A wildly popular conspiracy theory about why there are so many Mattress Firm stores is starting to sound less crazy
- Mattress Firm is the largest specialty mattress retailer in the US.
- Some argue that the company has too many stores, sometimes in high concentrations.
- A comment on Reddit that suggested that Mattress Firm was laundering money went viral on Tuesday but has since been removed.
- Mattress Firm’s parent company recently disclosed "accounting irregularities," Reuters reported.
If you’ve ever wondered why there seems to be a Mattress Firm on every corner in your city, you’re not alone. But one explanation for this phenomenon is more extreme than you might expect.
On Tuesday, a comment on Reddit claiming that Mattress Firm, the largest specialty mattress retailer in the US, is a money-laundering operation went viral — but it has since been deleted, The Next Web reported.
"Mattress Firm is some sort of giant money laundering scheme," a Reddit user wrote, adding: "I remember seeing 4 mattress firms all on each corner of an intersection once, and there is no way there is such a demand for mattresses."
This caused an outcry on the Reddit thread.
Mattress Firm, which acquired Sleepy’s in 2016, now has over 3,500 stores, sometimes in high concentrations. But Reddit users argue that there are too many, especially given that it stocks a product that people typically buy every seven to 10 years.
It’s a popular conspiracy theory on Reddit.
"Multiple stores = more places to shuffle money between and more sources for fake money to appear to come from," another user wrote.
The South African retailer Steinhoff bought Mattress Firm for $3.8 billion in 2016. At the time, analysts were skeptical about why Steinhoff had forked over so much for a business increasingly threatened by new startups such as Casper.
Toward the end of last year, Steinhoff’s stock price tanked by as much as 62% in one day, wiping out $15 billion of its market value, Reuters reported. The company postponed publishing its full-year accounts, citing "accounting irregularities," and its two top executives and chairman have resigned.
Mattress Firm did not immediately respond to Business Insider’s request for comment.
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?
Shortly after Melissa Marik moved into a new apartment in February, a Mattress Firm store moved in a block or two away from Marik — and from another Mattress Firm.
She was baffled.
"I never even see anyone in the stores," said Marik, 27, who was walking down a mile stretch of Clybourn Avenue in the Lincoln Park neighborhood that boasts five Mattress Firms, two American Mattresses and a Sleep Number.
Even the CEO of Mattress Firm, Ken Murphy, agrees Chicago probably has a few too many — but there’s a method behind what some may see as the madness of mattress stores seemingly on every corner.
In its best markets, Houston-based Mattress Firm aims to have a store for about every 50,000 people. That means Murphy would eventually like to have roughly only 200 in the Chicago area. Today, there are 235.
Some duplicative or unprofitable stores will be closing but not right away. Mattress Firm is reviewing its real estate footprint with an eye to trimming stores but hasn’t yet decided how many or which stores to shut down, according to the company’s first-quarter financial report. Most closures will come as store leases end, Murphy said.
Even 200 is a lot of stores specializing in a product that for many customers is a once-in-a-decade purchase.
"Car dealers come closest, but there are no other retail chains that focus on big-ticket discretionary products with that many stores," said Wedbush Securities analyst Seth Basham.
Roughly 9,000 specialty bed and mattress stores in the U.S. generated about $11.5 billion in revenue in 2015, according to a report last year from market research firm IbisWorld.
So why are there so many?
In Chicago, the answer has a lot to do with Mattress Firm’s push to grow through acquisitions.
Mattress Firm, the U.S.’s largest specialty mattress retailer, got into the Chicago mattress market about two years ago when it acquired Back to Bed and Bedding Experts. It bought another competitor, Sleepy’s, last year and finished rebranding those stores by July 4.
"While in many respects it’s been a great opportunity to get as populated in the market as quickly as we have, the downside is we have real duplication of stores right on top of one another," Murphy said.
It still has competition from other specialty mattress chains, including Sleep Number and Addison-based American Mattress, in addition to furniture stores and big-box retailers that sell mattresses.
Furniture stores and department stores used to be the only places to buy a mattress, said Jerry Epperson, a furniture and mattress industry analyst with Mann, Armistead & Epperson. But manufacturers, which wanted to encourage people to replace their mattresses even if they weren’t buying a new set of bedroom furniture, started promoting the idea of dedicated mattress stores, and they’ve been spreading rapidly since the 1990s, he said.
