Why The Online Startup Business Model Is Thriving

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There have been a large number of new startups that have entered the mattress industry in the past 2 years.  From the looks of things, it seems that the majority of them have been quite successful.  Casper is definitely the most well known of this bunch, especially after it just raised $55 million at a very big valuation.  Leesa just raised $9 million as well, further showing the success of this business model.  Why was this industry so ripe for disruption and why does the online business model for these startups work so well?  Well, there are a few different reasons, which we will try to discuss here.

mattress industry business modelHistory

Before these new companies came into play, the mattress industry was controlled (and still pretty much is controlled) by two massive companies.  Tempur-Pedic and Sealy merged in early 2013.  Simmons and Serta are both owned together by a private equity firm.  Those four major brands comprise a substantial portion of the overall mattress market.  The mattress industry is essentially a duopoly.  Industries like that are always susceptible to startups with drastically different business models.

Markups

With the traditional business model, mattresses end up getting marked up several times from the time they are manufactured to the time they are sold at a retail store.  Why is that?  Well, let’s go through the different reasons.

Manufacturer’s Profit– The original manufacturer needs to make a profit.

Retailer’s Profit– The company that buys from the manufacturer and eventually sells to the consumer needs to make a profit as well.

Retailer Overhead– Big box mattress retailers have a lot of overhead involved with running their stores.  They have to pay insurance, rent, utilities, etc.  The only way to do that is through marking up their products sufficiently to overcome that overhead and make a profit.

Sales Commissions– Mattress salespeople are paid a certain portion in commissions.

When you start to add all these things up, the markups become quite large.  If a company can try to cut out a substantial portion of these costs/markups, they can really provide a greater value for the consumer.  That is what these online startups are doing.  When these companies claim to save you 2-3x or more what you would pay for a similar product found in a retail store, in many cases that is actually true.

Casper Mattress BoxBed In A Box Concept

Selling mattresses nationwide is a difficult logistical challenge.  Shipping spring mattresses is very difficult because those mattresses are so big and heavy.  However, the bed in a box concept really cuts out this difficulty and cost by making shipping so much easier.  This concept has really allowed these companies to scale very quickly.  Saatva is one company that does in-home delivery and set up.

Consumer-Friendly Terms

A lot of people are probably initially afraid to buy a mattress online.  However, these new companies are alleviating those fears by providing very friendly terms.  They are offering free trials for a substantial period of time and free shipping.  Those terms are really making most people change their mind about buying a mattress online.  It would be a much more difficult sales pitch if these companies didn’t offer these terms.

Easy Shopping

A lot of consumers don’t like the process of shopping.  A typical mattress buying process involves analyzing a ton of different products and not really knowing which one would be best.  These companies basically make the process of buying as easy as possible.  They have very intuitive and easy to use websites and typically have just one product (which they all claim is the best mattress for just about every type of sleeper).  Making things that easy is something that people really appreciate, and it is yet another reason why the business model is working so well.

See also our guide to buying a mattress online.

There are probably other reasons why the business model for these types of companies is doing so well, but those are the main highlights.  Companies like Tempur-Sealy and Sleep Number may have to adjust.  I suspect the trend of online mattress companies taking market share will only continue going forward.  There will be more companies coming into the industry and established companies will certainly come out with more and more products available online.

 

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Gravatar for Joe Auer

Joe Auer

Joe Auer is the editor of Mattress Clarity. He mainly focuses on mattress reviews and oversees the content across the site.

He likes things simple and take a straightforward, objective approach to his reviews. Joe has personally tested nearly 250 mattresses and always recommends people do their research before buying a new bed. He has been testing mattresses for over 5 years now, so he knows a thing or two when it comes to mattress selection. He has been cited as an authority in the industry by a number of large publications.

Joe has an undergraduate degree from Wake Forest University and an MBA from Columbia University.