Episode 23: Using Data to Build a Wholesale and Retail Network for Nectar and DreamCloud Mattresses
Adam Honig: And do you tie that individual consumer back to the store and say, “Hey, we sent you guys 5,000 door swings this month.”
Bob McCarthy: We have that ability if the retailer is willing to share data with us, and we have probably about 20% of our transactions now, we do share. That goes back into our algorithm. We use machine learning and AI to enhance that algorithm.
Right, so it’ll get smarter as we feed more data into it, and then we can provide data back to the retailer. That said, we do a matchback of those email addresses. You can go back to them and say, “X percent of the sales that you made last month came from people that visited our website.”
Adam Honig: Hello and welcome to Make It. Move It. Sell It. On this podcast, I talked with company leaders about how they’re modernizing the business of making, moving and selling products, and of course, having fun along the way. I’m your host, Adam Honig, the CEO of Spiro.ai. We make amazing AI software for companies in the supply chain, but we’re not talking about that today.
Instead, today we’re talking with Bob McCarthy, the Managing Director of Retail for Resident, the makers of Nectar and Dream Cloud mattresses, and actually, a lot of other products as well. Welcome to the podcast, Bob.
Bob McCarthy: Thank you Adam, thank you for having me.
Adam Honig: Yeah, it’s pleasure. Maybe you could tell us a little bit about Resident, because people are a little bit more familiar with the brands than the company.
Bob McCarthy: So residents started in 2017 with one brand Nectar, which has become our flagship brand. Quickly grew in the digitally native space, so we’re a digitally native brand. We sold 100% online and the first couple years of existence, we grew to 40 million in year one, year two, broke 200 million. I joined the company in 2018 as Managing Director of Retail, as they felt a need to create an omnichannel experience and really create an opportunity for our consumer that wanted to try our product before they actually made the choice to buy it, and position it across brick and mortar retail stores throughout the country. So we started in 2018, shipped our first product the end of 2018. So 2019 was our first full year, and since then we’ve, grown to about 4,000 store locations across the us. On the wholesale side of the business we’re eclipsing over almost $200 million in sales annually on the wholesale side of the business.
Adam Honig: Wow, it’s like you’re a AI startup, just kind of going crazy with growth.
Bob McCarthy: Yeah, I joined Residents, with kind of a startup mentality, even though they were a couple years old. What I was building was really a startup within a startup and having come from a previous company, West Creek Financial, which is now called Qualify, that was also a startup that I joined as their fifth employee.
Spent a couple years there helping them scale. I kind of have that in my blood. It’s a heck of a lot of fun building companies from scratch.
Adam Honig: Yeah, no, I certainly know about that. It can be challenging, but it’s super rewarding as well. So the company started by selling mattresses online to people, and had great success with that.
And then they said, “Hey, we’ve got this other idea. We want to sell ’em through retail as well!” Talk to me a little bit more about the strategy behind that.
Bob McCarthy: So when you look at a mattress purchase, I mean, we literally can talk to, at any given time, about 10% of the US population is what we’ll call in market for a mattress.
Our marketing teams have built really an amazing algorithm that can connect with consumers that are in market. So when you look at some other companies out there that do more brand awareness advertising, that is a much less efficient spend of the marketing dollar. We spend our marketing dollars extremely efficiently.
Bringing lots of people to our website. Literally tens of thousands a day in some cases. Some of those actually buy on the site, but then there’s a lot that kind of sit in the funnel, which we continue to interact with them. The data showed that the number one reason that they weren’t purchasing was they would like to try the mattress.
55% of consumers said, “I would like to try it before I actually make the decision to buy. So I love what you’re telling me. Everything looks good online, but even though you have a 365 night comfort trial and a forever warranty, I still feel that, I’d like to meet my mattress before I actually take it home.”
Adam Honig: It’s kind of amazing anybody buys it without trying it first.
