251. Are We in a Mattress-Store Bubble?

You've seen them — everywhere! — and often clustered together, as if central planners across America decided that what every city really needs is a Mattress District. There are now dozens of online rivals too. Why are there so many stores selling something we buy so rarely?

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Stephen J. Dubner?

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• 0:45Stephen J. Dubner?

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• 1:28Stephen J. Dubner?

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• 2:12Stephen J. Dubner?

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• 2:31Speaker 01

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• 2:52Stephen J. Dubner?

  We recently sent our radio producer friend, Bill Healy, for a drive down US Highway 41 in Sherrville, Indiana, a small town about 40 miles south of Chicago.

• 3:02Speaker 02

  All right, so we're driving along. Here's Main Street.

• 3:06Stephen J. Dubner?

  We'd asked Bill to keep his eye out for mattress stores.

• 3:09Speaker 02

  OK, I see my first mattress firm. Yeah.

• 3:13Stephen J. Dubner?

  The assignment turned out to be pretty easy. In fact, overwhelmingly easy.

• 3:17Speaker 02

  Oh, here's the Sleepies. Wow, that is really close. Yeah, so they're probably a block from each other. And there's a mattress firm on the other side of the street. I'm talking about a different mattress firm now I'm seeing on the next block.

• 3:36Stephen J. Dubner?

  Mattress Firm is, by number of stores, the biggest specialty mattress retailer in these United States. In fact, it owns Sleepies as well, as of a few months ago. Next, Healy passes a place called Bedding Experts, then a Sears, which also sells mattresses, and a store called American Mattress.

• 3:55Speaker 02

  Here's another mattress firm.

• 4:01Speaker 02

  Does that make any sense?

• 4:04Stephen J. Dubner?

  In this one small town, there are five mattress firm and mattress firm-owned stores within a mile of one another.

• 4:11Speaker 02

  All right, I'm at the entrance to Mattress Firm, and I'm starting my timer now. And I am driving in the parking lot. And I am driving to the closest mattress firm shop. OK, and I'm still in the parking lot. And...

• 4:33Speaker 02

  I'm at another mattress firm. That was 22 seconds between them.

• 4:41Stephen J. Dubner?

  You may have noticed this where you live, too. A proliferation of mattress stores and a clustering together, too, as if central planners decided that what every city really needs is a mattress district. Today, on Freakonomics Radio, why are there so many mattress stores?

• 4:59Speaker 03

  Pretty much every single strip mall that I've been or drive past, there's a mattress store.

• 5:05Stephen J. Dubner?

  How many is too many?

• 5:07Speaker 04

  I would expect, across the whole US, that we probably will see net growth of mattress stores. And it's not over yet.

• 5:14Stephen J. Dubner?

  Will the internet kill off the mattress stores?

• 5:17Speaker 05

  We're still tiny. I mean, it's such a big category.

• 5:21Stephen J. Dubner?

  And will Bill Healy ever run out of mattress stores to visit in Shererville, Indiana?

• 5:26Speaker 02

  OK, now I'm kind of excited. Like, where's the next mattress store gonna be?

• 5:39Speaker 06

  From WNYC Studios, this is Freakonomics Radio, the podcast that explores the hidden side of everything, with your host, Stephen Dubner.

• 5:54Speaker 02

  So can I ask you a few questions?

• 5:55Speaker 07

  Yeah.

• 5:56Speaker 02

  If you don't mind.

• 5:56Speaker 07

  No, not at all.

• 5:57Speaker 02

  Nope, not at all.

• 6:03Stephen J. Dubner?

  During his survey of mattress shops in Shererville, Bill Healy stopped inside a furniture depot, yet another mattress retailer, which is where he met Linell Lushbaugh and her 21-year-old son Hayden Snodgrass.

• 6:16Speaker 02

  So what are you looking for today?

• 6:18Speaker 08

  We're looking for two twin mattresses for the boys.

• 6:20Speaker 09

  Two twins for me and my brother. Share a room, so two twin beds.

• 6:23Stephen J. Dubner?

  Furniture Depot sells all kinds of furniture, but the salesman here, Joe Deasy, says mattresses have their own special place in the showroom.

