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The Mattress Industry has Woken up to e-Commerce

Posted on Tuesday, Aug 15th 2017

Till a few years ago, no one would have thought that the hottest trend in e-commerce would be to buy mattresses online. People wanted to be able to feel the comfort of a mattress before they purchased it. But as e-commerce sweeps through our lives, some of these formerly-unthinkable categories are also becoming Internet friendly. The US mattress market is estimated to be a $15 billion industry. Till recently, online sales accounted for a mere 5% of the total sales in the industry, but analysts estimate that this year online mattress sales could account for more than 10% of the market.

Casper’s Offerings

New York-based Casper was launched in 2014 by Neil Parikh, Gabriel Flateman, Constantin Eis, Philip Krim, T. Luke Sherwin and Jeff Chapin. Casper was set up with the objective of producing an affordable high-quality mattress and delivering it quickly, for free, directly to the customer. Casper developed a product after eight months of testing several mattress types. It pioneered a new kind of mattress that combined the supportive feature of a memory foam mattress with a layer of open-cell latex foam to help keep the mattress cool and bouncy. It then compressed the mattress so that it could be rolled to fit into a box for shipping.

Casper did not want to confuse its customers with multiple variants of the mattress. It offers a single model and sells it with a 100-day trial period warranty. A queen size mattress on Casper sells for $949 apiece. The idea was well liked by the market and within a month of the launch, Casper generated $1 million in sales.

Gradually Casper has extended its presence in other sleep related products. It now sells pillows, sheets, duvets, bed frames, mattress protectors and even a dog bed. But like the mattress, options within the categories are limited, but of high quality.

Casper’s Financials

Casper does not disclose its detailed financials. Analysts estimate that it has so far earned $100 million in cumulative sales.

It has been venture funded so far. It has raised $240 million in funding from investors including Adam Levine, A-Grade Investments, Andre Iguodala, blisce, Bullish, Cendana Capital, Cherry Tree Investments, Correlation Ventures, Crosslink Capital, Irving Investors, Jeremy Abelson, Institutional Venture Partners, Kevin Colleran, Kevin Spacey, Kyrie Irving, Leonardo DiCaprio, Lerer Hippeau Ventures, Melo7 Tech Partners LLC, New Enterprise Associates, Norwest Venture Partners, Pritzker Group Venture Capital, QueensBridge Venture Partners, Scooter Braun, Shaun White, Silas Capital, Slow Ventures, SV Angel, Target, Tobey Maguire, Tresalia Capital and Vaizra Investments. The most recent funding was held in May this year when Casper raised $100 million at an undisclosed valuation. The latest funding round was led by Target. It is rumored that Target had even put in a bid to buy Casper last year at a valuation of $1 billion. Casper did not agree to the terms of the acquisition, and the merger talks fell through.

Purple’s Offerings

Casper is not the only one in the online mattress business. Alpine, Utah-based Purple Mattress is another similar company. Purple was founded in 2015 by brothers, Tony Pearce and Terry Pearce. The idea behind the cushioning industry came to the brothers in 1989 when they were fly-fishing in the Rockies. The two decided that they did not want to work for anyone else, but themselves. They started their entrepreneurial journey by designing a lightweight carbon-fiber wheelchair and created a cushioning fluid called Floam. Floam was licensed to brands like Hill-Rom and Johnson & Johnson, and was used in critical-care hospital beds and ankle and knee braces. Floam was still expensive and the brothers then designed a cheaper, consumer-friendly product, Edizone. Edizone was a hyperelastic polymer that was then licensed to Dr. Scholl’s to be used in its blue insoles. A few years later, the brothers were selling seat cushions called WonderGel. Soon, the brothers learned about the bed-on-a-box market and decided to design mattresses.

By 2015, the brothers had designed and set up their mattress company, Purple. They tested their new mattress on Kickstarter to a resounding success. Since then, they haven’t looked back. The mattresses were launched in 2016 and soon they were selling more than they could produce.

I spoke with Purple’s Chief Marketing Officer, Alex McArthur, earlier this year, who admits that the growth was “fairly unexpected“. The biggest driver for Purple’s success has been its material. Purple mattresses use hyperelastic polymer which is a gel-type of food-grade material that sleeps very cool. But besides the product, Purple is also on a tear thanks to its loud branding. Unlike traditional mattress companies, Purple has been focused on being approachable to its consumers. It uses social media to advertise and has recorded more than 450 million views across its Facebook and YouTube content.

