Bed-in-a-Box Startups Challenge Traditional Mattress Makers

Flat pricing, free shipping and returns attract shoppers loath to step into a showroom. Tempur Sealy takes a page from startups’ playbook.

Sarah Nassauer

The Wall Street Journal

CANCEL

Updated March 7, 2016 3:04 p.m. ET

When Will Haley decided to buy a king-size mattress, he did what he does when he needs a new computer or baby diapers: he bought it online.

First in a series examining how smartphones and delivery services are reshaping retail.

Never mind that the mattress cost $950, and he wasn’t going to be able to try it out. “I just didn’t want to go to a showroom,” says the 36-year old software developer and father of three from Rocky Mount, N.C. “That is the last place in the world I want to take my kids.”
Mattresses were long considered immune to the e-commerce boom. For decades, they have been sold in showrooms full of dozens of styles with dizzying discounts and high-pressure salespeople.
But a new breed of upstarts with slick websites has cracked into the $14 billion U.S. mattress industry. The online sellers offer just a few varieties at fixed prices—and ship free to customers’ doors a foam mattress that is compressed into a box the size of a large suitcase.
Industry incumbents aren’t taking the new challenge lying down. Tempur Sealy International Inc., the world’s largest mattress manufacturer, this week will start selling its own bed in a box, called Cocoon by Sealy. It will be sold at fixed prices—$549 to $999 depending on size—through a dedicated website. It comes in two models: soft or firm.

With names like Leesa, Keetsa and Casper, a flurry of startups are trying to shake up the bedding industry, often by offering just one or two mattresses at a stable but premium price. WSJ’s Charlie Wells reports. Photo: Lessa.com (Originally publised Sept. 30, 2015)

Mr. Haley bought his bed from Casper Sleep Inc., which sells one type of mattress. The size determines the price, from $500 for twin to $950 for king. Casper’s approach is one of simplicity and convenience, not coil counts and pillow tops. The company generated $100 million in sales last year, its first full year of operation.
Casper and other newer companies, such as Leesa Sleep and Yogabed, have designed sites tailored for smartphones that require a few clicks to order. In place of the chance to try out a $5,000 Tempur-Pedic with adjustable base or lie down on a $2,500 Serta iComfort with gel memory foam, they promise free shipping, 100-day guarantees and free returns.

It is a process aimed at the often wealthier, younger and busy shoppers who care less about kicking the tires and more about convenience. Mr. Haley says he felt comfortable buying the mattress sight unseen because online reviews are enough quality control. “Anything I can buy online, I do,” he says.

‘I just didn’t want to go to a showroom’
—Will Haley, a 36-year old software developer and father of three

Two-year-old Casper and its rivals represent 2% to 3% of the U.S. market but they are proliferating. “I’ve counted thirteen [startups], most of which have popped up in the last two years,” says Peter Keith, a retail analyst at Piper Jaffray who studies the bedding industry.
“I think it’s a channel we should be in and it’s a market, we just don’t know how large it is,” says Scott Thompson, CEO of Tempur Sealy. The majority of customers want to try out a mattress, and it is likely to stay that way for a while, he says. Still “we used to say people would never buy a car without driving it, but there are people buying cars without driving,” he says.
Most mattresses bought in the U.S. cost under $1,000, but mattresses that cost more than $1,000 account for over half of the industry’s sales in dollars, according to Tempur Sealy.

More than a year ago Tempur Sealy peeled off “a younger group of people” within the company to examine the growing interest in mattresses sold online for under $1,000, says Mr. Thompson, who joined the Lexington, Ky., firm in September. Executives said, “Go ahead and attack this market. Don’t worry” about upsetting the company’s retail partners, says Mr. Thompson.

The move took courage, says Mr. Thompson. Last year, 91% of Tempur Sealy’s revenue came through chains like Sleepy’s, Macy’s Inc. and Costco Wholesale Corp. “You have traditional organizations that could look at that product as a threat,” he says.
To give mattress stores a way to benefit from Cocoon, Sealy will give its retail partners the option to sell the bed-in-a-box via a link on their own websites and pocket a cut of sales, says Mr. Thompson.
But the company’s biggest retailer isn’t interested. “I don’t think it’s something we would look to Sealy for,” says Ken Murphy, president of Mattress Firm Holding Corp. , the largest mattress retailer in the U.S. with around 3,800 stores. The company, which also owns the Sleepy’s chain, started selling its own Dream Bed online last fall.

ENLARGE

After the compression and vacuum seal are applied, a flattened Cocoon mattress is tightly rolled by a machine and boxed for shipment. Photo: Bob Miller for The Wall Street Journal

Tempur Sealy has sold beds in a box and mattresses online, but mostly through retailers or traditional websites, says Jill Johnson, brand manager for Cocoon, one of the four employees first put on the team. It didn’t offer a simple purchase and delivery process, or aspirational lifestyle, she says.
The target customers are younger, often going through life changes that spur them to upgrade their just-out-of college mattress, perhaps a marriage or baby, says Ms. Johnson. The team tested four brands in consumer focus groups, standing behind one-way glass as potential shoppers examined mattresses labeled “Drift,” “Nod,” and “Doze.”
Compressed mattresses promise high margins because they are cheaper to ship than inner spring mattresses that can’t be compressed, says Joe Van De Hey, chief executive of C3 Corp., a maker of mattress-compression machinery. Because of how carriers like FedEx and UPS charge, delivering a 90-pound compressed mattress is less expensive than home delivery with a regular truck, he says.

Returns, however, are a challenge. Most bed-in-a-box upstarts offer a free-return policy, but work hard to keep returns low since that requires sending someone to haul away what has expanded into a very large mattress.
In the past Casper sent out a topper, or top cushion, to customers who called to complain about the feel of their mattresses but found it didn’t reduce returns, says Neil Parikh, the company’s chief operating officer. Instead it has worked to improve the product to reduce returns, Mr. Parikh says. He declined to disclose Casper’s return rate.
“Returns are an issue for this distribution model. We have guarantees that we will come and pick it up,” says Mr. Thompson of Tempur Sealy. “Getting the bed back in the box, that’s a little bit of a problem.”