America is awash in mattress stores. For example, a 2½-mile stretch of North Clybourn Avenue in Chicago has eight such establishments — not counting the home stores that sell mattresses alongside other items.
It can seem excessive for a product most consumers rarely buy, as can the list of primarily online mattress brands — Casper, Tuft & Needle, Purple, Leesa, Helix, Saatva, Allswell, the list goes on — fighting to get under consumers’ covers.
A shakeout may be coming, but that doesn’t necessarily mean fewer stores. It could mean just a greater variety of names over the door. A case in point: Within two days of media reports last week that industry giant Mattress Firm was considering a bankruptcy filing, online mattress startup Casper announced it would open 200 stores within the next three years.
Part of Mattress Firm’s problem is its huge network of stores. The Houston-based retailer viewed multiple stores in cities as a way to build visibility, and spread out advertising and distribution costs. At the same time, it was snapping up competitors like Sleepy’s, Sleep Train, Back to Bed and Bedding Experts in a bid to build a national brand, and taking over some of those locations.
That sometimes left it with stores located just blocks apart. Even company executives acknowledged that they simply had too many.
During a December call with investors, Mattress Firm Executive Chairman Steve Stagner, since appointed CEO, said the company planned to close about 200 stores over the next 18 months. As of March 31, the company had 3,304 locations, 177 fewer than it had the year before.
But the company was dealing with extra costs associated with rebranding stores that were part of recent acquisitions and sales suffered when it split from its largest supplier last year, parent company Steinhoff International Holdings NV said in its most recent public filing. South African-based Steinhoff, meanwhile, is facing its own challenges after disclosing accounting irregularities late last year.
Mattress Firm lost 133 million euros — equivalent to about $154.4 million today — in the six months ending March 31, while revenues declined 17 percent compared with the same period the prior year, though the company performed better in April and May, Steinhoff said.
Steinhoff declined to comment on “market rumors or speculation” about a potential bankruptcy filing, and Mattress Firm did not respond to a request for comment.
Analysts say they wouldn’t be surprised to see the company seek bankruptcy protection, which would make it easier to get out of leases and close hundreds of stores.
In a February research note, Wedbush Securities analyst Seth Basham predicted Mattress Firm would ultimately close anywhere from 600 to 1,000 of its stores. Basham predicted a filing could come even before the big Labor Day mattress sales event if the company is too strapped for cash to build up inventory, or shortly afterward. Piper Jaffray analyst Peter Keith speculated a bankruptcy filing could come by November “at the latest” in a research note earlier this month.
Particularly now that more sales are happening online, “they can reduce costs but retain a lot of sales by closing stores close to one another,” said KeyBanc Capital Markets Managing Director Bradley Thomas.
As for the online players, their sales are growing. The new, primarily online bed-in-a-box brands accounted for about 11 percent of the mattress market this year, up from 8 percent last year, Thomas said. That doesn’t include Amazon and other companies selling directly to consumers online.
But it turns out some shoppers still don’t want to shell out for a new mattress without seeing what it feels like first. Only about 35 percent of the population is open to buying a mattress sight unseen, according to Wedbush Securities’ consumer surveys.
“The low-hanging fruit has been picked, so they’re searching for other ways to get consumers who don’t feel comfortable buying without seeing, touching or lying on it first,” Wedbush analyst Seth Basham said.
From the day Casper launched, customers told the company they wanted to be able to test-drive the mattress, but Casper wanted to experiment with physical retail through pop-ups and partnerships with retailers like Target and Nordstrom before committing to its own stores, CEO Philip Krim said.
“We knew a lot of customers want to lay on it before they buy,” he said.
Stores are also a way to stand out among the horde of new brands pitching their products online. There are nearly 200 emerging mattress brands, according to KeyBanc, plus competition from new bed-in-a-box options from traditional mattress companies.
According to Casper, investing in bricks-and-mortar pays off. Markets where it has temporary stores have grown faster than those where shoppers can only buy online, Krim said.
Krim said Casper won’t follow Mattress Firm’s approach to expansion.
“We’re being opportunistic. We don’t have to be in a hurry with all this,” he said.