The core problems of the mattress industry (which are not present in eyeglasses industry) are the high costs of shipping and expensive warehouse costs.
Given these, Bed In A Box (http://www.bedinabox.com/) started with what seemed like it could be a potentially disruptive business model. They make-to-order mattresses (will even make custom sizes) and ship Tempurpedic-like memory foam mattresses directly to you via UPS. They suck all the air out of the mattresses so the boxes they come in are reasonably sized. Inside the box, there's a backpack-style sack which makes the mattress easier to carry. I hauled a Queen-sized mattress up four flights of stairs easily.
I've purchased two mattresses through them and they are high quality and extremely comfortable. The first purchase they were easily 50% the cost of any quality mattress I could find elsewhere (including Costco, Sams Club, etc.), especially if you factored in the cost of delivery. I was surprised that when I went to buy another mattress from them their prices were markedly higher.
I wonder if consumers were concerned that the low prices indicated low quality (not the case in my experience) or if they were unable to get the volume to sustain a low margin, high velocity business.
While you're disrupting the mattress industry, please consider re-thinking the King form factor. Changing the aspect ratio by just a few inches would make it perfectly square, which allows for you to rotate 90 degrees as well as flip, so the whole thing would wear out more evenly.
As an extra bonus, this would make putting sheets on easier as there's no wrong way (short of inside-out, I guess).
Your comment has inspired me to make a 'sheet disruption' company called Who Gives A Sheet. Sheets will be reversible and for every set of sheets purchased, we'll give a sheet to someone that needs one.
I was just discussing this with the owner of an independent mattress/furniture store in Seattle (Bedrooms and More in Wallingford). He is now refusing to carry non-flippable mattresses because he finds them to be too wasteful.
The last time I had stretchy jersey sheets, they didn't hold up well at all. I'm wondering if that's a problem with them in general, or if I just bought crappy sheets.
Absolutely, you would have to get new bedsheets, comforters, and beds to support the new form factor, but if it means replacing the mattress every n*2 years instead of every n, I'll come out ahead in the long term.
Throw in one pair of sheets for free. Most people have more than one, but by giving away one pair you can avoid the initial friction, then if the mattress company ALSO sells sheets you can play both sides. Create demand for a product you supply.
You would also need to change the entire ecosystem: if you use standard mattresses, then you can leverage the existing supply of sheets etc. Which is not to say it's a bad idea, but I imagine there's much more involved.
You could sell the custom sized mattress at cost, but then charge a premium for the sheets. That way you make money off of the sheets, which wear out more quickly than a mattress anyways.
Patent the square sheet form factor and you can lock out competitors and/or get hefty licensing fees. (as well as method and application of turning a sheet 90 degrees to hide coffee spots under pillows that you will then license at no cost to buyers of your brand of sheets while suing buyers of competitor's sheets)
There are all sorts of outlets for reasonably priced, what you see is what you get mattresses: Sam's Club. Costco. Ikea. You can get a decent name brand mainstream mattress for ~$500.
The problem with mattresses is that it's a product where you need a salesman. There's a bunch of different products that look similar, but have significant differences. You want to match the customer with what they want (or tell them what they want) so that they don't return the thing.
Plus, there are some inherent logistical differences between a pair of eyeglasses that can be dropped in an envelope and shipped to anywhere in a day or two. Distribution and warehousing is expensive, the product needs to be delivered quickly (and picked up if the customer is displeased).
There is a market for discount mattress sales outlets on the internet -- but just as online furniture and appliance outlets haven't "disrupted" the market, mattresses online are unlikely to either.
"There are all sorts of outlets for reasonably priced, what you see is what you get mattresses: Sam's Club. Costco. Ikea. You can get a decent name brand mainstream mattress for ~$500."
I hear you, but who says that $500 is a reasonable price for a mattress? I'm sorry, but looking at the raw materials involved (don't even get me started on the frickin foam ones that don't even have springs: I'm looking at you Tempurpedic) it's clearly still a racket at the Sam's Club prices.
If it is the raw materials, and not a rip off, then why do solid foam rubber mattresses cost more than mattresses containing moving parts and metal springs?
I have purchased my last two mattresses from Overstock, and recommend people do the same (and read the comments on all of them, preferring those with more reviews...)
Lots of mattresses are rated +4.5 with 550 reviews but when you go read the reviews, there's a ton of 1/5 reviews saying "the memory foam lost its memory after a couple of months."
