Gone are the days of bringing the family down to the local department store and trying out a couple of queen-sized mattresses. Now, you can visit MattressMonster, Mattress Kings, Mattresses4Less, MegaMattress, Mattress Mania, Supreme Mattresses, and Mattress Garden—and that’s just at the corners of Utica Avenue and Nash Street. There are even more at the very next corner. If mattress stores get any more clustered, it’s possible Starbucks might need to move to a strip mall.
So you have to conclude there are two possible answers:
- Selling mattresses is incredibly profitable and demand is exceeding supply.
- It’s insanely easy to open a mattress store franchise without any clue of what you’re doing.
Indeed, it turns out that the second is decidedly true. Nearly all mattress stores are owned, operated, and punishers of independent franchisees—like fast-food outlets are. The franchisee buys the mattresses from pre-approved distributors, and they’re on their own. The mattress company doesn’t care an iota () whether a franchisee’s store is directly across from three others—which is competitively stupid—because they make their money from the initial purchase of the franchise. Sink or swim, dude, is too often the franchise’s business advice.
Of course, the franchise certainly wants you to buy into the first possibility. The mattress industry is a $13 billion industry that’s been profitable 90% of the time for the last 20 years, and they provide all the training you need: no experience is needed. They can even help you obtain a loan from a bank to build out the store—generally around a quarter- to a half-million dollars, and you can be up and running in 6 months with low overhead.
This must be tempting to a lot of wage slaves tired of working a back office somewhere. The only cash you need to front yourself is the franchise cost, which is under $50,000 in most cases. They take care of everything else, and in 6 months, you could be out of that hellhole and making real money. The best part is that your sales people are paid on commission, so they pay themselves—if they can’t sell product, they only hurt themselves.
Naturally, there’s more to it than this. In the United States, $13 billion dollars is not a big industry, especially when it includes manufacturing, distribution, and delivery of mattresses. That leaves only a fraction for the retailers, and keep in mind that ADHD medication sales alone is more than the mattress industry. This isn’t to say that the mattress industry is insignificant—but when you divide that leftover cost among the uncountable mattress store outlets, that’s not good.
So to make up for that, the parent companies rely on four strategies, according to Dr. Utpal Dholakia.
Notably, the markup is sensational: a mattress store will buy a mattress from distribution for $200, but sell it for several hundred. For some high end mattresses, you can practically multiply the manufacturer’s cost by ten to get the sale price. Of course, you can negotiate these downward—like buying a car—but no matter what you shake hands on, you’re paying too much. After all, the sales guy needs his cut, as does the mattress store franchisee. In fact, Dr. Dholakia estimates a mattress store needs to sell only 20 mattress a month to be profitable (by profitable, most business folks agree you need to clear 20%; any less profit and you’re slowly going broke, according to an old adage).
Second, Dr. Dholakia says that Americans don’t buy mattresses from catalogs, online, or directly from wholesalers—which would drive down those insane markups. Instead, we like to lay down on them, try them out, and invite the kids to jump on them. Which, he adds, is crazy because the average person can’t tell the difference between one mattress and another: an online tool would allow you to compare all sorts of things and cut through the marketing hype. But no—we want to bounce on the bed, so we knowingly subject ourselves to showroom markups.
In this way, Dr. Dholakia also challenges the Czar’s conventional wisdom that you never open a location directly across or next to a competitor: you normally want to be an island, to discourage shoppers from going across the street for their purchase. Instead, mattress stores intentionally aggolmerate to be parasites off one another. Since you’re going to buy a mattress anyway, why not come over to our location and see what we have, especially given your skepticism you’re getting a good deal? It’s exactly why car dealerships lines themselves up along a road way: tired of getting ripped off? Come over and see how we can cut that other guy’s price.
Finally, there actually is market demand as the housing industry returns. As weddings go up, and home buying returns, the number of people buying mattresses is at a high right now. Since it is cheap and easy to open a franchise location, people are doing it everywhere.
That said, all of these items can change in a heartbeat. Americans can figure out how to buy mattresses without a retailer: people buy groceries through Amazon, even. As the mark ups shrink in response, people won’t feel obligated to travel to a mattress store to get ripped off. And then agglomeration will really hurt, since one location’s misery translates to its neighbors. Then these franchises will dry up.
Are you old enough to remember shoe stores? How about record stores? Yeah, they used to be everywhere, too.
Божію Поспѣшествующею Милостію Мы, Дима Грозный Императоръ и Самодержецъ Всероссiйскiй, цѣсарь Московскiй. The Czar was born in the steppes of Russia in 1267, and was cheated out of total control of all Russia upon the death of Boris Mikhailovich, who replaced Alexander Yaroslav Nevsky in 1263. However, in 1283, our Czar was passed over due to a clerical error and the rule of all Russia went to his second cousin Daniil (Даниил Александрович), whom Czar still resents. As a half-hearted apology, the Czar was awarded control over Muscovy, inconveniently located 5,000 miles away just outside Chicago. He now spends his time seething about this and writing about other stuff that bothers him.