business news in context, analysis with attitude

by Kevin Coupe

In a case of a traditional big company deciding that the best way to compete is to acquire a smaller, more disruptive competitor, mattress company Serta Simmons is merging with Tuft and Needle, the bed-in-a-box pioneer that we wrote about here on MNB a couple of years ago.

The intention, apparently, is to build a company that can grow current online mattress sales - roughly 10 percent of the total - to something significantly greater.

Terms of the deal were not disclosed.

Fast Company writes that “Serta Simmons already has its own bed-in-a-box brand, called Tomorrow Sleep. Tuft & Needle, which was founded in 2012, serves a slightly more price-conscious customer, since it is known for its rock-bottom prices, which start at $350 for a twin bed (compared to Tomorrow Sleep’s $545 twin bed).”

The story says that “by bringing on Tuft & Needle, Serta Simmons gets a digital-first brand along with the expertise of the founders, who managed to survive in a highly competitive online environment, where there are hundreds of bed-in-a-box brands. According to a statement put out by the two companies, Tuft & Needle will remain its own separate brand, but the startup’s founders will help shape Serta Simmons’s omni-channel strategy.” And USA Today notes that “in addition to online sales, the deal will allow Serta Simmons to distribute Tuft & Needle products to select stores.”

It truck me as interesting that this merger takes place as two other scenarios unfold within the mattress industry.

For one thing, Mattress Firm, the biggest retailer in the industry, is closing stores and is said to be flirting with insolvency. If it were to go out of business, it would leave Serta Simmons without one of its main distribution arms … hence the desire to find another way to come to market.

Meanwhile, one of Tuft & Needle’s main internet competitors, Casper, seems to be taking a different approach.

Fast Company writes that Casper has been engaged in the development of a raft of new products - “new bedsheets, blankets, and duvets, as well as more unexpected products like bedside tables, that took months of consumer research and testing to bring to market. It’s a different approach for a brand that launched in 2014 with one single product: A mattress designed to be universally comfortable.”

And, in addition to that, Casper plans to open some 200 bricks-and-mortar stores over the next two years, from which it plans to sell mattresses and all these other items; the approach is designed to keep people returning to Casper more often and spending more money than they would if they only were buying a mattress from the company. And, it gets Casper into a business that has been growing - luxury sheets and blankets sold direct to consumers, by companies that include Brooklinen, Parachute, Boll & Branch, and Crane & Canopy.

Casper, Fast Company writes, is “being strategic by branding itself as the science-based sleep brand, which will attract a particular kind of performance-oriented consumer.”

I know people who have bought both Casper and Tuft & Needle, and are supremely happy. So happy that the next time we need to buy a bed, we’ll almost certainly use one of the two.

I think the odds just got a little better that it’ll be Casper.

The challenge for Serta Simmons, I think, will be to maintain the disruptive culture at Tuft & Needle when this acquisition is completed. That’s really hard … not impossible, but hard.

The difference between Tuft & Needle and Casper is that the former company now will be put into the service of filling a gap in a much bigger company, while Casper is getting aggressive about expanding the areas in which it is being disruptive. It is likely that this will produce two different cultures, and the latter one, I think, will be more customer-focused.

I could be wrong about this. It could end up differently. But I believe that this will end up being an Eye-Opening lesson in how to nurture or inhibit innovation.
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