Brooklyn Bedding Factory in Phoenix, Arizona
Brooklyn Bedding has a wide variety of products that are made in the USA out of their Phoenix Factory. I have had the amazing experience of touring the Brooklyn Bedding Factory to see where the magic happens. Check out these photos.
When they designed the factory a couple of years ago they put their corporate offices upstairs and you can see the entire factory floor from this angle. It’s quite a sight. You can also see that if you stack their boxes just right you get a really cool design.
So, why did I take all of the time to show you that Brooklyn Bedding manufactures their mattresses here in the USA? Well it’s the Economics of this that I wanted to highlight. Brooklyn Bedding sells online, direct to you. They have the ability to deliver a superior product at a lower price point by making and selling direct to the consumers. They do not have to pay rent, utilities, maintenance, and employee costs at the retail level. In addition, they don’t need to pay sales commissions or middleman markups, or fees to another company to make their mattresses for them. Here is the twist:
Brooklyn Bedding also has a retail model
There are 18 Brooklyn Bedding showrooms in Arizona and 2 in Utah.
Pictured above is their North Scottsdale location. At first glance having these show rooms introduces additional overhead to their organization. It is likely more profitable to skip the retail locations and send their products directly to you. There have to be advantages to having their own stores though, right?
- Increased product exposure
- Extra chances to market their brand
- Increases their sales volume by reaching a more broad consumer base
- Reduces other competitors in the local market (would you set up a mattress shop next door to theirs, knowing they could beat you on price?)
Let’s cover the economics of a factory
I pulled up some publicly available data (it’s from Pratt’s stats, so you have to pay for it) on mattress factories that have sold in the last 20 years and found one that I decided to look into. It was for Simmons Canada, Inc. back in 2005. It was probably just done for tax purposes to bring the Serta Simmons bedding company together, as it lists Simmons Co out of Atlanta as the buyer. Nonetheless, it is the financial data that I wanted to look at. That year they had sales of $108 million (Canadian dollars I assume). Their COGS (cost of goods sold) took up about 74% of that. Operating expenses took up another 15%, so they were left with an EBIT (earnings before interest and taxes) of 10.5%. The key percentages that we can work with here are 26% gross profit, and 10.5% EBIT.
For fun let’s assume that Brooklyn Bedding runs similar ratios, and that this is only for the factory operations.
Economics of mattress retail operations
I also found data on Mattress Firm’s acquisition of The Sleep Train, inc., around 2013. Now this one is more fun to look at, as this is what you see when you walk in the store (well behind the scenes). Sleep Train had revenue of $459 Million in 2013, and COGS of about 50% of that.
So that we are all on the same page, let me take you through an example. Assume sleep train purchased a mattress wholesale from one of the factories in Atlanta, Tupelo, or Phoenix (3 of the largest mattress factories in the USA) for $100. They would then mark it up to $200 (or double the price) when sold. This would give them a profit of $200 and a COGS of $100. In reality, they would likely mark up the mattress to $3-4- maybe $500, and then offer a variety of sales discounts and “free” items while shooting for that 2 times markup, so that they eventually arrived at a 50% gross profit margin.
Sorry for the detour; Sleep Train was earning a gross profit margin of 50%, what about their overhead? I’ll start with ouch. 46% went to cover overhead, all of the salespeople want to get paid, the landlord wants to get paid, the utility companies want to get paid. All that was left over for Sleep Train was 4.36% of EBIT. If you add back in depreciation and amortization you get an EBITDA of 5.65%.
What happens when you combine factory ownership and a retail store?
There are a lot of variables that I can’t control for, hopefully the data that I have is for a factory only operation (Simmons Canada) and a retail only operation (Sleep Train). If other operations run in a similar way, I would rather be the owner of a factory than the owner of several retail locations.
Brooklyn Bedding takes the next step and gets the best of both worlds, except there is a MAJOR difference. For a second, set aside the fact that their retail operations shouldn’t be able to compete with their online only operations. Do you see a potential difference between the business model that Brooklyn Bedding can utilize that Sleep Train couldn’t? Go back up to the sleep train section that is in italics, and think about middlemen markups. Brooklyn Bedding has one less middleman to feed, which means that they don’t have to make the same 2 times markup at all of the stages of the business to earn the same profit margins of a factory plus a retail operation.
Theoretically, Brooklyn Bedding’s online division should be their highest margin business, followed by their retail operations. Of course, since they own the entire process they just have to figure out which pocket the profits should go into. Now, if they put all the profit in the left pocket and leave the right pocket empty, does it matter? No, it’s the same pair of pants right?
The whole point of this exercise is that Brooklyn Bedding is in control of their destiny from start to finish, which means that they can deliver the products that resonate with their consumers at an affordable price. In turn, they are able to keep their margins in line with their peers, while cutting out an extra layer of middlemen (or 2 layers with the direct online sales platform). The end result is that they can produce a better product at a better price than many of their peers. Clearly a win for the consumers, and as an added bonus by having all of their operations in the USA they are able to employ hundreds of hard working Americans.
New addition to the Brooklyn Bedding Factory
On my tour to the factory last year, I was told that they were in the process of getting a pocketed coil machine. They didn’t have it at the time, so I asked if I could borrow their footage. Also, the quality of their production is WAY better than what I would have put together:
Once they brought in the technology to build their own coils they decided to make a few changes to their mattress lineup. The signature product, the #bestmattressever now has 6″ pocket coils. To compensate for turning that into a hybrid mattress, they added an all foam mattress called the Bowery. In December, they added a luxury hybrid to the mix, known as the Aurora. I have tried all of these in the store or in my home, and I am going to do a sleep test of the Bowery soon. In case this is the first time to my site, I sleep test each mattress that I review for 2 weeks so it takes me some time before I complete my reviews. Here is a photo of the Aurora sitting on the Brooklyn Signature on my adjustable frame.
Notice they both have handles
The founders of Brooklyn Bedding, John and Rob Merwin, just put together an amazing video about their journey from a direct to you business model to the mattress empire that they have built. It is a remarkable story about how having an idea and the courage to just start can lead to amazing success. It is the path that every entrepreneur sets out on, but only a select few are able to accomplish. I encourage you to go check it out, it’s an inspirational story that I think ever budding entrepreneur needs to see.
My Brooklyn Bedding Reviews
Someone in their marketing department needs to get a raise for being the first one to claim the hashtags:
While I was on the tour I got to test the pillow that fits the hashtag. It’s an aerated Talalay latex pillow and at $40 it’s an absolute steal. So not only did they get a perfect hashtag, but they put it on an amazing pillow. My mother in law liked it so much that it ended up in her suitcase the last time she visited. Fortunately for me, I have another one.
Want to know more about the Brooklyn Bedding Mattress #bestmattressever?
2018 update, their Brooklyn Signature mattress now has 6″ coils for increased stability and support (it is now a hybrid).
My Review of the Brooklyn Bedding Aurora
See my review of the Brooklyn Bedding Pillows #bestpillowever
I’m testing the Brooklyn Bowery