USA TODAY US Edition
Mattress loans are soft sell
Industry looks to drive sales with financing
For the past few years, the mattress industry has been rocked by overexpansion, bankruptcies and digital threats.
Now, as those competitive forces continue, some of the industry’s biggest players are trying to stand out with the ultimate promotion: cheap, long-term financing deals. In some cases, these offers are more akin to financing a car than a mattress – up to six years with 0% interest, for example. And while 0% interest loans can cut into profits, they serve to juice sales.
These promotions are the soft sell behind the softest of purchases. But if the customer doesn’t pay on time, the rate typically spikes well into the double digits.
A six-year loan to buy a mattress is longer than the average new-car loan, which was 69.7 months in September, according to car research site Edmunds.
Mattress industry executives say they’re not extending loans to borrowers who can’t pay, so there’s no reason to be concerned. But the strategy bears resemblance to how the automotive industry got overextended in the leadup to the 2008-09 financial crisis.
“Things are getting so competitive in terms of pricing and promotion, it’s about what else you can you offer?” said Mike Akrop, chief financial officer of mattress start-up Leesa, which limits its loans to 36 months, sells mattresses online and sells in stores such as Macy’s and Hudson’s Bay.
At Mattress Firm, which remains the nation’s leading retailer despite closing about 700 stores during its re
cent Chapter 11 bankruptcy, financing offers abound.
The company is offering what it calls “special financing” of 0% interest for up to six years on purchases of at least $3,999. The offer also extends to shorter-term 0% options, such as four years with a minimum purchase of $1,999 and three years with a minimum purchase of $1,299.
Scott Thompson, CEO of Tempur Sealy, which sells the Tempur-Pedic and Sealy brands, estimated that up to 30% of high-end mattresses are purchased with financing. Mattress prices typically range from a few hundred dollars to several thousand.
At Tempur Sealy, offers for qualified customers include 0% interest for five years on $8,000 purchases, three years on $2,000 purchases and two years on $1,500 purchases. Tempur Sealy sells mattresses at Mattress Firm, other retailers, its own stores and online.
“Retailers have learned over time they need a call to action in their promotion to drive sales,” Thompson said.
At Tempur Sealy rival Serta Simmons, qualified customers can get five-year loans at 0% interest on purchases of at least $3,000. Other offers include 0% for four years on purchases of at least $2,000 and three years on buys of at least $1,299.
“Retailers have learned over time they need a call to action in their promotion to drive sales.”
Scott Thompson CEO, Tempur Sealy
Jerry Epperson, a mattress industry veteran and managing director of investment banking and corporate advisory firm Mann, Armistead & Epperson, said more than half of all mattresses are purchased with credit.
Epperson said loans have gotten longer in recent years as competition intensified and mattresses got better. New technologies such as “hybrid” mattresses, which typically combine coils and foam, have caused some prices to reach into the several thousands.
Although promotional interest rates often are 0%, they often bump up to 17% to 22% when the customer fails to pay on time, said Epperson, who has studied the industry for the International Sleep Products Association.
To keep sales humming, mattress retailers are tweaking loan offers to help customers achieve a specific monthly payment that works with their budget, he said.
Need a lower payment? Spread the loan out longer. Bigger payment affordable? Take out a shorter-term loan.
As a result, “people are moving up in price points, moving up in quality,” Epperson said.
Meanwhile, the online startups that dominate the bed-in-a-box business have been “slower to offer the options that the brick-and-mortar stores offer,” Epperson said.
Leesa, for example, extends loans up to 18 months at 0% interest. The company’s longest financing offers go up to three years, and the company is unlikely to offer anything beyond four years, Akrop said.
“We want to balance that with creditworthiness,” he said.