Interesting article, but there’s something wrong with the logic. “What accounts for this? It’s your classic oligopoly, where the market is dominated by just a few makers — think familiar names like Serta, Sealy, et al.”
That’s the manufacturers, not the sellers. Why don’t these many stores undercut each other? And if they can’t because their margins are small and most of the profits go to the manufacturers, why are there so many retailers?
The answer is because they sell enough mattresses to stay in business and be profitable.
The reason they can do this with so many stores is (in part) because the markup on mattresses is exorbitant.
The stores don’t undercut each other significantly because it’s not in their best interests to do so; it’s not like the customers have very many options (that oligopoly in action), so it’s more profitable for everyone to just keep prices high than it would be to engage in a price war.
By that reasoning, gas stations make huge profits. And yet they don’t.
And…you just said that there were a ton of stores. There can’t both be a ton of stores and not many stores. Or are you saying that there are only a few mattress store chains?
You might want to send bump a PM about reviving this long-dormant thread if you want a response.
Due to consolidation there are actually only a couple (one that I can actually think of…Select Comfort doesn’t count) national mattress-only chains. There’s lots of regional and local chains.
It is so uncomplicated to open a mattress store. And inexpensive too. Beyond the display models you don’t need much in the way of inventory because the factories can churn a mattress set out faster than you get a meal served at Applebee’s ( they generally pay the guys that build them by the unit, not by the hour).
Mattresses are really incredibly profitable. A $2,000 mattress set will earn the salesperson about $160 in commission plus a $100 “spiff.” [Premium mattress sets (anything over $600/set) generally earns the salesperson a bonus called a spiff) ] and the retailer still nets about $1,000.
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I’m guessing that article is ready for a re-write. The mattress market now has plenty of online retailers, from Purple to Casper to Leesa and more. Among the traditional manufacturers, the smart ones are also pushing online products (I recently bought a Sealy “Cocoon” mattress which arrived at the house in a small box and cost a third of a similar mattress in a showroom). Things have probably changed a lot in the last four years.
not comparable, since gas is a “loss leader” in the vast majority of cases. gas stations make money on selling pop/chips/candy/cigarettes, and/or car washes.
There are a lot of mattress stores because they are inexpensive to open, the market is huge (every domicile probably has at least one mattress) and the profits on a mattress can be ridiculous.
Mattress stores have a fairly low overhead. Display mattresses are typically free or at a very low cost from the manufacturers and you can sell them when you are done with them. Staff is either commissioned or paid about $14/hr with bonuses. Commission reps get either $9/hr or their commission. An average rep was probably taking home $1000/week, top performing reps double that.
The store is probably at least Net30 billing from the manufacturer, so you have 30 days to sell the mattress before you have to pay for it. If you are turning over mattresses fast enough, the capital outlay for product is minimal.
2Bits is right about the mark-up in mattresses. A premium queen sized mattress that sold new for $3500 might carry a cost of about $2000. Sleep on that mattress and return it one night later under the 120 night return policy and it is sanitized and put into clearance. That mattress that was in the inventory as new with a cost of $2000 will come back out to the store as clearance item with a cost of just $699 and probably be marked in the store for $1750 (half of list). And on a slow day, $800 could take it home.
So the real mark-up on that premium mattress is what, at least 500%?
There is almost zero consumer transparency when it comes to pricing. Labels are easy to change for each retailer so that the consumer can’t really compare mattresses by name. Maybe you buy the Acme Sleep Well for your store. My chain has 50 stores so I pay for them to sew in a label that says Acme Sleepy Well. Features can be customized for every retailer as well. “Oh, they have 300 coils in their Acme Sleep Well Mattress? We’ll have Acme put 350 coils in the Sleep Well they ship us.” Unless you know how to dig into the mattresses and the manufacturers, the average consumer has no way to compare mattress prices.
I am out of the business now, but I advise everyone to pay no attention to anything but the list prices and after you find what you want, offer to buy today if they take 50% off the entire set-up: mattress, foundation, pillows, everything. If they will do 40% you are in pretty good shape, too. Some stores will negotiate, some won’t. At the firm that I worked at, any sale where we made a dollar or so in profit was a good sale.
Freakonomics Radio podcast from 2016 addressed the mattress store question. In addition to confirming much of the above discussion, they also dealt with the clustering issue. It’s a great listen.
It is comparable, because the reason that gas is a loss leader is that the massive competition in the gasoline market means that profits are almost nonexistent. That’s just my point here.