Industry analysts’ take on whether the U.S. has too many mattress stores depends on how well they think generalist brick-and-mortar retailers and online mattress startups will fare against traditional mattress specialists.
But Murphy said there’s "a logic to the apparent madness" of the store-on-every-corner approach.
A new mattress — expensive and nonessential — was an easy purchase to delay during the recession, which has likely led to some pent-up demand, said Rice University marketing professor Utpal Dholakia, who got interested in the mattress business when a British student wondered why every American strip mall seems to have its own mattress store. Industry analysts also say a spate of bedbug infestations may have prompted at least a few extra sales.
Mattresses are a relatively high-margin product, and stores don’t need that many employees, meaning each location doesn’t need to sell a huge number of mattresses to break even, industry analysts said. And every store does double duty as advertising — important for a product most people don’t think about until they need it.
"We want prominent, convenient, high-profile locations our customers will be driving or walking past anyways so that when they do get in the market, we’re the natural default option," Murphy said.
He thinks there’s room for more Mattress Firm stores, albeit not in Chicago. The company had 3,472 as of May 3, and he thinks it could support about 4,500 across the U.S.
Mattress Firm is trying to be the first truly national brand in the mattress space in hopes that scale will give it more leverage over vendors, more efficient operations and better name recognition.
But analyst Basham said he’s on the fence about how big a boost national scale will provide amid growing competition.
Online upstarts are looking increasingly strong in a sector that was once considered internet-proof.
The best-known are early entrants like Casper, Tuft & Needle, Saatva and Leesa, but KeyBanc Capital Markets analyst Brad Thomas estimated there are 50 or more brands trying to get a piece of your bedding and mattress dollars.
So far, they account for a tiny but growing share of the overall market — about 4.6 percent this year, up from 1.8 percent last year, according to Thomas’ June report.
Younger customers are more open to the idea of buying mattresses over the internet without first getting to test them in stores, Epperson said. That’s partly because millennials are accustomed to shopping online but also because online companies have done a better job marketing things young customers care about, like ease of purchase.
"If you think about how mattresses have been marketed, it’s all about health issues. If you read the ads, mattresses cure everything but balding," he said.
When Wedbush surveyed 1,000 shoppers about buying online, only 10 percent said they were willing to do so without perks like free delivery, 100-night free trials and free returns. But when those services — all of which many e-commerce mattress companies offer — were included, about 30 percent were open to buying online, Basham said.
Most larger bed-in-a-box brands sell for between $500 and $999, depending on size. That is the most popular price range for all mattress sales, accounting for about 41 percent of mattresses sold last year, according to the KeyBanc report, citing data from the International Sleep Products Association. Only 5 percent of mattresses sold were priced above $2,000, though they accounted for 18.5 percent by value.
Some traditional companies have responded with their own bed-in-a-box options, including Mattress Firm’s Dream Bed at $600 to $999 and Sealy’s Cocoon at $549 to $950.
Meanwhile, online players are also finding ways to cater to customers who still want to try before they buy, whether through showrooms or partnerships with brick-and-mortar retailers.
Furniture company west elm is selling Casper mattresses in all its stores after the companies announced a partnership last week.
Pairing up with west elm meant Casper could get into brick-and-mortar sales beyond those at its New York and Los Angeles showrooms much earlier than the company could have done on its own, said Casper co-founder and CEO Philip Krim.
"We’ve tried to change the traditional paradigm a bit, but there are still people who need to sleep on it first," Krim said.
Lana Galkina, 19, sleeps on a bed-in-a-box in the room she sublets. "It’s not comfortable, but it does the job," she said.
Mike Hare, who is engaged to Marik, of the North Side, wasn’t sold on that option. "You’re sleeping on it for hours every day. I have to feel a mattress," said Hare, 28.
He bought his last one at Darvin Furniture in Orland Park. Hare was moving and said it made sense to get the new mattress and furniture all in one place.
Some furniture stores and big-box chains see that convenience as an opportunity to take customers away from specialists.
Suburban Detroit-based Art Van Furniture, which is expanding in the Chicago area, has opened 38 free-standing PureSleep brand stores in Michigan, Illinois, Indiana and Ohio since 2009. The company has 89 PureSleep galleries in its furniture stores.