The market says that's a reasonable price, and Tempurpedic is serving the premium market segment. Why does a half gallon of milk with a generic store logo cost 10% less than the name-brand milk from the same exact dairy?
Anything less is either refurbished (ick) or one of the foam ones from Amazon/Overstock. The online foam mattresses are as low as $350, because they can compress the foam and make it light enough for UPS Ground.
Personally, I don't like foam mattresses. If i didn't know that, dropped $350 on a mattress from Amazon, I'm stuck with some bizarro return process, since it's no longer compressed foam that can be readily shipped!
The market consists of buyers and sellers. Since a bed typically lasts over 10 years, a typical buyer buys fewer than 7 beds in a lifetime. That's not enough to get educated or even keep up with change.
So in fact the market consists of sellers and what they can get away with. Nothing to do with being reasonable.
moving parts != comfort, which is paramount when it comes to mattresses. For me (and a lot of people I know), having springs is actually an issue. The springs wear off, the mattress begins to sag and not to mention the back aches. So its not as simple as -- simple foam mattresses should cost lower just because they have less raw materials than a spring coil one.
If you attempt this, I suggest you make a deal with a motel chain: When a customer checks into a room, they discover a little sign on the bed. The sign says, "Like this mattress? Get a brand-new copy delivered to your home for $X00 by visiting mattressr.com and entering bed code MEDIUMSOFT-23."
Westin and 'W' hotels are the #2 and #1 "tier" hotels in the same company, Starwood. And it seems that the 'W' bed costs about $500 more than the "Westin" version. Fitting.
St. Regis and Luxury Collection (some of which are branded as Sheratons, strangely...) are the highest, but there isn't a strict ordering of W, Westin, Le Meridien. I'd probably say it goes W, Le Meridien, Westin, but individual properties have a lot of variation. then Sheraton, then Element and Aloft, then Four Points. There are individual Sheratons which are worse than Four Points though.
I prefer the Westin bed to the W bed; I've probably spent >100 nights in each.
I'm not sure if you can count this as a startup, but I bought my King-sized Sleep Innovations (memory foam) mattress with Amazon Prime for $530. And if I wanted the less-think 10" one, it would be $400.
The damn thing was ~100lbs in a giant box, and I got it shipped to me free. It's super comfortable and well worth the money - remember you sleep for like 25% of your life.
Mattresses seem like less of a specialty-item than eye glasses, so I wonder if big online retailers like Amazon can just cut out the middle man and service 80-90% of customers?
The problem is that many people like to lie on a mattress before they buy it. Sure, that's a little silly since lying on it for a minute or so is unlikely to capture the experience of tossing and turning on it for a night, but it's clear that it's a competitive advantage to let the consumer compare a few models in a physically direct way.
Warby Parker can get away with the similar consumer requirement for glasses because glasses are small, light and easy to ship. They can send you half a dozen samples and let you pick the one you want. Not so easy with mattresses!
The car market has this problem as well (in addition to others, like the protectionist rackets that the dealerships have set up).
> The problem is that many people like to lie on a mattress before they buy it.
One can get all of the benefit of this by selling a single mattress, but also sending 3 or 4 foam mattress toppers to choose from. Correctly designed packaging would let the customer re-roll the topper, then use a vacuum pump to collapse the rolled topper back into a compact form for return mailing. (The pumps would be cheap and disposable, so wouldn't be returned.)
Using a system like this, one could become the Zappos of mattresses. There would still be a restocking and return fee for the mattress, but one could let the customers exchange and try toppers to their heart's content, so long as they took good care of the merchandise.
With a memory foam mattress, they tend to be vacuum packed in a plastic sleeve and box that is nigh-impossible to ever fit it back in again. I suppose if you had a specialized team that could come to your home, repackage it, and take it away, it might work, but that doesn't sound like it would scale very well outside of a large city.
My wife and I almost got a Sleep Innovations mattress, but in the end we felt that we couldn't buy a mattress that we hadn't had a chance to try out. We both like a very firm mattress, which can be difficult to find.
While it's true that lying on a mattress for a few minutes won't tell you whether it's the best one or not, it sure did help us rule out many mattresses. We ended up getting an Ikea mattress, which turned out to be quite nice.
Ikea also seems to be the only place in the UK that sells decent slatted frames to put under your mattress. I guess British people aren't familiar with the concept.