Bob McCarthy: I’ve been in the mattress business now since the nineties, and I was with Simmons, and then I went to Tempur-Pedic in it’s very early days. Spent a lot of years at Tempur-Pedic, but when I was recruited to go to West Creek in 2016, there really weren’t a lot of digitally native brands. They were just starting to get into brick and mortar, right? Or even just starting to sell, a mattress and a box online that can be delivered by UPS or FedEx. So that two years that I was away at West Creek, that sector of the business really started to explode.
And I agree with you, I was shocked at how many consumers were actually saying, I’ll give it a try without going into the store and buying it. Because if I don’t like it, I can just send it back. That part of the business exploded, but when you took those companies that are really good at marketing and then put it into a retail store too.
It’s a true omnichannel experience for the consumer, and they can have their choice. If you just feel like sitting on the couch and ordering it on your phone and it shows up a few days later on your doorstep, great. Or, if you want to put it in the consideration set, and go into a mattress furniture or appliance store, try it out, make sure you like it, and then have them deliver it, that works as well. So, it’s really helped us increase our conversion significantly.
Adam Honig: That’s amazing, do you ever get feedback from the retailers that they feel like you’re competing against them because you’re selling it direct as well as selling it through the stores?
Bob McCarthy: Initially, yes. I think there was a lot of apprehension that they were going to show room for us and they would just wind up buying it online. I think we’ve proven that one of the reasons we’re the leader in the space is we are truly channel agnostic.
We don’t care whether you buy it directly from us online or if you buy it in a retail store. I’ll spare you from the unit economics of the direct to consumer channel versus the retail channel, but there’s a really big number on the direct to consumer side called customer acquisition. That when you plug that customer’s acquisition costs into the unity economics math, it makes the profits about the same, right?
So when you go from cost of goods to retail and plug customer acquisition cost into the mix, versus going from cost of goods to wholesale, it’s about the same. At the end of the day, it’s good for the retailer. We’re creating more door swings, we’re providing them with unit economics that, while they’re not as good as the legacy brands, there’s a huge value to that door swing that we provide.
So they’re very happy and then we’re happy because we’re increasing our conversion without spending more marketing dollars.
Adam Honig: I want to talk about these unit economics for a second just to make sure I’m getting it properly. People often think, “Oh, we’re gonna sell online, we’re going to put up a website, it’s going to be super easy and profitable,” but they don’t realize just how much effort it takes to actually attract people and keep them on the site and have them go through this online buying process. It’s actually really expensive to do the right SEO and SEM is extremely expensive right now.
Bob McCarthy: It’s literally, hundreds of millions of dollars that we’re spending every year on that line item. So yeah, when you break it down into a per unit basis, 2 to $300 per transaction that we’re adding on for customer acquisition. Which is why it’s super important to be efficient on the marketing side when you’re spending that kind of money and you’re advertising to people that are not in market.
Adam Honig: It can be very wasteful, definitely. Now let’s talk about these door swings for a minute. Just tell everybody on listening to the podcast what that means, first of all.
Bob McCarthy: So when the consumer’s interacting with us online, our algorithm can determine whether that is a online or offline buyer based on thousands of data points that we analyze within split seconds of them being on our site.
And we can tailor that message to the consumer if we see that. They are more of an offline buyer buying in department stores and brick and mortar stores, and then we’re going to tailor a message to them that’s probably more directed towards our store locator and finding them a place where they can go and shop and be comfortable, versus somebody that is an online buyer.
We’re going to tailor that message so they’ll buy directly from us online. The door swing means when that consumer gets up off of their couch walks into a retail store, it is now a prospective customer for that retailer. That’s really valuable when you look at what does a retailer spend to make a door swing?
It’s anywhere from a 100 to $200 per consumer, walking through that door is what they’re spending on marketing. So if we can supplement that off of our marketing dollar, that is extremely profitable for the retailer, especially a furniture or appliance store that sells more than just mattresses, right?
That consumer’s potentially creating a lifetime consumer for them. They could buy a sofa, they could buy a dining room set, they could buy a refrigerator based on the door swing that we sent them because they were originally looking for a mattress.