• 6:31Speaker 10

  Usually keep those towards the back of the store. It's a little bit more of an intimate purchase, I feel.

• 6:36Stephen J. Dubner?

  But Deasy says a lot of customers don't take advantage.

• 6:39Speaker 10

  They just walk up to the mattress and they just kind of, you know, press down on the mattress, rather than actually laying on it and trying the mattress.

• 6:47Stephen J. Dubner?

  So he gets Hayden Snodgrass to lie down on one.

• 6:53Speaker 09

  Oh, that's nice. Yeah, I was just gonna say, just gonna stay here. I'm good, I'm good.

• 6:58Stephen J. Dubner?

  What do you like about it?

• 7:00Speaker 09

  I like the firmness of it. There's no, it's not soft, like too soft for me. I spent years as a kid when I went and stayed at grandma's to sleep on the floor. So I got so used to sleeping on the floor at grandma's that the firmness is what I like now.

• 7:14Stephen J. Dubner?

  So he's ready to buy this mattress, but his mom thinks it's too firm.

• 7:18Speaker 09

  It's just like laying on plywood.

• 7:21Stephen J. Dubner?

  So they decide to try another store.

• 7:23Speaker 09

  All right, you want to run down there real quick and we'll come back? Yeah. All right.

• 7:27Stephen J. Dubner?

  Remember, there are plenty of mattress stores to check out in Shererville. One retailer told us there were at least 17 places to buy a mattress on this one commercial strip. Now, this is not unique to Shererville.

• 7:42Speaker 11

  It does turn out that there are literally thousands of mattress stores in this country.

• 7:46Stephen J. Dubner?

  That's Uthpal Dalakia. He is a professor of marketing at Rice University in Houston, Texas, which also has a lot of mattress stores.

• 7:55Speaker 11

  Every corner and in every strip mall. Within a few blocks, you could easily find five mattress stores in multiple places in the city.

• 8:03Stephen J. Dubner?

  One day, Dalakia says, a student of his had a question he couldn't answer. She had just moved to Houston from England. The question?

• 8:12Speaker 11

  Why are there so many mattress stores in America?

• 8:18Speaker 03

  Pretty much every single strip mall that I've been or drive past, there's a mattress store.

• 8:23Stephen J. Dubner?

  That is the student, Zara Zain Emerson.

• 8:26Speaker 03

  Personally, I thought it was just me being silly because I'm not from Houston. And maybe it's something very obvious, the reasoning.

• 8:34Stephen J. Dubner?

  But to her professor, the reasoning wasn't obvious at all.

• 8:38Speaker 11

  I'd seen all these mattress stores everywhere, but I never really thought about this issue.

• 8:43Stephen J. Dubner?

  We recently got a related question in the Freakonomics Radio inbox. A listener named Jared Taylor had noticed an awful lot of mattress stores lately, particularly online stores like Casper and Tuft and Needle and Lisa. What gives, Jared wrote, don't get me wrong, I'm all for some disruption in an industry with a traditionally terrible customer experience, but why now? Why did mattresses start blowing up? How can the market sustain so many similar companies popping up at once? Or can it? Are they copycats? Or was it just time for indie culture to reach the realm of sleep?

• 9:22Stephen J. Dubner?

  Okay, let's try to find some answers. When Uthpal Dalakia got interested in this topic, he began reading mattress industry reports, talking to people in the business.

• 9:34Speaker 11

  It was kind of like qualitative research, just to get a sense of what factors might drive the number of mattress stores.

• 9:41Stephen J. Dubner?

  Okay, what is the number of mattress stores? One good estimate indicates there are at least 9,200 mattress stores in the United States. By comparison, there are some 12,700 Starbucks in the US. Since coffee is something a lot of people buy every day, it might make sense to see more than 12,000 Starbucks and, of course, many other coffee shops. But 9,200 mattress stores? Most people buy only a few mattresses in their lifetime. So how can it make economic sense to have so many stores?

• 10:12Speaker 11

  First of all, running a mattress store is quite profitable compared to running other types of retail stores.

• 10:20Stephen J. Dubner?

  We are talking markup, people.