Ah yes, we previously had a box spring but opted for the slatted frame. I like it a lot, and I like having the bed lower to the ground (although the best my back ever was when I slept on tatami for a semester in Japan)
I bought one from Costco, and didn't like it. They gave me a refund, and the choice to either donate it to charity or have them come pick it up and take it to the dump.
I got my last mattress from Silver State Industries (nevada prison manufacturing) for under $500 (Cal King). It is more comfortable than the Serta that I had originally spent around $1,500 on.
You might want to actually know what you are talking about before commenting. Inmates earn an hourly wage (not great), training on how to do the work, etc. The money they earn gets split up in a few different ways such as going to restitution if applicable and some is available for the inmates to spend at the canteen or save for when they get out.
Care to provide the source for the $0.13/hr? Inmates are paid as little as $1/hr and as much as minimum wage with the lowest hourly rate going to the inmate firefighters due to how the budget is set by the forestry service. The last time I saw the $0.13/hr number trotted out it was also skewed by jobs that paid per piece and not per hour. Inmates that have to pay restitution pay about 5% of their wages, and each working inmate pays deductions for room and board as dictated by the state legislature. I've also seen those with an agenda perform hourly wage calculations on the inmate pay _after_ deductions. If you've got a reputable source that can show otherwise I'd love to see it. I'll also note that I'm related to a recently retired department of corrections officer and have used other prison industries services and am familiar with how it works and what the wages are from dealing with the services and the personell running parts of prison industries in Nevada.
Having worked for one of the major mattress firms, there are truths in the article, but also some serious mistakes.
The pricing structure, where they hide the models by using different names across retailers, is 100% true. They absolutely do that to prevent price shopping.
The markup math is off. Mattresses are a high margin business, but most of those mattresses you see in specialty retailers are not built until someone buys one. You see, those mattresses are custom to the customer - from the tick (stitching pattern, which creates a firmer or softer surface) to the foam density, to EVERYTHING. It's like ordering a car where the car is measured to a specific person's height, weight and engine preference. You can imagine what a returned mattress is worth. Pretty much nothing. The margins have to cover all of that. Are the margins good? Yes. Would a small company be able to cut their margins to make one-off custom mattresses and compete? ...maybe.
Finally, there are retail outlets - Costco, Ikea, that buy from those mattress companies in bulk and sell generic mattresses much cheaper.
So, yeah, there's some market there but not as rich as some might think.
What happens in a specialty high-end mattress store has very little to do with the bulk of the market: people buying mattresses at Macy's or one of the numerous regional mattress chains. I don't have any experience in the super-high-end, but have worked with the low-middle-high end that you get going to a "mattress store". Those models are definitely not built-to-order, they're sitting in a warehouse waiting to be delivered, even the $4k+ ones that are trying to compete with the custom shops. For the bulk of mattresses the margins mentioned in the article are conservative.
What you're absolutely correct on, however, is that the cost of building a mattress doesn't represent the cost of running a mattress business.
However, that's exactly what makes it ripe for disruption: streamline the rest of the business model and loot the manufacturing margins.
Those mattresses sitting in a stack are bulk orders negotiated by the retailers. But you can still walk in and order something they don't have in a back room. Those are built and shipped. But that's not true for all mattress companies, just some.
That's what I meant, I just assumed people would understand that a custom-ordered mattress was 'used' once it has been taken home and returned no matter whether someone slept on it or not.
"By the time a customer buys a mattress, it costs them ~74% more than the production cost of the product."
I'm not arguing that the mattress industry isn't ripe for disruption, but very rarely is value delivered directly related to the cost of production.
COGS is often difficult to accurately estimate (how much do you allocate R&D and other overhead?).
An iPhone 5 may only contain $110 worth of silicon, but the value delivered is a lot more than the raw material cost. Jony Ive's salary represents a tiny fraction of each iPhone, but his design and influence represents a significant chunk of the profit.
First you mark up 50%. Okay, a $100 cost mattress gets sold at $150 wholesale. Then the retailer marks it up 100%, to $300 total. That's 200% of the production cost, not 74%.
What they meant to say is "production cost represents only 26% of the final cost of a mattress" but totally flubbed it.
The problem is that a diamond is inherently a basically worthless rock, so its retail value is already a figment of the public's imagination. Blue Nile is the closest that exists today, but they are not that disruptive since the retail channels already have lots of competition -- it's the supply (De Beers) that's monopolized.
The real disruption will come in the form of widely available manufactured (not mined) diamonds.
