The Great Mattress Bubble of 2020–2021
10.14.22
Grandma and Grandpa aren’t the only bird watchers anymore. In the early 2000s, DARPA, the mad scientist R&D branch of the U.S. military, launched a number of “sleep mastery” programs that involved watching the daily minutiae of a tiny sparrow. The songbird, known as the White-Crowned Sparrow, is capable of long sleepless periods (up to 7 days) during its 4,000 kilometer trek from Alaska to southern California each year.
“Despite their apparent sleep loss, migrating songbirds are capable of engaging in adaptive waking behaviors, including prolonged flight, navigation, foraging, and evading predators in novel environments,” observed one researcher. “The preservation of cognitive and physical performance during migration is surprising because sleep restriction in other animals causes profound deficits in neurobehavioral and physiological function.”
Inspired by the sleepless sparrow’s mental aptitude, DARPA launched the Metabolic Dominance and Continuous Assisted Performance projects, which sought to create a “24/7 soldier” who could withstand battle sleep-free for up to a week. (“My measure of success,” said one DARPA official, “is that the International Olympic Committee bans everything we do.”)
“As usual, the U.S. military is making sure that the wild promises of pulp science fiction are kept,” writes author Daniel Wilson in Where’s My Jetpack? A Guide to the Amazing Science Fiction Future that Never Arrived. They aren’t the only ones: the once-stodgy mattress industry, long in bed with the U.S. military (NASA invented the famous memory foam behind Tempur-Pedic mattresses in the 1970s) reinvented itself in 2014 as a cutting-edge tech innovator that tantalized investors with otherworldly promises.
Casper, now the felled unicorn of yesteryear, created a $250 dog bed that “mimicked the sensation of pawing at loose earth.” Purple, once worth nearly $2.6 billion (and now a measly $326 million), claimed to conquer backpain with its GelFlex Grid technology that “cradles pressure points.” Eight Sleep, known as the “Lamborghini of mattresses,” went further, boasting that one day the mattress company would be capable of flagging “kidney stones, cysts, [and] cancer.” “Our vision in the future is to be able to scan your body while you’re asleep and detect early signs of illnesses,” said CEO Matteo Franceschetti in 2021. “The vision for us is to compress your sleep and save your life.”
Why did mattress companies — perhaps the most boring purchase an adult will ever make — attract such fanfare from investors? This week, we break down the great mattress bubble of 2020–2021, a phenomenon equal parts innovation, sleep pathology, and pure George Lucas-invention.
How Sleep Became Profitable
“If you spend eight hours a day in bed, then sleep is shortening your life by a third! That’s the equivalent of dying at the age of fifty — and it’s happening to all of us. This is more than just a disease: this is a plague! And none of us is immune, you realize.”
―Jonathan Coe, The House of Sleep
Sleep didn’t always inspire neurotic regulation. Only in 2016, after Arianna Huffington released her blockbuster hit, The Sleep Revolution, did “sleep hygiene” become a worthy preoccupation for the masses. Huffington, who keeps an embroidered throw pillow on her bed that says, “Sleep your way to the top,” pronounced us in the middle of a “sleep deprivation crisis,” urging the corporate world to reform its behavior.
The book touched a global nerve, capitalizing on the same anxieties now exploited by the $432 billion “sleep economy,” which includes everything from anti-snoring pillows to performance pajamas to more generic sleep aids. In fact, most Americans are sleeping “just as poorly, if not worse than twenty years ago,” according to the National Sleep Foundation. Thirty-five percent of Americans sleep less than seven hours a night thanks to increased screen time, midnight snacking, lack of exercise, lack of sunlight, and increased stress.
Mattresses, the physical origination point of all this insomnia, were primed for a rebranding. Despite the expense of a mattress, most Americans can recall the horrors of walking into a lifeless showroom and being leered at by a “mattress professional” wielding an unshakeable wine glass and an inflated price tag. “Buying a mattress is worse than buying a car,” wrote one consumer advocate in 2008. “While both have sketchy salespeople, when you buy a car, you can compare them on MPG, size, features, etc. Multiple dealers have the same models so you can compare prices and make an informed decision based on their invoice prices. There’s none of that when buying a mattress.”
In 2014, Casper Sleep, arguably the inventor of the D2C foam mattress model, cut through the unsavory tactics of its elders and started peppering the New York City subway with cutesy, full-car ads touting the benefits of sleep (and door-to-door mattress delivery). Casper’s biggest innovation was distribution: by shipping a bed-in-a-box directly to consumer’s doors, it eliminated the tawdriest aspect of mattress buying.
“The alternative, mattress stores, are the stuff of Tarantino movies,” said Scott Galloway, celebrity marketing professor at NYU. “You expect a guy with a sawed-off shotgun to roll in and take hostages. The biggest factor in a company’s growth isn’t the company itself but the incompetence of the incumbents. Casper and the 175 other online mattress retailers (think about that) have disrupted the industry with a better DTC experience.”
