It seems like there's a mattress store on every corner. Yelp says there are eleven with five miles of me, and I'm in one of the least dense parts of town. In my whole life, I've never seen one that was busy. I suppose this is the thing that leads a lot of people to joke that most mattress stores must be money laundering fronts. I've made the same crack myself.

A real estate investor friend of mine has three properties leased to mattress stores. He says they never have trouble paying the rent. He's very selective about his tenants, so he did a little due diligence before he signed the leases. Hearing that from him made me want to do a little back of the envelope math to figure out good a business a mattress store is. I came to the conclusion that a middle of the road mattress store probably has right around half a million a year in gross profit. That's a lot of money when you consider that they often only have a single sales person on the floor at a time, tend not to rent high end space, and nothing they do has high utility costs. I'd guess that as much as a third of that is free cash flow to the owner.

Here's how I gathered some reasonable assumptions to do my back of the envelope math. It happens that my friend's tenants were Tempur-Pedic stores, so I pulled up their 2023 10-k (their annual report required by the SEC).

Their revenue (after sales tax) was 4.9B, but that includes their wholesale business. Thankfully, their management discussion section breaks out the segments. Direct to consumer sales was $1.18B. Of course, some of that is going to be e-commerce. Since they don't break that out separately, and I couldn't find estimates specific to them, let's assume that it matches the national average for furniture purchases, which a little googling estimated at 16-20%. To be conservative, let's use the top end of that. Now we're at $944M flowing through their stores every year. They say they have "over 750 stores". Again, to be conservative, let's round that to 800. That gives us an average per store revenue of $1.18M. They don't break out gross revenue separately for wholesale vs. direct, so we'll stick with the 43% that they report for the business as a whole. The industry average for furniture stores is 50-70%, so this seems like a conservative choice. Doing the math gives us $507,000 per year per store.

So, that's a pretty good business. You can do the same process with any kind of business you see. Either use a public company in the same industry as a starting point, or look up trade industry reports to get the averages and start working out the math. Add in a little observation of an actual store and conversations with customers about how much they buy and how frequently they buy, and you can start to dial-in a really solid hypothesis about that particular business and about traits generally separate a good business from a bad business.

Now, we've proven that mattress stores do actually make money, but do we haven't addressed whether we really need one in every third shopping center along a major road. Let's assume that the "typical" unit is a plain old queen mattress. Depending on special sales and such, prices range from around $1300 to $2000. Let's go with $1500. That means that a store moves about 786 mattresses a year. If the average homeowner or renter buys one new mattress every ten years (in a three bedroom house, hopefully it's more like one every 3-4), then you can support a mattress store with fewer than 8,000 housing units.

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