I used to think of diamonds as basically worthless rocks, until I went shopping for an engagement ring stone and looked at them under the jeweler's microscope, and thought "I want to be dressed from head to toe in these things". With mass-produced diamonds, that may become a reality.
Yes, they're nice to look at, but unlike, say, emeralds, they're not very rare -- they're simply controlled by a monopoly supplier. Manufactured diamonds will bring back a competitive supply which would exist if there was a healthy assortment of companies in the diamond mining industry today.
No. There shouldn't be a Warby Parker for Diamonds.
Sure there are services like BlueNile etc but they're nothing like a Warby Parker for Diamonds.
Diamonds are bought, not because of what they are but what they represent.
The whole point of diamonds is to capitalise on what they're representing rather than their actual worth.
Their value is created through the likes of "diamonds are a girl's best friend" which is why the price is high for them.
Hence the advertisements have been developed around the whole perceived value of diamonds ala. "diamond's are a girls best friend" because when you present a woman with a diamond you're presenting her with a promise - a promise that you will look after & take care of her. Which is something that most women want.
True but actually less significant than you think. With the caveat that the diamond should not be insignificantly expensive the reactions to engagement rings fall into one of two categories
a) the girl is a "nice girl" and is more than happy that the finacee got a ring that was even better valuable (I've one singaporian friend that actually had her fiancee take his ring back and buy another one from singapore - not because she wanted a bigger one but she wanted him to get a better deal (I think it ended up being a bigger diamond but that's not what she was angling for))
b) the girl wants to have a bigger ring than her friends in which case it's also a win.
The actual value of the ring is more of a "hygiene condition". Once it costs "enough" then to someone who actually cares (most girls are just happy with getting a hubby) what actually matters is what it's perceived to cost and a fiancee who can deliver bigger, delivers bigger!
Imagine if the cultural norm went from spending a lot on an expensive diamond where the money went to a textbook evil corporation to spending much less on a cheap manufactured diamond of higher quality and donating the difference to the charity of the lady's choice.
It would require an incredible amount of ad spend to change cultural norms which have been created by advertisers over generations. The chances of it happening are miniscule, and the startups who are attempting to do it would go bankrupt several times over before it was even close to being achieved.
It actually reminds me of a Warren Buffet Quote “If you gave me $100 Billion and said, ‘Take away the soft-drink leadership of Coca-Cola in the world’, I’d give it back to you and say it can’t be done”
Go after the cultural norms with celebrities. Get Oprah and Ellen and Kate Middleton and Cosmo and Glamour on board, and arrange for high-profile weddings to have manufactured diamonds and large charitable donations. Things like this can change pretty fast when it's made obvious that there really is a right side and a wrong side. Gay marriage is a recent example, and that has the extra hurdle of having to overcome strong religious beliefs.
But you'll never replace diamonds with manufactured diamonds. The whole point of them is they are expensive.
Expensive, scalable (huge diamonds for celebrities, small ones for poor people, and everything in between), durable, small enough to slip in your pocket (to surprise them), and backed by a monopoly supplier.
You could try it with another rare gem (rubies, emeralds, opals) but you won't have a monopoly supply, so you can't compete with the advertising dollars of the diamond miners.
You could try to switch the marriage tradition to something completely different (look at China, where are house and car are generally a pre-requisite for marriage), and hope that the practicality of the tradition wins over big advertising dollars. The problem is, celebs don't care about a new car the same way a newly married couple do.
Or you could try to encourage an "experience" gift. Paris could set itself up as the city to propose in, and smaller cities could also compete.
It's just hard to think of everything with all the advantages of diamonds. The disadvantage is their lack of practicality, and their slightly unethical origins, but nothing seems to have displaced them so far.
$100 Billion is more than half the market capitalization of Coca-Cola. So for that amount of money, one might be able to buy considerable influence with the company (e.g. via voting rights that come with stocks), and run it into the ground.
Of course, he's probably talking about using the $100 billion to build up a competitor, and make some money.
Bluenile.com does this, and is successful. Of course they only solve the unpleasant distribution, and misleading product naming issues. They saw the problem of slimy sales tactics and gouging in the diamond business and fixed it.
Like any startup idea, there will be objections. Shipping mattresses is expensive, people want to lie on them first, mattresses require research and development spending to develop, a mattress purchase only happens once a decade, etc. All these objections might be right, but they all sound surmountable.