• 10:24Speaker 11

  If you talk about a supermarket or some kind of grocery store, the margins on average are in the single digits and they could often be below 5%. And this is true for many types of retail, for clothing, for example, and so on, where margins are quite low. And when you compare selling mattresses, the contrast is quite stark. A mattress can easily be marked up 40%, 50%, 100% and even more.

• 10:49Stephen J. Dubner?

  Consider a mattress that a store sells for $1,000.

• 10:54Speaker 04

  In that scenario of a $1,000 mattress, at a gross level, a mattress store would be walking away with $600.

• 11:02Stephen J. Dubner?

  That's Brad Thomas. He's an equity research analyst for KeyBank Capital Markets in New York. Retail profits are steep for a mattress because manufacturing costs are low.

• 11:13Speaker 04

  So a bed with a retail price point of $1,000 probably costs about $250 to make.

• 11:23Stephen J. Dubner?

  Which leaves plenty of potential profit on the manufacturing side and the retailing side. Now, a retailer certainly has plenty of costs that cut into that $600 gross figure, rent and labor costs, of course, but those are not the big expenses. It's mostly sales and marketing and franchise fees. Still, running a retail mattress shop is relatively cheap. Uthpal DeLakhi again.

• 11:47Speaker 11

  So I did the math by talking to some of these store owners and they told me they have to sell anywhere from a dozen to 20 mattresses a month to essentially cover their costs. And there are several reasons for this. So one reason is that their overhead costs are much lower, so they don't stock inventory, for example. They'll just deliver the mattress from their distributor or the warehouse and so on. Many of their employees are on commissions, which again lowers the labor costs.

• 12:16Stephen J. Dubner?

  So it's a relatively cheap business with relatively large markups, which together go a long way toward explaining the proliferation of mattress stores. You've also got pent up demand from consumers.

• 12:30Speaker 11

  In the recession, a lot of people postponed buying mattresses. And there are many reasons for this. So people were moving much less, they were staying put in their own house, they were marrying much less, so the number of marriages went down. And these are the types of triggers which actually drive mattress purchases. People move, people get married, people move to a bigger house or a new house, that's when people buy mattresses. And so during the recession for a period of five or six years, people just stopped buying mattresses. And so there was a lot of pent up demand. And so in the last three years or so, much of this pent up demand has really released

• 13:10Speaker 11

  and encouraged many of these mattress companies to open new stores at a rather rapid pace.

• 13:16Stephen J. Dubner?

  Indeed, mattress sales have finally gotten back above their pre-recession levels. The US retail bedding market last year was in the neighborhood of $15 billion. So the pie has gotten larger, which, not surprisingly, has led some large firms to try to get even larger through acquisitions. Mattress Firm, for instance, which now owns Sleepies, Mattress Pro and Sleep Train. This is another factor in the proliferation of retail shops in a small place like Sherrville, Indiana.

• 13:48Speaker 12

  Part of this is because there is one large public company

• 13:54Speaker 12

  that has made seven acquisitions in the last two years. And a number of those happen to be in the Chicago area.

• 14:01Stephen J. Dubner?

  That's Jerry Epperson. He's a furniture market researcher. But one large public company he's talking about is Mattress Firm.

• 14:09Speaker 12

  And they ended up with a large number of different branded stores. And they have not had the time or opportunity to go through and sort through the leases and the real estate and figure out which are keepers and which are losers. You see this happen oftentimes with bank mergers.

• 14:28Stephen J. Dubner?

  You may have seen a Mattress Firm commercial on TV.

• 14:31Speaker 13

  I shopped at the wrong mattress store and made an eight-year mistake. And made an eight-year mistake.

• 14:36Speaker 14

  To sleep happy night after night, replace your mattress every eight years. Presented by Mattress Firm. Save money, sleep better.

• 14:43Stephen J. Dubner?

  Mattress Firm has rapidly become what some industry people say is the first national mattress retailers. There are now some 3,500 Mattress Firm-owned stores in the United States, including those five in Shererville. Producer Bill Healy visited one of them.

• 14:59Speaker 02

  How you doing? Sir, welcome to Mattress Firm. Good. Hi, how are you? Good. We're a little business, but one of us will be with you as soon as we come. Thanks.

• 15:06Stephen J. Dubner?

  That's where he found Linell Lushbaugh and Hayden Snodgrass again, the mother and son shoppers.

