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Automatic sprinklers extinguish a mattress fire at the Sealy testing lab in Trinity, N.C., Wednesday, June 20, 2007. The federal Consumer Product Safety Commission wrote new flammability standards aimed at reducing the number of mattress fires started by open flames such as candles and lighters. The commission calls it the most expensive regulation handed down to any industry in its history, and one it hopes will prevent as many as 270 deaths a year.
AP Photo/Chuck Burton
Creative destruction.
GO TO THE MATTRESSES

Mattress stores are about to go the way of the dodo

By Tim Fernholz

Mattresses in the United States are expensive, especially good ones. There’s an obvious reason why: The industry aims for huge profit margins for both the retailer and wholesaler that amount to 74% of the product’s price, and those wholesalers are dominated by the top four companies, which keep prices high by controlling some 59% of sales.

Sounds like an industry that’s ripe for a low-cost competitor to come in and blow it out of the water, right? One reason it has survived while the internet has demolished many other retail models (Barnes and Noble, Best Buy) is that people have a thing about trying mattresses. We want to bounce on it in the store, whatever good that does us. But once consumers wanted to try on glasses before we bought them, and now the most exciting company in eyeglass sales is online retailer Warby Parker. [Full disclosure: I’m wearing some right now.]

The eyewear model is so analogous to the mattress industry that Pricenomics predicted the headline of this Fortune story about start-up Tuft & Needle, “the Warby Parker of mattresses,” in September 2012, before the company began selling its products. The company makes no bones about its business model—see this infographic bashing its competitors‘ mark-ups—and now makes the number one mattress on Amazon and sold more than $1 million last year. It, too, offers free returns after a 30-day trial. Some critics say its mattresses are too thin (here’s a good back and forth between the company and commenters) but its customers seem happy and the company plans to expand its product line. But also: the point of being disruptive is providing a cheaper option.

Tuft & Needle may not be the company that does it, but the age of 75% profit margin on a retail item just won’t last; Serta, Sealy, Tempur-Pedic and Simmons had better stay on their toes.

And, just in case you were wondering, Tuft & Needle accepts payment in bitcoin.

Tim Fernholz
Reporter
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