They might be surmountable, but that doesn't make this a better opportunity than a lot of the other opportunities out there, especially for a startup. The costs involved with disrupting the mattress industry as a manufacturer AND retailer are better left to a larger company. Like IKEA, as the article itself pointed out.
This is a cultural artifact. We've reached a point in manufacturing technology where this should no longer be true.
> disrupting the mattress industry as a manufacturer AND retailer...Like IKEA,...
The most comfortable mattress I've ever slept on: A Sultan Fonnes mattress, with an egg crate foam topper from http://www.foambymail.com/ on a platform bed, no box springs. You can leave off the topper and save about $60, if you like, and you wind up with the equivalent of a great firm futon that never bunches up. The combination for Queen is well under $400, including taxes and shipping.
My plan for instant "satisficed" sleep furniture: Buy a cheap platform bed, a Sultan Fonnes mattress, and 3 eggcrate foam toppers. Keep the combination with the topper you like best and sell the other two. No going to the store needed at all. It could all be done through the mail and by delivery in most of the US.
I am not associated in any way with IKEA or foambymail.com except as a customer.
After developing neck+back pain and doing many hours of research this is the solution I arrived at as well. I use an Ikea firm foam bed with a 2.5" memory foam on top. This ends up giving the support of a "medium-firm" many doctors advocate for. For back sleeping, this is by far the most comfortable bed I've owned.
Have you ever tried putting a slatted frame underneath your mattress? In Germany you usually put the slatted frame in a bed, but I found you can also just put that on the floor (plus mattress) to have a very low bedstead.
> Have you ever tried putting a slatted frame underneath your mattress?
No, but I know people who really like slats and none who dislike them. (I wanted to write that I know people who swear by slats and none who swear at them, but that would be an exaggeration.)
I can't have my bed on the floor, because I have my platform bed on risers and 10 big plastic bins underneath so I have a storage bed.
Yeah, putting the slatted frame directly on the floor is just a spleen of mine. Also I didn't want to spend any money on, what people call a "bed", because it doesn't improve comfort. (But can indeed be useful for storage.)
FWIW, Warby Parker was not the first web-based retailer to undercut traditional eyewear sales, nor are they the cheapest. They do seem to have the best PR, though.
They also have by far the best customer experience. Their website is fantastic and fulfillment is lightning-fast, neither of which can be said about the competitors that I've tried (framesdirect.com, zennioptical.com, glasses.com, 39dollarglasses). It's not just PR.
Unfortunately, their range of styles is still very narrow, which is presumably dependent on their manufacturing capabilities.
I used zennioptical.com in 2008 and was very happy. Lacking any fashion sense, I ordered some computer glasses that I hoped would completely disappear on my face - #804811 titanium shape memory rimless, single vision, high index of refraction, with various coatings delivered for under $40. After two years, the nose bridge broke and I took it around locally to see about a repair. The local repair guru quoted me $45 to solder them back together and he started filling out the order, when I stopped him and said I paid less than that for the whole pair of glasses. Turns out Zenni also sells the frames separately, $14.95 for that item, and anyone can install the old lenses into the new frames.
I think getting a new pair of glasses would still be better after two years, just because of the wear and tear on the lenses alone degrades your vision.
Excuse my ignorance, I haven't even heard about Warby Parker until this article. How long have they been around (my quick Google searches have failed me)?
I have heard of ClearlyContacts.ca (I am Canadian), is Warby Parker comparable?
They're comparable in that they send glasses online, but Warby's differentiator is that they manufacture frames (so they handle the whole process end to end) and offer a home try on kit. You can order X amount of glasses to try on at home.
They basically started a very customer friendly model that other online glasses retailers didn't offer at the time of founding.
Ditto is coming on strong, and has some way-cool tech: http://ditto.com. Warby is nice and all, but their selection is limited to just acrylic frames of their own design.
Say more sir. I like the non-toxic spin, pricing seems good, and yet, by the bios on your "about us" page it seems like you are very marketing oriented. That's fine, but perhaps enlighten the mass here on how you struggle or over come some of the objections raised above? Personally, I despite mattress retailers, but I also want to lie down on the thing before I commit to spending 30% of my life on it.
One advantage that the eyeglass market has is massive tax favorability in the U.S.
I believe it's still the case that prescription eyeglasses can be bought with pre-tax dollars under a "use it or lose it" flex savings plan. I assume vision plans, which often include large purchase credits for eyeglasses at least biennially, are also tax deductible benefits.
