Internet startups are pumping millions into marketing mattresses online. But the traditional bed specialists are not taking it lying down.
• Dirk Harmssen began as a furniture salesman, selling sofas, oriental carpets and mattresses. But he always dreamed of opening his own bed shop – because the right mattress can change someone’s life.
A 39-year-old with five children, Harmssen now has four Seebauer bed shops across Bavaria: in Landshut, Straubing, Dingolfing and this one in Eching, on an industrial estate with no bus stop. Here, he waits for customers, beside a car wash and a bakery. These days there are often no cars in the parking spaces outside. “I have to get up early every day and fight,” says Harmssen, sounding tired.
There are about 1,000 specialist bed shops in Germany. But their trade association predicts a quarter will close in the next three to five years.
“The online firms are like a hurricane that has hit the industry,” says Harmssen. According to American media reports, the US e-commerce company Casper – founded in 2013 and now one of the best-known mattress startups in the world – has a marketing budget of $80m (£57m) and Leonardo DiCaprio adding some Hollywood lustre to their advertising campaign. The German startup Emma has the country’s 2010 Eurovision song contest winner Lena Meyer-Landrut as its “mattress ambassador”. In 2016, the Bettzeit group, of which Emma is a part, spent about €10m (£8.8m) on marketing. A lot of the firms also advertise on television. In contrast, Harmssen’s four shops produce a total turnover of €3m a year.
He is determined to survive and has joined forces with other specialist bed retailers to mount a counter-attack. But how much chance do they stand against the web-based newcomers with their deep pockets?
Germans buy between 6.5m and 8m mattresses a year. But the mattress trade association’s figures are rather lower than those of the big dealers. In 2016, German manufacturers recorded a turnover of €850m, but the retailers earned €1.2bn- €1.3bn from mattresses. The bed industry does not have exact figures, which says much about the state of the sector. What is known for certain is that, according to the German statistics agency, mattress manufacturers’ turnover rose from 2009 to 2015 but has been declining since 2016 and retail turnover is static. And the competition is more intense than ever. Mattresses are available from furniture stores such as Ikea or XXXLutz, from discounters such as Matratzen Concord and Dänisches Bettenlager, from online dealers, specialist bed dealers and nowadays from more than 15 startups with standard one-fits-all products.
The competition is cut-throat and represents a clash of cultures with marketing as the weapon. The newcomers’ message is: “It’s not so difficult to find the right mattress, you’re just told that. We’ve got the right one for everyone. You can order online, try it for 100 nights and if you are not satisfied, just send it back.” But the old hands say: “Bodies are all different – wider hips, narrower shoulders, bigger, smaller, heavier, lighter. One size fits all? That cannot work.” There’s no one one-taste-suits-all dinner either.
Spending for profit
Harmssen took over his first shop from the Seebauer family in October 2010 and the rest followed. He wants to create a recognisable brand in the region. He uses banner advertising on buses, for which he pays €3,500 a year; advertises in the regional newspaper, another €20,000; and sponsors shirts for local football teams, costing €5,400.
But since the startups arrived on the scene, Harmssen’s footfall has fallen, despite the advertising blitz. So he called in an advertising agency, shelling out another €75,000. The agency restyled his website and his new slogan now reads: “100% passion that will get anybody into bed.” There’s also a promotional film: another €5,000.
“The quality of the day is measured by the quality of the night,” says Harmssen. “We want people to sleep better and to sell them the product best for them.” So his shop features a sleeping cabin with a mattress fitted with sensors. The idea is for the spine to form a straight line whether sleepers are on their back or their side. The mattress detects where the person needs support and how much. “People benefit from the advice they get from the specialist dealer. We just have to make that clearer to them.”
On average, Germans spend €200 to €250 on a mattress. That will buy one at discounters and furniture chains such as Aldi, Lidl and Ikea or even some specialists. At Casper, a single-bed mattress – 90cm by 200cm – costs €425, at Emma €399 and at the London-based startup Eve €449. Harmssen’s prices range from €299 to €1,500.
Marketing does not just mean advertising but also price, shopping experience and delivery service. The specialist dealers are at a disadvantage in all three. “We cannot be as cheap as the online dealers, the discounters and the furniture stores,” says Harmssen. “We cannot deliver as fast and we don’t offer children’s play areas or meatballs in a restaurant for €2.99. And we can’t spend as much money on advertising.” On the other hand, every customer has their own personal adviser, and for six months they can exchange their pillows, mattress or duvet as often as they like until they are completely satisfied. Harmssen brings over a cappuccino and a glass of water. “That’s something the internet startups can’t do, either.”
The customer may always be right, but where bed shops are concerned it has not stopped the retailers steadily losing market share in recent years. While 80% to 85% of mattresses are still being bought offline, only 10% to 15% of them are bought in specialist shops. Most mattresses are sold by Ikea, Matratzen Concord and Dänisches Bettenlager. Marcus Diekmann, head of e-commerce at Matratzen Concord, says: “If you include Amazon, the share of mattresses sold online is already 23% and still growing.” And the startups account for some of that.
In April 2016 Harmssen teamed up with seven colleagues to take on the likes of Casper. What emerged was the “Schlaf mit mir” (Sleep with Me) promotional campaign and a short film in which dealers introduce themselves and explain why customers need what they offer. The campaign is scheduled to last five years, with the dealers contributing €50,000 each. The promotional film has been on YouTube since last August but has so far been watched just 135 times. “So far the campaign hasn’t had the impact that was intended,” admits Harmssen.