Why Did Casper Tumble?
Despite claims to sniff out cancer, most mattresses aren’t that different from one another. One hallmark of the industry, frequently clocked by bewildered consumers, is the inability to tell different mattresses apart. For example, one popular model, the Simmons Beautyrest line, is cleverly repackaged depending on where its sold: at Macy’s, it’s called the “Beautyrest Recharge Allie,” at Sears, the “Beautyrest Recharge Devonwood Luxury,” at Mattress Firm, the “Recharge Signature Select Hartfield.”
The situation is further muddled by the fact that most mattress companies outsource their manufacturing. The market is dominated by just four large manufacturers, according to Dan Schecter, SVP of sales and marketing at Carpenter. One of the world’s largest manufacturers of polyurethane foam, Carpenter produces mattresses for 40% of the mattress industry at 60 factories throughout the country. “The customer comes to us … they say they want a mattress that does these things against the body, and they would like to have these features and advantages as part of their marketing story. We then create the mattresses that dovetail with what their vision is,” said Schecter.
The result is an erosion of brand recognition in an industry that was never known for brand recognition to begin with. “[Casper] built their own brand, but people aren’t brand loyal in mattresses,” said one mattress retailer. “I don’t get customers coming in saying, ‘I’m a Sealy guy, my grandmother was a Sealy guy.’” Casper, once the antithesis of traditional retailers, was forced to partner with the likes of Mattress Warehouse and Costco in the face of slowing growth.
Still, they cling to product differentiation. “The Casper mattress at Costco is not the same as other Casper beds because it is only available at Costco,” writes one industry insider. “This Costco-exclusive is called Casper Select, and it’s also a member-only item.” Yet the threat of copycat competitors remains very real. “The company … doesn’t own any intellectual property, making it hard to stand out from the crowd,” wrote Grizzle Media. “The decision not to create patented products in-house has come back to bite the company.”
Casper itself admitted the fallibility of its special formula, conceding that “competitors have attempted and will likely continue to attempt to imitate our products and technology,” a risk that it “may not be able to prevent.” But even companies that produce their own mattresses, such as Tempur Sealy, faced difficulties this year. “We believe the overall U.S. mattress business, our largest market, had its toughest volume decline in 15 years, with industry units down 20 percent to 25 percent compared to last year’s record second quarter volumes,” said company Chairman and CEO Scott Thompson.
As a manufacturer, the company faced commodity headwinds from the volatile price of petroleum and steel-based products. And, on the demand side, consumers rolled back purchases in response to inflation. “Unless you are moving out of your parents’ house or returning from an extended world tour, mattresses are discretionary purchases,” wrote Utpal Dholakia, professor of marketing at Rice University. “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.”
Marketing Isn’t What It Used To Be
Perhaps the biggest takeaway from the recent mattress boom-and-bust cycle is a harsh lesson in the delicate balance between customer acquisition (CAC) and lifetime value (LTV). Mattress startups, once the golden goose propelling every subway and podcast ad, have dramatically culled advertising spend (Purple, for example, cut advertising by 56% last quarter and witnessed a subsequent decline of 39.2% in ecommerce).
“What all of these startups have discovered is that the cost of acquiring a customer online is exorbitant as a percentage of the purchase price — some estimates put that cost at 15 percent,” writes one Retail Watch columnist. “Even worse, once you get this customer, chances are you aren’t selling them another mattress for a decade.” And, in an industry with irregular sales like the mattress industry, Facebook, Google, and podcast listeners become the key benefactors.
The no-frills basement warehouse aesthetic, it turns out, may have been the smarter play all along. While Casper tried to attract repeat customers through other sectors of the Sleep Economy — dog beds, CBD gummies, a smart nightlight, etc. — today, under the direction of Durational Capital Management, the company has abandoned its dreams of being a sexy lifestyle brand and refocused on its true identity: a boring mattress retailer. “The strategy was to be the Nike of sleep,” said CEO Emilie Aril. “Nobody knows what that means. That sounds very exciting, but hard to execute on. We weren’t making any money. We’re not nonprofit… VC money is not falling from the ceiling anymore, we need to be very specific on what we’re working on.”
Some, like Tuft & Needle, have thrown in their lot with — in the words of Galloway — a “middle-aged retailer looking for a shot of Botox.” (In 2018, the company was acquired by Serta Simmons, one of the largest mattress retailers in the US.) Start-up retail, he admits, has always been “a wonderful place to shop and a terrible place to invest or work.”
About Colbeck: Colbeck is a strategic lender that partners with companies during periods of transition, providing creative capital solutions to meet their evolving needs. You can reach the team at inquiries@colbeck.com.