The result is often relatively price-insensitive consumers who "have" to spend $200+ on glasses lest they not be taking full advantage of their benefit.
Take note of the margins, this isn't Microsoft sized here.
They have almost 900 stores in 27 states.
The article therefore is based on the idea of manufacturing your own mattress and selling web based. Unfortunately this would require warehouses around the country and a manufacturing facility in this country to make the mattresses. Although I'm not sure, I would imagine it would not be cost effective to ship a mattress from China (although I guess Mexico is possible) because of the size and weight. So this is not selling sunglasses or fashion eyewear which can easily be manufactured overseas as well as easily shipped (and returned).
A couple of years ago I was looking for a Tempur-Pedic style mattress, but didn't want to spend thousands for one. After doing a lot of research I found Isoform mattresses. They are only available through the mail and have a 90-day return window if you're not happy. It would be very expensive to ship numerous mattresses, but the trial of one with no commitment to buy is pretty good.
The Author shouldn't have credited Dornob for the first picture of a dreamer, but the original project, which was done by students: http://www.behance.net/gallery/Dreamers/313618
Wasn't hard to find out - Dornob linked to it. So should everybody who uses other's images.
Like glasses, it's an interesting disruption opportunity due to the sheer size of demand. Just about 100% of the population sleeps on a mattress. It's hard to find other industries with so much penetration of demand and such inefficient competition.
These days it doesn't seem like outbound distribution is too big of a deal (many mattresses are shippable in rolled or compressed-box form), it's the reverse logistics that are tricky. Once the genie is out of the bottle, good luck getting it back in. I'd love to be able to try out a mattress, like Zappos shoes or Bonobos pants, and return them for free if I'm not 100% happy. Maybe someone needs to invent an easily-compressable mattress so I can purchase online with total confidence.
I bought a keetsa mattress years ago and love it. The op bought one too. It seems like the best thing to do here would be to just continue to support keetsa as they really are doing a good job on pretty much all angles. Keetsa is the Warby Parker here.
yep, mine is keetsa as well. keetsa = warby parker without the hype or e-commerce focus (but maybe there's opportunity there). the salesman actually suggested i should get a lower end mattress than the one i thought i was going to buy. great company.
I just bought a mattress a few months ago, and I agree whole-heartedly with this post. My solution was to buy a foam mattress from bedinabox.com, which I would say is the Warby Parker for mattresses.
Maybe instead of focussing on selling mattresses you should focus on some sort of price comparison machine where you can enter what characteristica you want to (must have memory foam, must be this size, must be x, y and z) and then have the machine find close matches and display the variours prices? That way it won't matter if they fix the name, since you don't compare the mattresses on names, but on features.
I just got 5 frames from WP in the mail for "in home try on." The quality of the glasses are sup-par. They feel like frames you would find at the gas station. Yes the frames are stylish, but for anyone who has bought glasses their entire lives, you would know right away why these cost $95. There is a company that is the WP of mattresses: Ikea. The product is cheap and of low quality.
Warby Parker's name has crossed my radar a few times in the past month, but I know nothing about what makes them special. Can somebody please enlighten me, because even after looking at their site, I still don't get what the big deal is. Then again, I've got 20/15 vision, and don't wear glasses, so I'm not their target market.
It's really easy to spot the industries that have ridiculous margins; just find the shops that stay open forever, yet seem to make about 1-2 sales a day. I've seen mattress stores that seem to be able to sustain one full-time employee and about 20000 square feet of showroom on a couple purchases a day. Some with sunglass stores.
I was a big fan of The Original Mattress Factory when I lived in Pennsylvania. They manufacture their own mattresses and sell them direct to consumers.
When I bought my last mattress, it was a relatively painless experience, and the cost was incredibly reasonable (considering a rough estimate of what the manufacture labor might have cost).
What kind of mattresses are people buying, and what sort of retailers are they going to, where this seems like an immensely extortionist industry?
Wouldn't it be cool if a mattress came in 8 pieces so you can easily move it and flip it, and rearrange or even replace saggy sections?
I'm sure the need for the entire thing to respond to your body the way it does probably prevents such a thing, but that sure would make it easier to own one.
I completely agree! I recently went shopping for a mattress at Sleep Train and they admitted that they mask the model numbers of their mattresses so you can't find them online for cheaper. Someone please build this.
they mask the model numbers of their mattresses so you can't find them online for cheaper
This practice predates looking online for cheaper. They all obfuscate model numbers so you can't do comparison shopping or "price matching" in the real world. It's shameful.
