a billboard near there so they know when they go to shop for a mattress they will remember where they are located,” McDermott said.

Cheap real-estate

Commercial real estate prices remain relatively low across the country and the mattress business has never been more profitable.

One of few businesses where people to prefer to buy in store versus online

Most customers purchase a new mattress about once a decade. Because this is considered a big purchase (both in price and importance), customers prefer to buy mattresses in person instead of online — similar to when purchasing furniture or a vehicle.

Even Google knows what’s up.

Even the customers who intend to buy a mattress online will often visit a retail store before making their purchase. It’s called “showrooming,” which means a customer examines merchandise in a traditional brick and mortar retail store before buying online. This means additional foot traffic in stores and a chance for companies to offer deals to customers who were only looking to browse.

Post-recession mattress “boom”

Between 2008 and 2012, a lot of Americans were not spending money on big purchases. The mattress industry is seeing an influx of people who delayed buying a new mattress and are now looking to purchase.

According to Sleep Retailer, the global mattress market saw a decrease in sales around 2008. However, the rebounding economy has caused “remarkable” growth in the industry with the global market expected to reach $25 billion over the next two years, according to the report.

How long will the “boom” last?

According to IBISWorld, the number of units peaked a few years ago, but the industry’s total revenue has never been higher. As long as profit margins remain high, it’s likely stores will continue to open. The only real threat to mattress retail locations would be a large retail company offering mattresses at lower costs to the consumer and accepting a smaller profit margin.

Time to wake up!

So the next time you see new construction down the street and you think, “Oh… maybe it’s a Chipotle? Or Chick-fil-A?!”

Wake up. It’s a mattress store — and you know it.

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