Wednesday, September 22, 2021
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Latest weapon in the mattress wars: copy Casper

🕐 5 min read

Mattress man Scott Thompson may be missing some sleep these days. Tempur Sealy International Inc., which Thompson leads, posted a small increase in fourth-quarter sales Thursday morning, not enough to stave off a full-year decline in revenue at the company behind Tempur-Pedic, Sealy, and Stearns & Foster beds-its first annual decline since 2012.

The sales figures come just a couple of weeks after Tempur Sealy’s divorce from Mattress Firm, its largest North American retail partner. The two companies split after contract negotiations broke down, closing a distribution channel with 3,500 stores that moved one in five Tempur Sealy mattresses. The Mattress Firm orders will stop by the end of March.

Investors, now truly woke, bailed out as well, taking one-third of the company’s market value with them the day Mattress Firm walked away. Tempur Sealy beat expectations by cutting costs and trimming its product line. Investors were further cheered by news that the company snapped up $200 million of its stock, but the shares have a long way to go before they recover the ground they’ve lost.

It’s actually a pretty good time to be one of the big mattress companies. Bed sales tend to move in step with the economy, and lately the conditions have been kind of dreamy. The stock market is at record highs, the unemployment rate is below 5 percent, and the housing market continues its steady climb out of the subprime mortgage crisis. Housing starts, or the Moving Out of Mom’s Basement indicator, are back at pre-recession levels.

The business is also getting a boost from a cultural obsession over wellness. As consumers plug in to an ecosystem of watches and bands that track their sleep, they’re likelier to invest in the latest proprietary sandwich of cooling foam, organic cotton, and springs tuned like the thing’s a Swiss watch. Tempur-Pedic’s new marketing slogan says it all: Sleep Is Power.

But many consumers are no longer setting foot in stores where beds are lined up like sad, inert cars waiting for a sleepy test-drive. The crowd of manufacturing startups selling mattresses online is almost laughably large at this point.

Besides Casper Sleep there are Saatva, Tuft & Needle, Leesa Sleep, Purple, Helix Sleep, and Eve -it’s like a Silicon Valley skit waiting to happen. Though each has a slightly different product and price point, the general model is the same: Cut out the middleman to dangle a lower price, and offer free shipping both ways and a no-risk trial of about 100 days.

These “disruptors” now command about 5 percent of the U.S. mattress market, according to Tempur Sealy and Saatva, which expects to top $200 million in sales this year. Given the number of upstarts, none of them individually is likely to bother the incumbents too much.

In fact, Tempur Sealy has been shrugging off the scrappy competition for years. In July, Chief Financial Officer Barry Hytinen told analysts that bed-in-a-box was a niche market, with startups overspending on customer acquisition.

“The vast majority of consumers continue to prefer testing beds in-store and buying from retailers,” he said on a conference call. When analysts asked about the company buying one of those startups, Thompson scoffed. “I don’t know what we would be buying if we were buying an internet company that has a web page,” he said.

Leaving aside the fact that every company is “an internet company” these days, 5 percent market share isn’t nothing, and the pace at which these startups gathered that business is alarming. “The industry is growing at 3 or 4 percent [a year], and almost all of that growth is going to the disruptors,” said Saatva Co-Founder Ricky Joshi.

Tempur Sealy can make a foam mattress and stuff it into a box as well as anyone, probably better. So that’s what the company did, first discreetly and then explicitly. Punch “Casper” into a Google search these days and the third result is Cocoon by Sealy, a direct-to-consumer line of mattresses (or, as Thompson might put it, an internet company with a web page). The manufacturing giant’s bed-in-a-box brand looks and feels like its tiny rivals’, although its products are slightly more affordable.

It’s classic, Clayton Christensen-style innovation: If anyone is going to disrupt your business, it ought to be you. Cocoon, however, is a little late to the internet party. Though the brand is growing at 100 percent a year, Tempur Sealy garnered 88 percent of its sales last quarter through traditional retail channels.

Casper Co-Founder Philip Krim said Cocoon is “aggressively copying” its approach. “Tempur Sealy is making a bold statement that they don’t need to be tied to the dominant retailer in the space, and that was our thesis all along,” Krim said. “But consumers today can smell inauthentic brands. This is another attempt at an old, stodgy brand trying to stay hip and cool.”

Cocoon puts Tempur Sealy in a tricky spot. If it turns out to be a bust, the company stands to shed share to the dot-com bed barons. If it succeeds, the brand could undercut Tempur Sealy’s higher- margin products and undermine its retail partners. Cocoon may even have played a part in the soured negotiations with Mattress Firm.

“They’re in a sort of precarious situation,” Joshi, of Saatva, said. “Even without Mattress Firm, retail is still massive for them. It’s not like they can just drop that channel and do whatever they want.”

For now, Tempur Sealy seems to be trying to reassure its retailers. On this morning’s conference call, it talked about Cocoon like an experiment or R&D project. “The greatest opportunity, when you look at dollars, is obviously going to be with our current customers,” Thompson said.

Meanwhile, as Big Mattress tries to beat the startups at their own game, the opposite is happening. While Saatva smooshes beds into a box under its Loom & Leaf brand, its eponymous line is decidedly old-school, full of steel coils. It pitches the product as “America’s best priced luxury mattress.” In October, Leesa launched a similar product dubbed Sapira. In short, the dot-com beds aren’t just squishy stuff for 20-somethings.

“I remember a slide in our original deck saying ‘this will be the mattress for millennials,'” Casper’s Krim said. “But from day one we had all ages of people buying.”

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