I'm starting to wonder if priceonomics.com shouldn't pivot to become a full-fledged data driven publication. They have been publishing some amazingly high quality content lately.
The article hints at this, but Ikea solves all these problems. They have a small set of easily discernable mattress lines that are priced extremely well.
Keetsa has done a great job of helping this issue. They are foam mattresses and they suck the air out of them and stuff them into a surprisingly small box. It actually takes about a month for them to fully reinflate once unpacked.
Is it so bad that an industry has high margins? $500-1000 doesn't seem that expensive for a once every 10 years purchase. Mattress salesman gotta make a living! Seems very hypocritical while we make 90% margins on software.
I believe that entrepreneurs could do well, generally, by looking for opportunities in industries that are dominated by private-equity players.
If an industry is overweight PE, you can bet that the market analysis looks fantastically attractive (competition isn't too fierce, suppliers have little power, buyers have little power, not many substitutes, and little perceived threat from new entrants). If a clever entrepreneur can render that last condition false and enter that market, that entrepreneur has the opportunity to shrink and consolidate a $huge market that's owned by PE players into a $smaller market that is owned by the entrepreneur.
PE controlled competitors will, generally, not be particularly agile, because PE tends to capture value by leveraging the heck out of a currently viable business model. It's a model that works really well as long as base assumptions hold true, but startups can ruin that for them.
Could someone explain for the… ahh… more financially naïve among us why private equity is the important signifier here? It seems like what rscale is talking about are markets which are opaque due to companies that have enough clout to force that inefficiency (e.g., by restricting information or making product comparisons impossible.) Why or how is that coordinated with private equity?
This is a brutal generalization so take it with some salt. I also don't subscribe to the "all PE guys are evil and unnecessary" philosophy but with just this teaser description it would be easy to think I support it. Anyway, on to your answer.
Private Equity firms typically want to run their portfolio companies as profitably as possible. This means cutting down service, R&D, technology, etc as lean as possible without damaging the existing product or brand.
It also rules out lots of room for innovation as the companies chief reason for existing becomes generating enough profits to pay off the individual company's outstanding debt.
Why is there debt? Private Equity firms will buy a company, streamline its operations, increase its profits, and demonstrate to banks/investors that it is financially stable. Once they've done that they raise lots of debt against the promise to pay off that debt with the future, dramatically increased, profits. They use the debt to pay themselves a bonus for taking over the company and fixing it.
Why not wait and just pocket the company's profits over time? Well, that's how Warren Buffet does it (sort of), but by loading the company with debt they get their bonus sooner increasing the IRR for their own investors.
Counter-examples, or a couple examples of the salt: skype, getty images, doubleclick, etc. sometimes, it really does makes sense to add capital and/or shield the company from the public markets. When going through change, etc. builders and flippers are co-mingled though. just like vc presumably.
Private equity firms buy companies to make them more profitable and then flip them. They are essentially committing themselves to the incumbent role in Christiansen's "Innovator's Dilemma". When a market is dominated by risk-averse incumbents, it is probably ripe for disruption.
As GP said, read Christensen's "Innovator's Dilemma". He's the guy who first came up with the term "disruptive innovation", and it's more than just a TechCrunch buzzword -- there's a whole theory behind how disruption actually works.
Are they actually committing themselves to the incumbent role, or do they recognize an industry in decline and then suck whatever profits they can out of the businesses before flipping them? Layoffs, pension raiding, fat trimming, etc.
It's fairly easy, in theory, to take a bloated and inefficient company, cut it to the bone to reduce overhead, then position it as more profitable for resale. On paper, sure, it's more profitable. In reality, it's just a similarly bad company that's been trimmed up and given a new paint job. It's very similar to the real estate playbook: buy a delapidated property, touch up the exterior, then flip it as if it's shiny and new. (The beauty of PE, over real estate, is that PE firms can rig the game to benefit one way or the other, due to debt structuring. If they can flip the company for a profit, they win; if the company goes bust, they're insulated from the damage.)
I would say that an overpresence of PE in an industry is a decent indicator that the industry is in trouble (or is ripe for disruption). But I think PE guys realize that, as well. They're just in it to make the quick, easy buck, rather than take on the burden of reshaping the industry. I wouldn't call them "risk averse" so much as I'd call them opportunistic. It's just a different kind of opportunity, and arguably a less socially valuable one.