Adam Honig: Got it, and do you tie that individual consumer back to the store and say, “Hey, we sent you guys 5,000 door swings this month.”
Bob McCarthy: We have that ability if the retailer is willing to share data with us, and we have, probably about 20% of our transactions now we do share, that goes back into our algorithm. We use machine learning and AI to enhance that algorithm. So it gets smarter as we feed more data into it.
Then we can provide data back to the retailer. That said, we do a matchback of those email addresses and can go back to them and say, “X percent of the sales, that you made last month came from people that visited our website.”
Adam Honig: Yeah, I bet that’s got to be really powerful when you’re meeting with these retailers and showing them what’s happening.
Bob McCarthy: It is extremely powerful, but I will tell you, that anecdotally, from the retail salespeople that generally work on 100% commission will tell you that without fail, they will say, we send them a ton of traffic. That’s the best barometer that I have. You can’t argue with the data, but that person selling our products on a day in and day out basis, that’s really our customer on the wholesale side.
If we keep them happy, keep sending them traffic, they’re going to keep pushing our brand and as I travel the country, that’s what I hear time and time again.
Adam Honig: The business of mattress is very interesting that way. I did some work with Sleepys a number of years ago, and just in my own personal experience, it’s a little bit of a tough business selling mattresses.
Bob McCarthy: If you make it a year or two in the industry, you don’t leave and you can provide a very good living for your family in the mattress industry. There is a fair amount of turnover like any other retail, but the people that kind of get it in their blood and are passionate about it really live it every day and, and they really provide a great experience for the consumer.
The ones that are just there to sell a widget generally don’t last, and some of those people kind of give the industry, I don’t want to say a bad name, but like as you said, sometimes it cannot be a great experience.
Adam Honig: Yeah, thinking about that, when you look to bring new retailers on, is that part of your criteria for what you’re looking for or how does that work?
Bob McCarthy: We ask for fair representation, so if somebody comes in and asks for our brand, that they get a great presentation on the brand, and we have an extensive, and I think, a best in class training team to really get them all the information they need to be able to sell the product. But beyond that, we want to make sure we’re going into stores that are reputable, have good reviews, are leaders in their marketplace.
We tend to try not to do business with the dirty window store. Those are the ones that maybe have a questionable reputation. We’ve said no to a number of retailers who’ve wanted to floor our product that say it’s really just not a fit. No disrespect, but it’s just not a fit.
Adam Honig: That’s got to be a hard conversation to have with them, but ultimately, you are building a brand. I suspect that’s a big part of the differentiation that you guys have in the market.
Bob McCarthy: It is, I think our founders have built an amazing brand in a very, very short period of time. If you’re in the market for a mattress, you’ve heard of Nectar, you’ve heard of Dream Cloud, without fail, we do a great job.
A lot of times if you haven’t bought a mattress in a number of years, you haven’t heard of us because we’re not spending dollars against you. But, if you’ve done any kind of Google search for a mattress or been on Facebook and type the word mattress in, you’ve probably heard quite a bit from us.
Adam Honig: Yeah, and so besides the brand, how do you differentiate the product? Because it seems like there are so many options today for mattresses.
Bob McCarthy: We’ve been, what I’ll call a fast follower, so we provide more for less. It served us well over the last few years. Especially now where the demand for mattresses is down. In 2020 and 2021, everybody was really focused on their home because of Covid.
A lot of people bought new mattresses. Our business really exploded during that time, and we’ve been fortunate to be able to maintain the Covid level of business, where a lot of retailers have kind of gone back to 2019 at this point. We’ve been very fortunate in that space but, I think we are fortunate because we’ve been able to offer a great product at a very, very fair price.
Adam Honig: You know when somebody buys the mattress from the retailer, do they pick it up in the store or does it still get shipped to them through the mail?
Bob McCarthy: It can be really one of three ways. They can pick it up in store, we’re in an instant gratification world, so sometimes people don’t want to wait five or six days for UPS or FedEx to show up.
