Shopping for a mattress is ironically a bad dream for most of us, few decisions can have as far-reaching effects as a bad purchase.
Previously, mattress shopping was a predictable affair; go to a showroom, lay awkwardly on a few mattresses with a salesperson hovering over you, eventually picking one that will ‘probably work’, arranging to have it delivered, and then simply hoping for the best.
Mattress businesses operated on such a high margin, they were able to make a good living selling just a few a month. Aside from some well marketed brands: Tempur-Pedic, Sealy, Simmons, Silent Night, etc., most people probably couldn’t name the brand of mattress they spent a third of their life sleeping on.
Fast-forward to 2014 and an eCommerce revolution, a few start-ups including US-born Casper, turned their attention to the sleep space, capitalizing on a growing trend for wellness, and offering an innovative bed-in-a-box that could be unfurled like a lifeboat upon delivery. A new digital sleep sector was born.
Today, the internet is saturated with options - as many as 100 different companies all jockeying for dominance in the space.
Casper had success early, mostly thanks to good marketing and strong funding; it made over $1 million in its first month of selling their bed-in-a-box. The concept was solid: by using foam mattresses, they could overcome a lot of the logistical challenges of delivery and use traditional shipping channels to get their products to customers. Casper’s success spread like wildfire and suddenly there were dozens of copycat direct-to-consumer brands looking to get their share of the $17 billion a year mattress industry. These start-up brands such as UK-based Eve and Simba, largely targeted Millennials with a predisposition to online shopping.
Since most of these companies didn’t manufacture their own beds, there was little variety until subsidiaries of the larger mattress companies like Serta Simmons’ Purple entered the space. This kept costs low for new entrants in the market and has allowed the sector to balloon, from dozens to hundreds of different companies all competing for the same sale. But is it sustainable?
Much like other sectors in the digital world - the food delivery vertical for example, the industry can sustain a high number of companies because they are funded by private investors and not expected to be profitable in the short term. However, with continued growth in the sector, and a lack of differentiation between competitor products, investor patience with these models is likely to wane and contraction is inevitable coming quarters or years. So, it’s no surprise that rumours of a possible merger between Eve and Simba Sleep have started to emerge.
There is a small window for a few brands to become the dominant players in the space, but that will be a hard fight, and also likely to involve forays into the real world and product expansion.
One challenge that these companies have sought be overcome is that for the majority, you can’t try-before-you-buy – the fundamental stage of the traditional mattress purchase journey. To minimize cautiousness, brands are offering generous try-out periods with free returns. This has worked in the short term, since these companies, like their real-world counterparts, operate at such a high margin, however, it’s difficult to scale such a model.
As a result, once online-only brands like Casper are moving into the real world via traditional brick-and-mortar stores to hopefully reduce returns. Casper began an aggressive move last year to open 200 stores and convert its existing pop-up stores to permanent installations. This was a bold move; a huge retail expansion when many companies were doing the opposite, and a questionable since Casper already sold its mattress in retail stores such as Target, and Nordstrom. The company said that this move into retail will help it stand apart from other online-only companies.
However, it should be noted that it’s doing so in a climate that is seeing many traditional mattress companies shuttering locations. Mattress Firm, a US mattress company with nearly 3,500 stores in 2017 went into bankruptcy protection in 2018 and closed 660 stores last year. It’s a gamble for Casper, who have since differentiated their product offering to include pillows, lamps and even dog beds, as it’s difficult to be fluid like an online-only company when you have real estate obligations. Perhaps it’s an indication to the market that Casper Sleep is preparing for a longer fight to emerge on top.
But the path to sleep-sector dominance is likely to be anything but blissful.
Both Walmart and Amazon have recently entered the online bed-in-a-box market with Amazon’s foray being via their growingly respected Amazon Basics line. This is likely another chapter in Amazon’s history of watching a category being sold in its marketplace that is doing well and then entering it as a competitor. Its memory foam product is priced at an attractive level compared to Casper’s and will absolutely be a thorn in the entire industry’s side as they seek to compete in the world’s largest marketplace. Since Casper is already an internationally respected brand with a multi-channel offering and an ambition to stay ahead of the curve, it will likely be able to weather this storm, but smaller brands like Simba, Eve and Zinus might not be so lucky.
There is clearly money to be made in the sector, as evidenced by the larger online behemoths entering the space, but currently far too many companies in play for anyone to run away with it. Casper’s move into brick-and-mortar may give it an advantage over its rivals in terms of customer reach, but also makes it less agile. Since mattresses are often a one-time, long-term purchase, the only growth is cannibalization from the retail sector and customer acquisition from other brands. Therefore, as these online brands struggle to find new customers, and move toward profitability, contraction of the industry is inevitable.
Come morning, there will only be two or three online brands left standing, with the rest being swallowed by their competitors or running out of funding. There’s still opportunity for sweet dreams here, but for most of these firms the nightmare of too much competition and too few customers will be their future.