I'm not sure what this comment has to do with the question at the root of this thread. You're obviously not a believer in PE. I have no opinion about it. Either way, the issue is, are PE-dominated markets ripe for disruption?
"I'm not sure what this comment has to do with the question at the root of this thread."
It was a response to a particular point raised in the previous comment, specifically, about the position that PE companies are taking in the marketplace. I rambled a bit after addressing the point, and I editorialized a bit. I won't deny that much.
"You're obviously not a believer in PE."
Not generally, no. But I'm a believer in a (relatively) free market, and as such, PE is one of those "I don't agree with a word you say, but I'll defend to the death your right to say it" topics. I think PE has its place, but as most common practiced, it's most often counterproductive in the long run.
"the issue is, are PE-dominated markets ripe for disruption?"
I believe I answered that question in the affirmative. Admittedly, in a discursive way. But yes. I think the presence of a lot of PE players in a market is a pretty good signal that the market can be disrupted.
At the risk of putting words in rscale's mouth, its not that PE creates these conditions or that PE is even necessary for these conditions. Instead, PE tends to find and play in highly attractive industries (See Porter's 5 Forces for a classic view of "attractiveness"). PE involvement in an industry can be a good signal...
> Basically you're using PE as a proxy for a measurement of attractiveness.
How about PE as a proxy for "incumbency?" That is to say, you're looking at companies who figured out a formula to "print money" then let themselves get complacent and fat, thereby becoming targets for PE. This would explain why they tend to be not so agile.
I just had an image of a cabal of attractive young women, somewhat resembling James Bond villainesses, but who are trained in business and economics, who seek out dalliances with PE firm executives in order to perform industrial espionage.
Yes, that's a good way to look at it. Its really important to recognize the crux of rscale's point though - you have to render the high barriers to entry condition false. If you can't figure out how to enter, the remaining conditions don't really matter.
>Unlike military counterparts like automatic M-16’s, rifles like those from Bushmaster don’t spray bullets with one trigger pull. But, with gas-powered mechanisms, semiautomatics can fire rapid follow-up shots as fast as the trigger can be squeezed. They are often called “black guns” because of their color. The police tied a Bushmaster XM15 rifle to shootings in the Washington sniper case in 2002.
Has nothing to do with the article, but they just can't resist.
It's the NY Times. Actually the opposition of the "smart" people like NY Times, leftists in general, etc. to firearms makes it an even better investment opportunity; less competition.
How does price matching work? One of the major problems with mattress stores is that everybody sells different mattresses -- they're 99% identical, but tiny changes are made to justify a different name and prevent comparison shopping and price matching.
Yes that is part of the whole scam which I learned a lot about during my last mattress purchase. SleepCountry has a catalog cross referencing the types of mattresses from other companies that are very similar if not exact matches to what they carry. I ended up price matching a Bay One Day Sale mattress that was $799 (normally $2000, of course that is inflated too) and they gave me a similar mattress in the showroom that was on sale for $1399. Very happy with it. I gave my friend my receipt a month later and he got the same deal. You know SleepCountry is not making much from this sale but I was really happy with their service so I'm a customer for life... or until they get disrupted!
> You know SleepCountry is not making much from this sale
How do you know that? If what the article says is true, it cost them $500 to manufacture that mattress, or less. With a sale of $800, they're still making a good profit.
Match according to spring count and type. The profit margin at a place like Mattress Firm is ~50%. They are hungry for a sale and will bid for your purchase.
Given these, Bed In A Box (http://www.bedinabox.com/) started with what seemed like it could be a potentially disruptive business model. They make-to-order mattresses (will even make custom sizes) and ship Tempurpedic-like memory foam mattresses directly to you via UPS. They suck all the air out of the mattresses so the boxes they come in are reasonably sized. Inside the box, there's a backpack-style sack which makes the mattress easier to carry. I hauled a Queen-sized mattress up four flights of stairs easily.
I've purchased two mattresses through them and they are high quality and extremely comfortable. The first purchase they were easily 50% the cost of any quality mattress I could find elsewhere (including Costco, Sams Club, etc.), especially if you factored in the cost of delivery. I was surprised that when I went to buy another mattress from them their prices were markedly higher.
I wonder if consumers were concerned that the low prices indicated low quality (not the case in my experience) or if they were unable to get the volume to sustain a low margin, high velocity business.