• 15:12Speaker 02

  Hello again.

• 15:13Speaker 08

  Are you kidding me?

• 15:15Speaker 02

  Hi. I'm following them around.

• 15:17Speaker 08

  That is hysterical.

• 15:18Speaker 15

  We got a stalker, is that what I am?

• 15:20Speaker 08

  Yeah.

• 15:20Speaker 02

  Hi, you know, I'm a radio reporter and I'm doing a story about mattress shops along US 41.

• 15:25Speaker 15

  Would you mind, can I record you again?

• 15:27Speaker 08

  Absolutely.

• 15:27Speaker 15

  If you don't mind, would you mind that? Actually, I would.

• 15:30Speaker 02

  You would?

• 15:30Speaker 15

  Unfortunately, I would. That's a corporate thing.

• 15:33Speaker 02

  Okay. You know, would you mind if I waited outside and talked to you afterwards? Okay. All right. Kicked out of my first mattress firm, but I will wait.

• 15:44Stephen J. Dubner?

  Healy waited outside in the parking lot until lush bough and snodgrass came out.

• 15:49Speaker 02

  And how was this one? So it's mattress firm?

• 15:52Speaker 08

  They're expensive for...

• 15:53Speaker 09

  For pretty much the same bed as you would get down there.

• 15:55Speaker 08

  In our price range, it was crap.

• 15:57Speaker 09

  They're $100 more for what I think is the same type of bed that I would get down there for $359. So to me, they were more expensive.

• 16:05Stephen J. Dubner?

  So here's another way in which the mattress industry is a bit odd. It can be really hard to compare prices between nearly equivalent mattresses when you go from store to store.

• 16:16Speaker 12

  It's almost impossible.

• 16:19Stephen J. Dubner?

  Jerry Epperson again with the investment banking firm Mann, Armistead and Epperson in Richmond, Virginia. He has been studying the mattress industry for 45 years.

• 16:30Speaker 12

  Most of your larger name brand mattresses try to put an identity on a mattress that it sells on this corner that has a different identity to the mattress they sell on the opposite corner to a competitor. So this one might be the Westchester and the one across the street might be the Winchester. So what you need to do as a consumer is first of all, you know, use your own senses as to the mattress. Look at the spring count, look at the foam density, look at the material on the outside.

• 17:09Speaker 12

  And finally, just look into the features of that mattress. Compare the features. Don't look for the same identifying name. And when you talk about a Serta, a Sealy, a Simmons, almost all of the big guys. They sell a broad mix of mattresses from very inexpensive up to extremely expensive mattresses. And so the brand name doesn't tell you what, say, the word Lexus does with an automobile.

• 17:42Stephen J. Dubner?

  Okay, so let's talk about some sales numbers and prices and things like that. Do we buy more mattresses per capita now than we did 10, 20, 30 years ago?

• 17:52Speaker 12

  Yes, sir. Several reasons for that. Number one, we're buying larger mattresses. Forty percent of American homes were built before 1970, and we didn't have queen or king-sized mattresses until the 60s. So, very few homes built before 1970 were built for these larger mattresses. And queen and king-sized mattresses today have become the norm in many households rather than the exception. Secondly, we're buying more expensive mattresses because we're paying more for the technology that goes into them. And mattresses are moving towards a replacement cycle that's closer to seven to eight years rather than 10 years or longer.

• 18:37Stephen J. Dubner?

  I'm curious if mattress sales have risen over time in part because fewer people are cohabiting, getting married, et cetera, and therefore more people need their own mattresses? Do you know anything about that?

• 18:52Speaker 12

  Well, as you know, now we're just over 30% of all households are single-person households. And we kid over the years that if you're in the furniture or mattress industry, we encourage divorce because they both can't take the sofa, they both can't take the mattress, and if we can keep them separated, we're going to sell two mattresses instead of one.

• 19:15Stephen J. Dubner?

  So, it's you guys that have been behind the rising divorce over the decades in America, yes? It's the furniture and mattress industry?

• 19:22Speaker 12

  We played a modest role, I'm sure.

• 19:25Stephen J. Dubner?

  Would you say that your interest in the mattress industry is purely professional? Or have you come to love it over time?