There are two other campaigns by bed specialists – Nachtmanufaktur (Night Manufacture) and Fachhändler aus Leidenschaft (Passionate specialists), with a similar message: the sleep experts do more for their customers. But again, not many of them are on board. “We are powerless in the face of the marketing strength of the startups,” says Marc Böhle, head of the association of specialist bed shops. “And their marketing is really good; it hits home. People are terribly worried about making a bad buy and that fear is dispelled when they hear, ‘our mattress is right for everyone’.” A bigger campaign is planned for this year, he says.
It is hard to mobilise individual dealers for a joint marketing campaign, says Jochen Krisch, an e-commerce expert. “The retail trade is regionally fragmented, with big differences between regions and types of buyers.”
And there’s another problem. As the German word for retailer (Einzelhändler, or individual traders) suggests, small bedshops usually work alone. Harmssen says: “There is no cooperation. You can’t even undertake joint advertising with other shops in the region. But it would be a lot better to work together to deprive Casper of 1% than to take 10% of the business of another shop.”
Retail sales of electrical goods, clothes, shoes and books have already been transformed by e-commerce. For mattresses, the process is only just getting under way. Mattresses are interesting for founders and investors because the online market has so far barely been tapped and profit margins are relatively high.
“A survey puts the profit margin in the bed trade at around 47%,” says Axel Augustin, of the textiles trade association. It would be a mistake to imagine that the margins in the online trade are any lower, adds Andreas Eule, managing director of Frankenstolz, one of Europe’s biggest mattress manufacturers. He sells to online dealers as well as bricks-and-mortar shops. The advertising might tell a different story, but customers should not assume the margin between the price in the factory and on the high street is any smaller for a mattress bought online. In both cases the manufacturer often gets only a quarter to a third of the sale price.
So, while Harmssen invests in floor space, warehousing and customer advice, online startups invest in advertising. “These are products nobody is really interested in. Nobody gets emotional about them and hardly anybody pays attention to the brand name,” says Alexander Graf, an e-commerce expert. As Klaus Neudecker, managing director of Rummel Matratzen in Neustadt an der Aisch, northern Bavaria, puts it: “Our product is vitally important and everybody has one. But if it is good, we don’t hear about it.”
Firms with low-interest products can be successful if they make a name for themselves as a brand and pull off the transition to a high-interest product – one that people talk about, identify with and spend a lot of money on, as they do for cars or smartphones. “The Vorwerk company has done that with its Thermomix kitchen appliance,” says Graf. But this kind of successful branding is expensive and only works with a lot of advertising. And that is precisely the strategy adopted by startups such as Casper – they want to become well-known brands for mattresses and sleeping.
Money to burn
Constantin Eis is the European head of Casper. In 2016, its turnover reached $200m and it opened a European head office near the Hackescher Markt in the centre of Berlin. It is open-plan, well-lit and features a Casper mattress in the corner for power naps. The staff all fly to New York for their Christmas party.
“People are very aware about how they spend their day but are not yet so aware about their sleep. We think that is changing,” says Eis. Casper aims to make sleeping a lifestyle choice. “We have to raise social awareness about the issue of sleep. That is what the investors believe in. That is why they invest money. They don’t invest money in a mattress company.” In last summer’s financing round, Casper netted $170m in investment.
In the near future the founders aim to provide everything connected with sleep, but they are starting with mattresses, bed linen, pillows and dog beds. Eis is tight-lipped about marketing expenditure, saying only: “We are using all the channels – offline, online, television, print.” SevenVentures, the investment subsidiary of Germany’s media group ProSiebenSat.1, has been investing in Casper since last year – getting shares in the company in return for TV advertising.
The problem for Casper is that rivals such as Emma and Eve, and the German startup Bruno and others – are pursuing a similar strategy with a similar product. And as they all want to advertise through Google and Facebook, spending on online marketing has risen enormously.
So far figures for marketing expenditure are only available for Eve, which went public in May 2017. A large part of the costs is accounted for by search engine marketing and TV advertising. Eve does not have to pay to put an advert on Google – or not until a customer clicks on the advert, is redirected to the Eve shop and buys a mattress there. Every click costs Eve money and as Google is expensive, it all mounts up. To sell a single mattress, Eve spends a total of £245 on marketing but its cheapest mattress costs £349. Marketing and manufacture together come to more than the price of the mattress. Not surprisingly, in the first half of 2017 Eve lost £9.1m.
“The high cost of marketing gobbles up the margins of the startups,” says Graf. Krisch is also sceptical about the long-term prospects of such business models. According to the mattress industry trade association, Germans only buy a new mattress every 13.5 years. “It’s a constant battle,” says Krisch. “High marketing costs for new customers only pay off if a firm retains these customers.” That is why the startups now also sell other products such as pillows, mattress protectors and cot mattresses. In Britain, Casper rewards every customer who recommends one of their mattresses to a friend with a £50 voucher.
Matratzen Concord has boosted its online advertising budget seven-fold to millions. “But the high costs pay off for us because we don’t just attract customers to the online shop but also to the actual shops,” says Diekmann.
Like the other bed-shop retailers, Dirk Harmssen is hoping that the newcomers will eventually ruin both themselves and each other. And that people will prefer to test mattresses in a shop rather than buy a standard model. He can see the signs. Casper is now selling its mattresses at Target, the US’s second-biggest retailer after Walmart, and for a time it also sold them at the KaDeWe department store group in Germany; Eve sells its goods at the Karstadt chain, and Emma sells at Matratzen Concord.
Rummel Matratzen’s Neudecker thinks small retailers may benefit from the hype that the financially high-powered newcomers are generating. “At long last people are talking about our product. That gives us the chance to talk about why we exist and why standard one-fits-all mattresses are not ideal.” He reckons there will also always be people who want to buy from real people.
Dirk Harmssen looks at his watch. It’s noon. He’s had two customers. Not too bad. But he’s pinning his hopes on the winter. When it’s cold, people are more likely to invest in a bed.