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One of my MBA students who recently moved to Houston from Europe was genuinely puzzled by the preponderance of mattress stores she found here. She said that in America, there appear to be more mattress stores than there are Starbucks shops. This means a lot, because Houston alone has 135 Starbucks stores (not counting those in its numerous suburbs). She wondered whether the density of mattress stores indicated something about Americans, mattresses, or something else entirely.
I was mystified by the question. Despite driving past numerous mattress stores regularly, I never considered why they appeared to be popping up like weeds. So after some research and a bit of thinking, here is why I think there are so many mattress stores in America.
The answer can be attributed to at least 4 separate things: the economics of running a mattress store (and a mattress retail chain), the psychology of shoppers’ decision making for mattresses, the release of pent-up demand for mattresses after the recession, and the scale of American retailing.
1. Favorable economics.
Retailing is notorious for wafer-thin profit margins. Grocers, for example, typically earn margins of less than 5%. This is not the case for mattresses. Compared to its listed price, it costs relatively little to make a mattress. Consumer Reports reports that markups in the 40-50% range are standard in the industry—and once a mattress crosses the $1,000 threshold, markups are even higher. One assessment of a $3,000 mattress found that it cost about $300 to make—an astonishing 900% markup.
That is a lot of profit when you consider that the average mattress sold is priced well over $1,000. What's more, most mattress stores carry very little inventory (they deliver directly from a central warehouse or from the manufacturer) and pay salespeople mainly through commissions. So overhead costs are quite low by retail standards. The result: In a typical strip mall, a store would have to sell fewer than 20 mattresses each month to cover its costs. Beyond that, the store should turn a profit.
Some stores run by national chains may not even need to clear this hurdle. As such chains expand throughout the country, they count on awareness and recognition generated by their stores’ signage and visibility to bring in customers. In fact, each store moonlights as a giant billboard, brightly lit 24 hours a day. Even when some stores in a market remain unprofitable, the chain will keep them open for advertising power.
Finally, stores of the major retail chains tend to cluster together in prominent locations to feed off the increased customer traffic produced by such congregation. (This approach is also used by other retailers; it's called “agglomeration.") This makes mattress stores appear even more numerous than they actually are.
2. Americans prefer to buy mattresses in a store rather than online.
In colonial America, the bed was considered a family’s most important possession. In a fire, it was the very first item to be moved to safety by firemen. Today, beds (and mattresses) are nearly as important. Most people purchase mattresses rarely—about once every decade—and do so with a lot of thought and effort. After all, most of us spend a greater part of our lives in bed than anywhere else, so it is natural that we would want to choose wisely.
Not surprisingly, unlike sales of clothes and consumer electronics, which have largely migrated online, most Americans still prefer to try out different mattresses and make the purchase in a store. The phenomenon of showrooming, in which shoppers try the item in a store and then buy it online from the cheapest e-retailer hasn’t yet hit the mattress industry.
One reason for consumers’ insistence on buying in a store is that each mattress chain commissions unique models from major manufacturer, available only in its stores—and nowhere else. In truth, these models vary only superficially, but the naming differences make it difficult to compare prices and quality across different stores. Also, without truly objective measures of mattress quality, the shopping process is a crapshoot. Should I pick the Dual Effects® gel memory foam from one manufacturer, Posturepedic™ foam from a second, or the SmartClimate™ System with Tempur® foam from a third? (Notice that all the names are trademarked.) Many shoppers find they can’t answer such questions without consultation with a salesperson.
3. The recession created a lot of pent-up mattress demand.
Even though retailers prod us to replace mattresses every eight years, they are durable products, easily lasting 10 years, 15 years, or longer. Unless you are moving out of your parents' house or returning from an extended world tour, mattresses are also discretionary purchases: You don’t have to buy a new one. The upshot is that when consumers are in bad financial shape or pessimistic about the future, they postpone mattress-buying, choosing to sleep on the lumpy or stained bed they already have. This happened during the recession of 2008 to 2012, as most Americans concentrated on putting food on the table, paying their rent, and keeping their cars fueled. There was no spare cash for new mattresses.
Further, newlyweds are major mattress buyers, but the recession put the brakes on marriage plans for a lot of people; in fact, many twenty-somethings moved back into their parents’ homes rather than moving out. Homeowners also stayed put because they couldn’t sell their houses. So, not surprisingly, mattress sales dried up over the five-year period.
All this changed during the last three years. More people are getting married and having children, forming new households, and moving out on their own or just moving. The pent-up demand created by the recession has freed up, providing momentum to mattress sales. (The nationwide bed bug epidemic which started in 2010, also boosted mattress accessory sales as well as reducing the supply of used mattresses.)
Mattress retailers are responding all over the country by opening new stores to capture these new customers. Some observers argue that we may be heading towards a glut of mattress stores; time will tell if this is true.
4. America doesn’t have too many mattress stores; it has too many stores.
There are three primary reasons why there are so many mattress stores in America:
- Running a mattress store instead of another type of retail establishment is often more profitable.
- Mattress stores are not threatened by online shopping to the same degree as other retailers.
- There was a lot of pent-up demand for new mattresses that is now being released as the economy improves and Americans feel more optimistic about their future.
But I want to make one final point which might explain my European student’s consternation: America has 46 square feet of retail space per capita. The equivalent per capita number in the UK is 9 square feet—less than one-fifth as much. And the U.K. has the most retail space of any country in Europe. So, seen with European eyes, America not only has too many mattress stores, it has too many stores period—from nail salons and donut shops to payday lenders and pharmacies. And, interestingly, it also has too many self-storage facilities...possibly for Americans to store away all those mattresses they are stocking up?
Thanks to Rice MBA student Zara Zain-Emmerson for asking the question.
Update: Freakonomics Radio ran an episode titled "Are we in a mattress-store bubble?" in June 2016. In that radio show, you can listen to me talk about some of the things I wrote about in this post.
I teach core marketing and pricing to MBA students at Rice University. You can find and download a lot of my academic and some of my practitioner-oriented writing at SSRN. If you can’t find something old I have written, shoot me an email and I will send it to you. Some of my writing for managers and business people can be found at HBR.org and I also write a blog called “The Science behind Behavior” on Psychology Today.
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