• 19:34Speaker 12

  Well, I enjoy my personal mattress. We have a good relationship. And yes, I enjoy the industry. It's a fascinating, fascinating industry because if you think of it in a business sense, you have to be a strong marketer to be in the mattress industry because they're really selling identical rectangular slabs, and the consumer has no clue what's inside.

• 20:00Speaker 12

  The technology that's changing the new gels and the foams, all these technologies that come and go and change these mattresses and are making them so much better, make it a very exciting business.

• 20:13Stephen J. Dubner?

  And yet, as exciting as those gels and foams may be, Brad Thomas of Keybank Capital Markets says most people these days buy a mattress that is very similar to the basic innerspring mattress that's been around for a long time.

• 20:27Speaker 04

  The innerspring bed really came about back in the late 1800s, and that's been the standard up until very recently. Last year, 85% of the mattresses sold in the US in units were innerspring beds. We haven't seen a whole lot of innovation. It's been slow to unfold.

• 20:46Stephen J. Dubner?

  Back in Sherrville, meanwhile, Bill Healy was still tagging along with Lynell Lushbaugh and Hayden Snodgrass. They'd just left the mattress firm empty-handed and decided to try the Sleepies across the street, unaware that Sleepies is also owned by Mattress Firm.

• 21:03Speaker 02

  So this might seem a little crazy, but can I follow you to Sleepies and see if it's better?

• 21:08Speaker 08

  Yeah, but they might not let you in, though, because it's a corporate.

• 21:10Stephen J. Dubner?

  On the short drive over, Snodgrass stuck his hand out the window and signaled Healy to pull into a different store they spotted. American Mattress, no relation to Mattress Firm or any other chain. The salesperson here was named Jason Herrera.

• 21:26Speaker 02

  Would you mind if I kind of followed them as they...

• 21:30Speaker 16

  I'd rather you not, because it's going to make the customers feel uncomfortable. We don't want that.

• 21:35Speaker 02

  I followed them here.

• 21:36Speaker 16

  Oh, you followed them here?

• 21:37Speaker 02

  Yeah, I went to the last two stores they went to.

• 21:39Speaker 16

  Okay, and I haven't bought a bed yet, so I'd appreciate giving them some space.

• 21:44Stephen J. Dubner?

  So Healy stayed behind to chat with Herrera while Lushbaugh and Snodgrass went off to try out some mattresses. Healy learned, for instance, that it is not unusual for customers to fall asleep when they're trying out a new mattress.

• 21:56Speaker 16

  And we're not supposed to wake them up? Because if you wake them up, they don't know where they're at, could freak them out. So we just let them sleep until they wake up. Generally, they buy the bed. You know what I'm saying? Generally, they do buy the bed after they've slept on it, fell asleep on it, but...

• 22:09Speaker 02

  Is it because they're embarrassed, or because they think, oh, this is a good...

• 22:12Speaker 16

  I think a little bit of both. A little bit of both, yeah. Have you ever had anyone? No, nobody's ever had sex in the beds. Is that what you're gonna ask? No. They wet the beds? No, no, wet? No, no, nobody's ever wet the beds.

• 22:26Stephen J. Dubner?

  Lush Bar and Snodgrass were done shopping by now.

• 22:29Speaker 16

  Did you find one? Yeah. See? No mic in their face. That might be why they bought a bed, bud. So they bought one at American Mantras, see?

• 22:39Speaker 09

  It's a hundred dollars cheaper and the frame was included. Price wise, you couldn't, couldn't beat it. Not compared to what it was down there at the discount. And especially at Mattress Firm, they were outrageous.

• 22:48Speaker 16

  Say that one more time.

• 22:49Speaker 09

  They were outrageous at Mattress Firm, outrageous.

• 22:55Stephen J. Dubner?

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• 23:40Stephen J. Dubner?

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• 23:57Stephen J. Dubner?

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• 25:03Stephen J. Dubner?

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• 25:34Stephen J. Dubner?

  Coming up on Freakonomics Radio, are there really too many mattress stores in America? I did not think there's too many mattress stores today. And isn't the mattress a perfect candidate for some good old-fashioned internet disintermediation?

