The mattress industry is a land of giants like Sleep Number — boasting a staggering $1,081 in sales per square foot — and Mattress Firm blanketing the country with thousands of stores. But is prime location everything, or can a scrappy C-location competitor hold its own with savvy salesmanship?
According to Statista, retail rents are expected to climb slightly in the coming years, putting pressure on mattress retailers to maximize their return on every square foot. Sleep Number exemplifies this strategy, generating impressive sales per square foot despite potentially higher rent costs.
Their success highlights the importance of a healthy rent-to-sales ratio, a metric that measures how much rent a store pays for every dollar of revenue generated. Industry experts recommend a target ratio between 6% and 8%, meaning for every $1 in rent, a store should generate $12.50 to $16.67 in sales. Exceeding this ratio can squeeze profit margins, especially in a competitive landscape.
Location, location … maybe?
Mattress Firm, known for its ubiquitous presence, might make you think an A-location is key. While prime real estate offers advantages like higher foot traffic, it often comes with a hefty rent price tag. Consider a typical Mattress Firm store in a prime location. Their monthly rent could range between $12,500 and $17,500, occupying 2,000 to 4,000 square feet. To maintain a healthy rent-to-sales ratio, they would need to achieve monthly sales between $139,798 and $196,875.
Now, let’s look at our hypothetical C-location store, generating a healthy $700,000 annually out of 2,000 square feet, with a monthly revenue of around $58,333. Their sales per square foot of $350 might seem lower, but if their rent is significantly lower, say around $4,000 to $6,000 monthly, their profit margin could be just as strong, if not stronger. This is especially true if they maintain a healthy rent-to-sales ratio.
So why do furniture stores sell mattresses, and vice versa? It’s all about maximizing sales opportunities. Furniture stores, with a lower average closing rate (27% compared to mattresses’ 80%), can leverage the high-intent mattress customer to boost their overall sales.
Similarly, mattress stores benefit from the potential to upsell furniture like bed frames and nightstands to their already-engaged customers. Plus, mattresses require less storage space compared to bulky furniture, making them attractive additions to a store’s product mix.
The location equation gets even more interesting when you consider marketing expenses. A B or C location store might need to invest heavily in marketing campaigns to generate awareness and drive foot traffic. This can significantly impact their bottom line. Conversely, an A-location store with high visibility and foot traffic might require less marketing muscle, freeing up resources to be directed elsewhere.
Turning on a dime: inventory optimization
Beyond location and marketing, another crucial factor in maximizing sales per square foot is inventory turnover. This metric measures how often a store sells and replaces its stock. A higher turnover rate indicates better efficiency and space utilization.
For example, a store selling mostly high-end, luxury mattresses with a lower turnover rate might need less floor space compared to a store specializing in budget-friendly, high-turnover models. Regularly analyzing inventory turnover allows stores to optimize their product mix and ensure they’re displaying the most profitable items for their specific location and customer base.
Ultimately, the success of a mattress store hinges on a delicate balance between top line (total sales) and bottom line (profit). While Sleep Number boasts an impressive top line with high sales per square foot, their average sales per store have dipped in recent years. This suggests a potential need to optimize their bottom line, perhaps by renegotiating leases, exploring lower-cost locations, or even reevaluating their product mix to maximize inventory turnover.
The success stories of Sleep Number and Mattress Firm demonstrate the power of specialization in the mattress industry. However, their approach isn’t the only path to profitability.
A C-location store with a focus on maximizing sales per square foot through excellent customer service, a targeted product range optimized for high inventory turnover, and a strategic marketing approach tailored to their location can be a force to be reckoned with, proving that location isn’t everything in the world.
