Two Up-and-Coming D2C Categories

With the technology and generational changes we identified as driving significant change to the retail experience, there are two categories on the cusp of disruption with advances in direct-to-consumer (D2C) models: the furniture industry, and mattresses in particular.

Unlike Baby Boomers, 80% of whom are homeowners, Millennials are largely renting in urban, high-cost of living places. Since they are not in their “forever home” they don’t want to invest in expensive furniture. They want something with more style and caché than Ikea but less expensive than your mom’s high-end furniture store. They’re looking for smaller, multifunctional and affordable furniture that can fit through narrow urban apartment stairwells and doors.

They are used to buying groceries online, they date online, etc….and it’s fast and free. But the free part isn’t even the primary motivator—research found 58% of Gen Z respondents said they would pay more than $5 for one-hour deliveries. So they aren’t going to pay $5k for a sofa and wait 8 months for its delivery.

In addition to short delivery times, customers also expect transparency and the ability to track orders throughout the delivery process. They want to know where the product is stored and how long it will take to arrive. And that furniture has to be Instagram-ready. It’s almost as if their home becomes a fashion accessory people want to spend time and money on to show off.

Mattress innovators convert the sale from chore to social media-ready experience

The $15B mattress industry has long been dominated by four major players. Sleep Number and Mattress Firm together control about 36 percent of retail sales according to IBISWorld, while Tempur Sealy and Serta Simmons dominate conventional manufacturing with 60 percent of the market. These traditional brands have primarily sold through cavernous, warehouse-like stores. But Millennials and Gen X are turned off by the never-ending cycle of random promotional pricing and used car salesperson-type sales experience.

Increasingly, that’s given an opportunity to online-based D2C mattress retailers like Casper, Leesa, Tuft and Needle, Purple, Saatva. Catering to a customer base that’s more comfortable online from research through purchase, they’re also using technology for product innovation.

For instance, the foldable bed in a box is both a product innovation that allows it to be shipped (and returned, if necessary) in a box and received through the mail. No waiting for a delivery truck. Considering consumers’ biggest considerations when buying a new mattress are free delivery, a free in-home trial, and the option of a mattress in a box. Much of the existing industry does not approach selling this way. But thanks to the smart newcomers that do, online mattress sales doubled from 2016 to 2017, from 5% to 10%.

And the upstart mattress firms aren’t stopping at cornering the online market. Casper, the digital-first and arguably most popular/successful mattress company, is now opening physical stores. Rather than just another boring showroom floor, Casper invites potential customers to come in and take a nap in a miniature home to get a real feel for the product.

Technology brings furniture industry into the home and out of the home furnishings marketplace

Of course, mattresses are just one of the purchases young adults make when they move into their first homes or apartments. Furniture sales in the US are forecasted to reach $122B by 2020 with online furniture, and home furnishing sales will grow 16.4% this year, reaching $35.95 billion. Furniture retailers across the board must adapt to customers’ changing lifestyle and expectations.

Furniture retailers like Article, Burrow, Hem, and Campaign are standouts in marrying great design and product innovation with a mid-range price, and providing customers with a personal brand experience. We’re also seeing this pop up in the home decor/tabletop space with brands like Year and Day, Parachute Home, Brooklinen, and Snowe.

We anticipate the next wave of furniture innovation to include products that connect furniture with smartphones or combine furniture with technology. Beds that track your sleep and report on your health, and Alexa-enabled refrigerators are no longer the stuff of sci-fi movies.

Similarly, AR and VR will increasingly influence purchases. With its “view in my room” AR experience, launched in May 2017, Houzz gave smartphone users access to a fully-integrated AR shopping experience. Launched with 300k products and now at 500k SKUs, Houzz has found customers who use this experience are 11x more likely to purchase.

And they’re not the only ones applying AR and VR in the home. IKEA has been dabbling in AR since 2012, and last year released their IKEA Place app which gives shoppers the ability to see how a specific IKEA piece would look in their home. Similarly, the Lowe’s Vision app uses AR to help you design your kitchen or bath.

We’ll be keeping our eye on these two industries to see how they continue to evolve. If you’re interested in learning more about the trends that will shape the future of retail, download our latest consumer study.