• 25:49Speaker 05

  Yes, by far, most of our customers are buying it direct online.

• 25:52Stephen J. Dubner?

  Also, is there a secret anthropological explanation for why people have been willing to pay the huge markup on mattresses?

• 26:00Speaker 11

  If you go back to colonial America, the bed was the most important possession that people had.

• 26:10Speaker 01

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• 26:35Stephen J. Dubner?

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• 27:18Stephen J. Dubner?

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• 27:44Speaker 04

  I did not think there's too many mattress stores today.

• 27:50Stephen J. Dubner?

  That's Brad Thomas, the KeyBank analyst we heard from earlier. Even with the mattress store explosion, he says, and with corporate consolidations, the trend line is still rising.

• 28:02Speaker 04

  The reason being that I think there's still an opportunity for the specialty category, those stores that only sell mattresses, to take market share away from furniture stores and department stores. So I would expect, across the whole US, that we probably will see net growth of mattress stores. And it's not over yet.

• 28:20Stephen J. Dubner?

  So that might explain why we're seeing so many mattress stores out there. But why are they so often clustered together?

• 28:27Speaker 15

  So there are really two dynamics at work here.

• 28:32Stephen J. Dubner?

  That's Ken Stief. He is an urban planner who teaches at the University of Pennsylvania.

• 28:38Speaker 15

  The first has to do with what are called lower and higher ordered goods. So as an example, milk and eggs are lower order goods. If you live in a rural area, you're not likely to go more than a few miles down the road to get your necessities. If you live in the city, you really just want to walk out of your house, go down in the corner store and get things like milk and eggs. And you'll notice that corner stores rarely cluster on the same block. Now mattresses, cars, diamonds, goods like that, more expensive goods, these are examples of higher order goods. Consumers purchase them much less frequently, and when they do, they're willing to travel further to purchase them. Okay, that makes sense, but why the clustering? This is strangely wonderful sort of natural economic phenomenon, that two retailers

• 29:19Speaker 15

  selling comparable goods will, they'll basically shift their position in a city or a region in order to try to capture more market share. And the sort of interesting natural outcome is that both firms will literally wind up next door to each other. And I know this sounds weird, if they're competing, why would they end up next door to each other? Okay, why? Imagine two mattress stores or car dealerships who both endeavor to control the most amount of geographic market share in a city. When one moves their location to capture the majority of the market share, her competitor will answer in kind. And the two retailers will move and move again and move until they both realize that the optimal location where they both capture the majority of the market share is directly next door to each other.

• 30:03Speaker 15

  And at this point now, neither retailer can move in order to capture a disproportionate amount of the market share. And this is really why you see mattress stores and car dealerships and diamond stores now clustered. But as Stifte said, there is a second reason for the clustering. If you talk to an urban economist or a city planner will tell you that the reason cities exist is because of this dynamic called agglomeration. And it hearkens back to a very basic principle of economics. It's that firms tend to cluster in space to take advantage of scale economies. So the fact that clustering firms, they can share inputs, they can share customer bases, they can share a well-trained labor pool. It basically all helps to reduce the cost of doing business and it helps to increase revenues.

• 30:47Stephen J. Dubner?

  So that explains the clustering of mattress stores. And the proliferation seems to be best explained by the simple economic fact that there's such a high markup possibility for mattresses. And that might best be explained by our history.

• 31:04Speaker 11

  It turns out that if you go back to colonial America, for a vast majority of families, the bed was the most important possession that people had.

• 31:13Stephen J. Dubner?

  That, again, is Rice Marketing Professor Uthpal Delakia.

• 31:17Speaker 11

  If there was a fire in a house, the firemen actually tried to save the bed before anything else, simply because it was so expensive and so precious.

• 31:27Stephen J. Dubner?

  You could see why. Mattresses were, of course, handmade back then and stuffed with straw or feathers or horsehair. So people were used to treating them as, if not quite a luxury item, at least an item that was particularly costly. So here's a theory.

• 31:44Stephen J. Dubner?

  If we believe what behavioral economics tells us about anchoring, the idea that the first price or number we encounter sets an anchor in our minds that we have a hard time moving away from, then could this be why people are still willing to spend so much money on a mattress? I mean, even after machine manufacturing lowered the cost of producing mattresses, consumers were still accustomed to the idea of the mattress as a very expensive item. And this, in turn, allowed manufacturers and retailers to get away with such a high markup.

• 32:20Speaker 15

  I think that's absolutely true.

• 32:22Stephen J. Dubner?

  That's James Newell.

• 32:23Speaker 17

  I'm a VP at a firm called IVP, Institutional Venture Partners. We back the best later-stage technology companies in the world.

• 32:32Stephen J. Dubner?

  Companies like Snapchat and Twitter and Kayak. So what's a venture capitalist like that doing an episode like this about mattresses?

• 32:41Speaker 17

  Yeah, you know, it's interesting because it's not, you know, we didn't, we didn't necessarily go looking for the world's best mattress company to go and fund because in the venture world, you're looking for, for businesses that can get scale very, very quickly and as a result, need capital in order to fund that growth. And so you don't necessarily think about the mattress industry first.

• 33:01Stephen J. Dubner?

  Or second, or third, or fourth, I would say.

• 33:04Speaker 17

  It's a little bit further down that list, but I think, you know, after peeling back the onion a little bit and understanding a little bit about the industry dynamics, you can see why a vertically integrated direct-to-consumer brand is actually quite attractive within the mattress industry.

• 33:17Stephen J. Dubner?

  The vertically-integrated, direct-to-consumer brand he is talking about is Casper, an online mattress company.

• 33:24Speaker 17

  Well, I think that they would tell you that they're not a mattress company, that they're a digital-first brand around sleep.

• 33:30Stephen J. Dubner?

  Okay, I stand corrected. In any case, IVP did invest in Casper.

• 33:35Speaker 17

  We own just under 10%.

• 33:36Stephen J. Dubner?

  And Casper, we should say, is hardly the only digital-first sleep brand.

• 33:41Speaker 18

  Yoga Bed, Lisa, Eve, Sunday, Andy, Loom and Leaf.

• 33:46Stephen J. Dubner?

  Lindsay Kaplan, Casper's Vice President of Communications, naming some of her rivals.

• 33:52Speaker 18

  Tuck, Helix, Oso, Bear, Zoto, Luxy.

• 33:56Stephen J. Dubner?

  An online brand, Kaplan says, has an opportunity to change the conventional thinking about mattresses.

• 34:03Speaker 18

  Which is mattresses are gross, nobody likes their mattress brand, nobody likes the experience, so how do you actually flip that and make something that people love? And people love talking about their beds now.

• 34:17Speaker 18

  There he is. It's the mattress mogul of New York.

• 34:20Stephen J. Dubner?

  That's Philip Crim.

• 34:21Speaker 05

  I'm one of the co-founders and CEO of Casper.

• 34:23Stephen J. Dubner?

  Casper is still a very young company.

• 34:26Speaker 05

  We're just over two years old. We launched the business April 22 of 2014.

• 34:30Stephen J. Dubner?

  And Crim and Kaplan themselves are still young.

• 34:33Speaker 18

  Which I think was really important because the industry is so old and it's full of people who have been doing the same thing over and over again. And it's really hard to reinvent because they're stuck in this industry where I don't think they can make a change and still continue to make such big profits.

• 34:55Stephen J. Dubner?

  But how much can online companies disrupt an industry as established as the mattress industry?

• 35:03Speaker 05

  We're still tiny. I mean, it's such a big category, so we still think we have a long ways to go.

• 35:08Stephen J. Dubner?

  Indeed. Online mattress sales account for only about 6% of total mattress sales. This does not come as a surprise to someone like Jerry Epperson, the old-school furniture market researcher. To him, a mattress is something you select by lying down on it in person, in a store, not by clicking a mouse and then having it delivered by bicycle, which is what Casper likes to do, with a big mattress stuffed into a relatively small cardboard box.

• 35:37Speaker 12

  When you take a mattress out of a box and you slowly watch as that mattress inflates and it goes up to full size, I guess that's entertaining to some. It reminds me of an old Dick Van Dyke where Laura Petrie accidentally unboxed a air-inflatable raft. But anyway, people like that, and that's the fascination. And a lot of this has to do with appealing to young people. They see something that's fun, that's sexy.