The retailer generally keeps stock in their warehouse so they can make the delivery. Which, it’s a slightly enhanced delivery versus UPS or FedEx just showing up and leaving it on your doorstep, so they’re actually bringing it in and setting it up in those cases.
Or, the boxes of ours will fit in the back of a Prius. So, you just put it in the car and take it home. That’s really a win for everybody too, because the consumer’s getting instant gratification, it’s very easy to set up, might be a two-person job, but still relatively easy. The retailer’s saving on having to send a truck with two people on it to go and do set up and take away. So, it really becomes a win for everyone across the board.
Adam Honig: You mentioned training a little bit earlier, so this is a big part of the strategy to keep the retailers engaged. What else do you do to try to really engage with those salespeople that are selling the product?
Bob McCarthy: Essentially, retail engagement is one of the most important things we do.
We try to A, make our trainings fun. It’s not one of our reps saying, “two inches of this type of foam and three inches of this type of foam, and this really nice cover.” It’s really less about that and more about how the product can give a better night’s sleep, but also making it fun, you know?
We have to do it more virtually now, so we use programs like Slido, for example. I don’t know if you’re familiar with Slido, but it’s an interactive app that ties into a PowerPoint or Google Slides presentation that allows us to do quizzes or polls or just get feedback from them in real time and shows on the screen.
It’s a lot of fun, we can gamify the training a little bit and keeps the RSA, retail sales associate, more engaged.
Adam Honig: Huh, maybe we should do that for one of our webinars. That sounds very interesting.
Bob McCarthy: It is, it’s a lot of fun.
Adam Honig: And do you have prizes and stuff like that too? Is that part of the training
Bob McCarthy: We do, we’ll sometimes, raffle off a mattress, sometimes we’ll do gift cards, things like that. But again, things to keep it fun. Our training team will sometimes come up with fun themes and dress up appropriately for whatever that theme is. We’ve had people dress up as Mother Nature, we’ve had people dress up as, Nectar B.
So just trying to kind of, keeping it at a fun level so when we come calling for the next meeting, people want to be part of that.
Adam Honig: Yeah, nobody wants to hear product specs, right? I mean, that’s the thing, you got to really drive to engage people on something that they’re interested in.
Bob McCarthy: We want to provide more than just the specs, and we also don’t want to be, the pizza and donut delivery people. Feeding them is important, don’t get me wrong. I like to eat too, but that shouldn’t be the reason that people want to come to our meetings.
Adam Honig: Yep, I understand. When I talk with people in manufacturing, I love to talk with them about, special orders that have been requested by customers. We were talking with one of our friends who’s in the crane manufacturing business, and they wound up building a special crane to drop the New Year’s Eve ball in the middle of Time Square.
I was wondering, in the mattress business, do you guys get special orders? Do people come and say, “Hey, I need this kind of interesting mattress.”
Bob McCarthy: In my career, yes. Currently at Resident, we don’t do that, we do an awful lot, with a relatively small team and our supply partners. We’re ordering literally thousands of mattresses a day.
We don’t get into creating heart-shaped ones or round ones, when I was with other companies, we’ve had that option. It is interesting what people will ask for.
Adam Honig: Can you share with us any kind of really unusual thing that people ask for?
Bob McCarthy: Well, I’m not joking about heart shaped ones. There has been requests for heart shaped beds in a previous life.
We’ve made beds for some NBA superstars that were extra-long. Then there’s extra, extra-long, right? If you’re seven feet, four inches tall, NBA Hall of Famer, then you might want a little bit of a longer bed. Generally, there are some for some interesting people who want the unique shaped beds, but generally it’s for somebody of size that needs something a little bit different
Adam Honig: Yeah, that makes perfect sense. I actually stayed at a hotel in Dallas recently and I came to find out that their top floor, their hotel is where all the NBA players stay when they come to town. It’s right near the American Airlines Arena because they have extra, extra-large beds there.
When we think about selling through retail, if you were advising a company who’s thinking about doing that, what kind of advice would you give them?
Bob McCarthy: I think, look at the market, number one, and make sure that there’s a demand for your product. I believe in retail that it needs to be demonstrable, right?
If it’s not demonstrable, then there’s no reason not to buy it on somebody’s website. If you’re selling a premium product that you need to point out the features, benefits, and attributes of the product, then moving to brick and mortar retail is going to increase your average order value significantly.
It’s kind of when I see the interplay between the direct-to-consumer side of our business and my side of the business, I’m always pushing for higher tickets. Because what drives engagement on the retail side, is traffic. Which we’ve talked about, it’s ticket and conversion.
If you swing my door and I sell, and they buy a, a very expensive mattress and I can do it relatively quickly, and then RSA is all in, they’re on your brand as much as they can be. On the direct-to-consumer side, it’s about value. What’s the offer? Is there any giveaways? What can we do to kind of create that urgency to the consumer to get a mattress in front of them today?
So when you look at, kind of the average tickets between the two channels, if you apply, retail dollars to the units that I move versus what’s moved on direct to consumer, I tend to move a much higher amount of the premium products because they’re pointing out the differences and it’s online.
You can read the differences, but when you can touch and feel and lay down and roll around on the difference, that’s what makes the sale.
Adam Honig: Plus, you have an educated associate with you who can help point out those things and drive a higher margin for everybody, I imagine. That’s great advice.
Bob, this has been great. It’s been really interesting learning more about the mattress market. I totally didn’t know that 10% of people were in the market for a mattress on any given day. That’s super cool.
Bob McCarthy: 10% annually, right? Yeah, ideally as mattress professionals, we would love everybody buy a mattress, new mattress every eight years, right?
That’s been kind of the tagline for some of the larger retailers, replace every eight. It’s really probably more like, 12 or 15 years is what most people do, but if you use an average of 10, then that’s about 10% of the population.
Adam Honig: Yeah, I also really love this concept of the door swings, about how you think about, not just selling your product, but adding value to the retailers and helping them sell everything else that they’ve got in the market.
I think that’s great advice for anybody who’s thinking about their channel distribution strategy. It’s not just about you, it’s about the ecosystem.
Bob McCarthy: Right, you’ve got to be able to create value beyond just what’s in that box that you’re selling. If you’re giving that consumer a great experience on your brand, then they’re likely to come back to that store and buy something else.
Adam Honig: Right, I think for anybody who has a product that they’re selling through distribution, if you can help your partner sell more of their whole set of skews, they’re going to be that much more loyal to you and keep working with you and expanding the partnership.
Bob McCarthy: Yeah, absolutely, especially in the mattress business. Literally hundreds of brands for the retailer to choose from.
You know, I’m flattered when anybody makes a commitment to put our products on their retail floor. We average about four slots per store location, most stores have anywhere from 50 to 70 beds on the floor. So, we have somewhere between 3 and 5% of the retail space available, it’s dedicated to our brand.
So at that point now it’s really up to us to create that engagement and get that sell through. The easier part of the job is having that owner or buyer give us the commitment to put us on the floor and give us a chance. The real work begins when we start dealing with the literally thousands, or tens of thousands of retail sales associates that we have to deal with on a daily basis to continue to be engaged in our brand and having great products like Spiro.ai to manage, that helps us.
Adam Honig: Right on, we appreciate the shout out on that. Well, Bob, this has been a great conversation. Really, really appreciate your joining the podcast today, thanks for coming on!
Bob McCarthy: Well, thank you for having me, it’s been a pleasure.
Adam Honig: As a reminder to our listeners, you can find every episode of the Make It. Move It. Sell It. Podcast at Spirit.AI/podcast. Be sure to subscribe, I don’t know, Bob, you think people should give us a good review or a thumbs up or something like that?
Bob McCarthy: I’d love to get some thumbs up for this podcast.
Adam Honig: Yeah, let’s do it! Go ahead, hit that thumbs up button right now. I don’t even know if there is one anymore on Spotify or Apple Podcast, whatever you’re listening on. But really appreciate your tuning in, looking forward to speaking with you on the next episode.