Chains like Costco — traditionally known for a more limited, low-end selection — have benefited from customers’ growing comfort with researching mattress options online and ordering directly from the retailer, Basham said.
But how much of the mattress game they can win is an open question, and traditional specialists are fighting back with efforts to improve online sales and expand their range of products to give customers a reason to shop more frequently.
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.
Why are there so many mattress stores?
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Why are there so many mattress stores?
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Amy Arens-Terpstra is a social researcher who lives in Chicago. Last year she started losing sleep over a sudden change she observed in the retail landscape. On her daily commute through the South Loop, she began noticing lots and lots of mattress stores — two stores just down the street from each other were from the same company.
“At my last count there were five mattress stores either on or right off Roosevelt Road between State and Halsted Street ,” she said.
On the city’s North Side there’s a shopping strip with 10 mattress stores in less than a mile. Retail clustering is nothing new, but unlike a burger and fries, a mattress is not exactly an impulse buy.
“Honestly, I have bought one mattress in my adult life, and I cannot conceive how a city can sustain so many mattress stores,” Arens-Terpstra said.
And it’s not just Chicago. In the past decade the number of stand-alone specialty mattress stores has jumped from 7,000 to nearly 10,000 stores nationwide.
According to Dave Perry, bedding editor for the trade magazine Furniture Today , the majority of mattress purchases were once made inside department stores and mom-and-pop furniture outlets. Today, the specialty mattress chains have more than 50 percent of the market, compared to just 19 percent in 1993.
“It is a hotbed of activity,” Perry said. “Literally, of course, we hope it’s somewhat of a cool bed, since they say a cool bed actually promotes a better night’s sleep. So how about, it’s a cool bed of activity?”
Perry, analysts and other industry-watchers list a few reasons for the ongoing trend. There’s an ongoing awareness of the health benefits of a good night’s sleep. That’s led to shorter purchase cycles for new mattresses, once every 10 – 15 years (Mattress Firm’s slogan is “Replace every 8”). Baby boomers are upgrading to fancier and more expensive mattresses. The housing market’s rebounding, and there’s pent-up demand following the recession. And, despite some online startups, so far, mattress shopping is largely internet-proof.
“The only way you can really test the comfort of the mattress is to lie down on it,” Perry said. “So I think the brick-and-mortar stores have a very big advantage.”
Then there’s the cost factor. Mattress stores have low overhead, low labor costs and higher-than-usual profit margins, Sam Woods said, Senior Vice President of Sales and Operations for Mattress Firm.
“If you sold three or four beds a day, and your average ticket is $1,000, that’s a $4,000 day, times 365. All of a sudden you’ve got more than a million-dollar business there,” he said.
That, he added, is why a single store can get by on just a few customers a day. Plus, each store — complete with a big, bright sign — doubles as advertising.
Since 2007, Houston-based Mattress Firm has been on a national buying binge, taking over 17 mattress retailers, including Bedding Experts and Back to Bed. Its acquisition of major competitor Sleepy’s , completed in early 2016, brings its total store count to nearly 3,500 in 48 states — almost one-third of the market. That nearly doubles Mattress Firm’s footprint in Chicago to 237 stores.
“When that consumer says, ‘I’m fed up, I can’t sleep on this bed any longer,’ we want them to think, ‘hey, there’s a Mattress Firm right over there,’” Woods said.
Of course, as we’ve seen, there are sometimes two — or even three — Mattress Firms “right over there.”
Which begs the question, how long will the mattress boom last?
Mattress Firms’ Sam Woods isn’t sure, but he’s bullish on the trend continuing, saying “we have yet to hit peak mattress.”
He pointed to an example when his company took over a competitor’s store in close proximity to an existing Mattress Firm, and he assumed they would close the weakest location.
“Well, what happens is that often those two stores will both improve their performance,” he said. “So, we’re like, ‘maybe we’ll keep them both open.’”
A 2015 industry report from IBISWorld projects the U.S. market will add another 700 mattress stores over the next five years.
That same report notes that the number of units sold peaked a few years ago. But because of an increase in premium mattress sales, the industry’s total revenue has never been higher.
In Chicago, the once skeptical Amy Terpstra now seems poised to join the club.
“I think I might need a new mattress,” she said.
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