Retailer Mattress Firm is paying $780 million to scoop up rival Sleepy’s. If approved, the combined company will have some 3,500 retail stores nationwide, plus various online sites and distribution centers. Like most every merger, a big driver of the deal is the quest for greater scale, which could give the combined company a shot at cutting cost and raising prices by using its greater size to drive harder bargains.
But this deal and other consolidation in the mattress industry also signal increasing change in what was long a (forgive us) sleepy sector. It’s a story of the Internet enabling new competition, but also of how technology is giving consumers more information power than they’ve ever had before, whether they buy online or in a traditional store.
“The thing ultimately that gives us confidence about our robust, not only offline but now online platform, is the ability to provide that same great comfort of service and confidence whether you’re purchasing online or offline,” said Ken Murphy, president of Mattress Firm.
He’s talking a lot about online, even though the lion’s share of mattress purchases are made in stores.
Legacy companies like Mattress Firm are watching online bed-in-a-box delivery companies, and some small part of this deal is a response to that. Mattress Firm sells online also, and Murphy said the expanded company’s nationwide distribution network will make that part of its business stronger and more efficient. But despite the waves of venture capital investment that are funding a barrage of ads for online mattress dealers, most consumers still want to try mattresses out first and then buy them in stores.
Other than the now familiar story of online upstart versus brick and mortar incumbent, there’s another way the Internet is changing the mattress business. Think of the first time you bought one. Did you get a good deal? Are you sure? For a long time, most consumers had no idea, because mattress sellers offer a dizzying array of choices and prices. All this opened the door for them to charge us more. But that’s changing as consumers have more access to reviews and information about mattresses online.
“Now that consumers are a little bit more empowered with information, these online reviews, the landscape of power between consumers and retailers has shifted,” said Jerry Kim, who teaches strategy at Columbia Business School.
You, the would-be mattress buyer, are more powerful than you used to be. And power like that enables you to drive a harder bargain, cutting into retailers’ profits. That means one reason mattress sellers feel the need to get bigger and more powerful is because you are now more powerful.
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