Mattress sales are dominated by the “big S” companies — Simmons, Serta and Sealy — that control the $13 billion U.S. mattress market like an oligarchy, together with specialty mattress leaders Select Comfort and Tempur-Pedic.
It’s an industry that boasts 20- and 25-year warranties, yet famously refuses to honor these warranties if the mattress has a minor stain on it.
The mattress industry, responsible for such outlandish vagaries as a $175,000 mattress, is notorious for offering expensive bedding with smart “inner coil” technology backed by little scientific proof. And its multi-tier distribution network of 100-200% markups, often result in a $300 bill of materials selling for $3,000.
That this sad scenario is ripe for reinvention was not lost on two stealthy startups that are bringing Silicon Valley-style disruption to mattress sales:
- Tuft & Needle – When two former tech employees invest $6,000 in a mattress startup and end up not only selling Amazon.com’s highest-rated mattresses, but also the retailer’s best-rated furniture product overall, you know you’ve got a worldbeater. And that’s just after the company’s first full year in business, in which it generated $1 million in 2013 sales. Tuft & Needle is on track to reach $5 million in sales by yearend 2014.
- Casper – After raising a total of $15 million from such industry heavyweights as New Enterprise Associates, Casper is poised to make its latex-and-memory-foam mattresses a household name. Like Tuft & Needle, Casper cuts out the middle man and sells direct to consumer at a much lower cost, while offering a 100-day free trial for customers. If that’s not good enough, shipping is also free.
As Casper CEO Philip Krim told TechCrunch, “We created Casper to be a transparent mattress brand. Casper is honest about prices, doesn’t create additional SKUs to confuse customers, and doesn’t hide its business practices.”
That kind of talk is bound to cause sleepless nights for the competition.
As Edward Luce wrote in The Financial Times, the American middle class dream is getting squeezed like a roll of Charmin bathroom tissues, with no Mr. Whipple in sight:
The Financial Times:Dubbed “median wage stagnation” by economists, the annual incomes of the bottom 90% of U.S. families have been essentially flat since 1973 — having risen by only 10% in real terms over the past 37 years. That means most Americans have been treading water for more than a generation. Over the same period the incomes of the top 1% have tripled. In 1973, chief executives were on average paid 26 times the median income. Now the multiple is above 300.
Startlingly, this current economic cycle is actually a giant setback for the middle class:
The Financial Times:In the last expansion, which started in January 2002 and ended in December 2007, the median U.S. household income dropped by $2,000 — the first ever instance where most Americans were worse off at the end of a cycle than at the start. Worse is that the long era of stagnating incomes has been accompanied by something profoundly un-American: declining income mobility.
That declining income mobility is best illustrated by this set of stunning statistics, provided by The New York Times’ Sabrina Tavernise:
- Increasing poverty – In Sept. 2011, the U.S. Census Bureau reported that 2.6 million people slipped into poverty in 2010, bringing the number of Americans living below the official poverty line to 46.2 million, the highest number in the 52 years the bureau has been reporting this statistic. The 15.1% of Americans living below the poverty line, which is $22,314 for a family of four, in 2010 was the highest level since 1993.
- Dubious first – It was the first time since the Great Depression that median household income, adjusted for inflation, had not risen over such a long period, notes Harvard Economics Professor Lawrence Katz.
- Median wage stagnation – According to Census figures, the median annual income for a male full-time, year-round worker in 2010 — $47,715 — was virtually unchanged, in 2010 dollars, from its level in 1973, when it was $49,065, adds University of Michigan Professor of Public Policy Sheldon Danziger.
Exacerbating the middle class squeeze was the sudden 2007 collapse of the real estate market, a rude awakening for Americans using their homes as a piggy bank:
- Lost home values – U.S. household net worth fell by about $16.4 trillion from its peak in spring 2007, about six months before the start of the recession, to when things hit bottom in first quarter 2009, according to the Federal Reserve. Much of that erased wealth was due to the decline in real estate value, which lost $6.3 trillion, or nearly 30%, from the end of 2006 to the first quarter of 2010. After posting modest gains in 2009 and the first half of 2010, the value of homes started to fall again in mid-2010. Zillow thinks the blood bath could top $9 trillion when it’s all said and done.
- Foreclosures – The big question is how many homes originally estimated to have subprime loans, have been foreclosed on and how many are still in the foreclosure pipeline? In 2007, there were more than 7.5 million first-lien subprime mortgages outstanding. We also know that RealtyTrac, which first started tracking foreclosures in 2005, has reported that so far 5.5 million homes have actually been repossessed (see chart below). We also know that, according to RealtyTrac, as of March 2012, 1,355,299 are currently in foreclosure and that the researcher projects that banks will repossess 1 million homes in 2012. In 2011, lenders took back 804,000 homes. In 2010, 1.05 million homes were seized, below an original estimate of 3 million due to the discovery of “robo-signing”: