National Post (National Edition)
Online mattress retailer issues a wake-up call
Lean startup takes on market leaders
Two decades ago, three investment bankers set out to change the retail mattress industry. Having worked on a management buyout of mattress manufacturer Simmons Canada, they’d seen huge room for improvement in the retail channel.
Their startup, Sleep Country Canada, arrived in 1994 with blaring radio ads and a catchy jingle that quickly disrupted a market split equally between underperforming department stores and sleepy mom-andpop shops. Today, the company has more than 200 stores across Canada, and 45 Sleep America stores in Arizona. Co-founder Christine Magee became a media superstar through TV commercials that hammer home the message, “Why buy a mattress anywhere else?”
Now, twin brothers Sam and Andrew Prochazka, 34, founders of Edmonton-based Novosbed, a five-year-old online retailer just starting to make a dent in the market, hope to rewrite the rulebook, emphasizing the quality of their patented memory-foam mattresses, affordable prices ($700 to $800), and friendly customized service required to sustain its bold guarantee: If you’re not satisfied with your mattress, you can return it for a new one 60 to 120 days after purchase.
Sales should top $5-million this year. Given revenues have tripled in each of the past three years, chief executive Sam Prochazka expects to hit $15-million by the end of 2015. “The floodgates have opened and we’ve hit critical mass,” he says.
Where Sleep Country Canada emphasized size and reach, Novosbed remains remarkably small and nimble. It has just five staff, mainly managing customer service, operating out of Enterprise Square, the former Hudsons Bay department store on Jasper Avenue that was retooled as a centre of innovation, and contracts out everything except design, e-commerce and customer service.
Matresses are manufactured in Breinigsville, Penn., 90 km north of Philadelphia, home to one of the continent’s largest mattress factories. This keeps costs down, while the ability to re-schedule production runs every week minimizes inventory. While the same manufacturer also produces for rivals such as Sealy, Prochazka says patents and confidentially agreements protect Novosbed from knockoffs.
Today’s foam mattresses ship from the factory in compressed form, just four feet high. They quickly gain full size once released from their vacuumpacked plastic bags. Novosbed has taken aggressive advantage of the fact the compressed mattresses just qualify within Fedex’s weight/size tolerances, so all orders are couriered to customers in a few days.
“Because of our guarantee, we have to be innovative in many, many ways,” Prochazka says. That includes designs that emphasize comfort and durability, full-disclosure product descriptions, a 25-year warranty, and trained customerservice staff who call post-delivery to ensure satisfaction. So far, he says the return rate is 3% — the same as for brickand-mortar stores, where customers have the advantage of trying out the matress. Still, he wants to get that even lower. (Returned mattresses are donated to local charities.)
A recent FastCompany.com article on the Novosbed customer experience expressed amazement at the expanding mattress-in-a-box, and lauded the mattress for enabling the writer and his girlfriend to sleep “like rosy little cherubs on clouds.” But writer Chris Gayomali also tried to analyze the psychology behind the company’s return policy. Maybe, he decided, the Novosbed team figured out “the exact level of exertion most feebleminded humans are willing to put themselves through when purchasing large and unwieldy pieces of bedroom furniture.” Prochazka denies the company does anything to discourage returns.
Customer satisfaction — or dissatisfaction — is the reason Prochazka got into this business. A serial entrepreneur who with his brother had already started two businesses — a medical-device company and a website service for real estate agents — he got ticked off when he went to buy a mattress. He got a misleading sales pitch from an uninformed sales person who was clearly more interested in making sales than serving customers. “Novosbed started the next day,” he says.
Novosbed has competitors, including one that received millions in venture capital. Prochazka notes his company has been funded in-house, on a reported $40,000, by the twins and their sister Helenka. Still, he sounds miffed when discussing the Edmonton startup scene. “The investment community isn’t great. It’s all oil money,” he says. “The returns with drilling an oil well are easy to predict, while technology is high risk/high reward. Very few people in Alberta get that.”
For the future, Novosbed is looking to add a few more mattress designs, hire more people, and beef up its physical presence. “We’re looking at retail possibilities,” Prochazka says.
He believes his big brickand-mortar competitors will be hard-pressed to match Novosbed’s prices and service, but he knows the battle is just beginning. “I don’t think we’re nipping at our competition’s heel this year. But if all goes as planned, next year we will be.”