Purple’s queen sized mattress sells for $999 apiece. Like Casper, Purple also has diversified into other offerings. It now sells pillows and seat cushions that are made of the its proprietary purple gel and a bed platform base as well.

Purple’s Financials

Purple, like others, keeps its financials confidential. But analysts estimate that it earned revenues of $50 million last year and is expected to go past $200 million this year.  Last month, the company announced that it was merging with Global Partner Acquisition Corp (GPAC), in a deal that valued it at $1.1 billion. The acquisition will make Purple the first publicly traded online mattress company. Funding details prior to the acquisition are not known, but Purple has raised nearly $2 million through crowdfunding sources.

Tuft & Needle’s Offerings

Phoenix-based Tuft & Needle was founded in 2012 by JT Marino and Daehee Park to offer a boutique-quality, bed at a fraction of the cost. The company was set up when Marino, who had recently gotten married, set out to buy a mattress. The newly married couple paid $3,300 for a very luxurious mattress. But the two did not like it and realized that they couldn’t easily return it either. Upset about the purchase, Marino got together with his college buddy and coworker, Park, and the two started looking at the business. They deconstructed Marino’s mattress, and met up with suppliers to talk about the cost of a mattress. They were surprised to learn that the mattress would have cost just over $300. They soon quit their jobs and became mattress guys.

Today Tuft & Needle is the most affordable online mattress seller. Its queen mattress retails for $675 each. The company has also recently expanded into the sheet and pillow business. It began selling its pillows for $100 each, but when it realized that it had overestimated the costs of production, it not only reduced the selling price to $75, but also refunded the difference in the price to its early buyers.

Unlike other online retailers, Tuft & Needle has also expanded into physical stores. Last year, it opened its first store to attract more older consumers to their mattress. They now have three stores and are looking to open two more soon.

Tuft & Needle’s Financials

Within the first year in business, Tuft & Needle had generated $1 million in revenues. It has been growing steadily since. It earned $9 million in 2014, $42 million in 2015 and was estimated to have grown to between $125 million and $225 million last year.

Leesa’s Financials

Then there is Virginia Beach-based Leesa, which was founded in 2014 by Jamie Diamonstein and David Wolfe. Like its peers, Leesa too offers luxury mattresses in a box direct to the customer. Its queen mattress retails for $940 each. But Leesa has a clearly defined social responsibility strategy, making it a B Corp organization. For every ten mattresses that Leesa sells, it donates one to shelters.

Leesa has raised $32 million in funding so far from investors including Better Ventures and TitleCard Capital. Currently, it only sells mattresses, but is looking to expand to other products as well. Its revenues have grown from under $80 million last year to $150 million this year.

Saatva’s Financials

Finally, there is Westport, Connecticut-based Saatva. Saatva was founded by Ricky Joshi and Ron Rudzin in 2010. I spoke with the two of them earlier this year.  Unlike others in the industry, Saatva’s is in the ultra-luxury space. Its mattresses have coil innerspring mattresses with a Euro-pillow top. The founders had realized that the cost to manufacture a mattress was significantly lower than its selling price and that customers were paying the big margin only to experience poor sales and customer service. It offers multiple variants of the mattress with prices ranging from $999 to $1,899 for a Queen sized one. Its financials are not known, but the company is estimating to generate $150 million in revenues this year. Today Saatva has 18 factories and 135 fulfillment centers delivering for it. All this while, it hasn’t raised any VC funding. You can listen to Ricky Joshi talk about his journey here.

Overall, the online mattress industry has nearly 35 players with most of them offering very similar product, shipping and warranty conditions. I won’t be surprised if we hear of consolidation in the industry. The mattress industry is still dominated by Tempur Sealy International and Serta Simmons Bedding, both of which are also expanding their digital presence. But with a mere 10% penetration, the online mattress industry still has a long way to go. Players like Amazon are already catching in on the trend. Tuft & Needle and Purple, for instance, have tied up with Amazon to sell their mattresses. For Tuft & Needle, Amazon accounts for nearly 25% of its sales, but it is now also going to leverage Amazon’s technology to power its new stores. The Tuft & Needle showrooms will now feature tablets for shoppers to access product reviews on Amazon, Echo devices powered by Alexa to answer customer questions, and QR codes so that the mattresses can be purchased in a single click through an Amazon app.

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