• 36:10Stephen J. Dubner?

  Okay, so let's put Jerry Epperson in the unimpressed with the online mattress company category. And let's remember that online stores do account for only 6% of mattress sales. And let's also remember that James Newell's venture capital firm, IVP, owns 10% of Casper. So how much would you imagine that 10% of Casper is worth? Would you believe about $55 million? That's right, Casper, which is still privately held, is valued at $555 million, half a billion dollars, on revenues of $100 million last year. Now, compare those numbers to a behemoth like the publicly traded mattress firm.

• 36:55Stephen J. Dubner?

  Its revenues last year were $2.5 billion, or 25 times Casper's revenues. Its market cap, meanwhile, is only $1.3 billion, not even three times larger than what Casper is already valued at. And Casper is expected to at least double its revenues this year. All of which would seem to indicate a very healthy appetite for buying mattresses online, perhaps at the expense of those thousands upon thousands of roadside mattress stores.

• 37:28Speaker 10

  Our best seller here is called the Phoenix. You get the mattress and the box bring with this for only $3.99.

• 37:38Stephen J. Dubner?

  Unless, of course, it doesn't mean that at all.

• 37:42Speaker 11

  People actually prefer to go in a physical store to buy a mattress.

• 37:45Stephen J. Dubner?

  Utbal Delakia again.

• 37:46Speaker 11

  Buying a mattress is an uncommon purchase. So you buy three or four mattresses in your lifetime, if that many. So you're not really used to deciding how to buy a mattress. And even more importantly, people actually want to try a mattress and basically lie down on it, at least most people do, to see how it feels.

• 38:06Stephen J. Dubner?

  So to Delakia, if the question is, are there too many mattress stores in America? The answer would be no. Unless you change the question slightly and ask, are there too many stores in America?

• 38:24Speaker 11

  In the US, we just have too much retail overall, period, not just mattress stores.

• 38:30Stephen J. Dubner?

  That's right. The proliferation of mattress retailing is just a subset of a larger problem. A proliferation of retailing, period. Which is an interesting claim for a professor of marketing to make.

• 38:44Speaker 11

  So, one statistic which I found to be very interesting is that America has 46 square feet of retail space per capita. In contrast, UK, United Kingdom, has just nine square feet, less than a fifth. And in fact, the UK is the European country with the most retail space per capita. So, all other European countries have much less retail space. And so, in America, we just have a lot of retail. Even with the online retailing shift, we still have too many retail stores of every type, not just mattresses.

• 39:21Stephen J. Dubner?

  And maybe that's the best explanation of all for why America has so many mattress stores. All that retail space throughout the land means we spend a lot of time shopping, which of course is very tiring, which of course means we yearn for sleep, which of course means we need a lot of mattress stores. Case solved.

• 39:53Stephen J. Dubner?

  Coming up next time on Freakonomics Radio.

• 40:00Stephen J. Dubner?

  There's a lot of news going on in the world these days, so we ask one of those obvious questions that we are so fond of. Why do we really follow the news?

• 40:09Speaker 19

  I think that reading about the news may make people smarter.

• 40:13Speaker 20

  I think a lot of people would say there's entertainment value to news. For some reason, I have always had to read The New York Post in print every day.

• 40:24Stephen J. Dubner?

  I think very little of the news actually today is of practical value. So, why do we follow the news? That's next time on Freakonomics Radio.

• 40:37Stephen J. Dubner?

  Freakonomics Radio is produced by WNYC Studios and Dubner Productions. This episode was produced by Christopher Wirth and Irvic Gunja with help from Kasia Mihailovich. Our staff also includes Jay Cowett, Merritt Jacob, Greg Rosalsky, Alison Hockenberry, Jolenta Greenberg, and Caroline English. You can subscribe to this podcast on iTunes or wherever you get your podcasts, and we will deliver our next episode to you in your sleep, whatever mattress you're lying on. Also, you should come visit Freakonomics.com where you can find our entire podcast archive, as well as a complete transcript of every episode ever made, along with music credits and lots of extras. Thanks for listening.

• 41:38Stephen J. Dubner?

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• 42:09Stephen J. Dubner?

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• 42:41Stephen J. Dubner?

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• 43:19Speaker 21

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