Online mattress start-up Nectar is seeing faster growth offline, and its CEO is not surprised

December 08, 2019

When our company, Resident, first reached out to Cardi's, a top New England furniture and mattress retailer, we made them an offer that caused them to hesitate. We asked if they wanted to carry our Nectar brand, which offers mattresses that are priced lower than the others they sell and at the time were available only online.

Although we started out as an online-only brand, our research showed that only 20% of people are comfortable buying mattresses online. In fact, the most common question we received on our site was: "Where can I see the mattress?"

We knew we had to provide an answer. We understood that a tremendous opportunity for growth was the 80% of consumers who want to try a mattress in-store first, leading us to create partnerships with physical retailers.

Even though Cardi's didn't expect Nectar to draw customers like bigger names Serta and Tempur-Pedic, they decided to give us a chance. They figured they didn't have much to lose beyond floor space.

We knew traditional retailers have "unused" real estate in their stores that offer a way to sell to prospects who prefer to test mattress in the real world. For example, a typical mattress store has 40 beds in the store, with 10 to15 that sell poorly. They would rather replace these lower performers with a mattress that's more productive for them.

A few weeks later, Cardi's created TV commercials for the Nectar brand, and many customers went from our website to their store, driving a noticeable uptick in sales. This data wasn't an anomaly. We have signed 1,000-plus retail partnerships over the past 10 months — which can be viewed on the "Store Locator" on our website — and stores are seeing significant incremental topline sales. In fact, in-store is currently growing faster than online sales, as a percentage of our sales. We believe that trend will continue.

Digital and brick-and-mortar brands can work together

What we've observed points to a new way that allows digitally native brands to form a symbiotic relationship with legacy retailers that bolsters both. Online brands can find new sales channels without having to fully invest in physical retail because we take on the expense of building out a department for our brands. Brick-and-mortar stores that make the most of the traffic we drive from our website to their stores can, as a result, avoid the fate of physical brands that have succumbed to the retail apocalypse.

Both digitally native brands and brick-and-mortar retail partners have to start from a strong foundation. We look for retailers that are No. 1 in their market or a strong No. 2. They are leaders in their space, so once they partner with us, other retailers are more willing to work with us, too.

They also have the resources to succeed. For the partnerships to work, stores have to be staffed by well-trained salespeople who deliver a great store experience, which we can determine by visiting the stores and checking out online reviews. They also have to be committed to keeping our product in stock. We choose to work with retailers that keep our mattresses on the floor or in the warehouse rather than those that rely on special order.

Retailers also need to have the right systems in place to ship quickly because delivery speed is important. Today's customers want instant gratification. If they have to wait too long, they may change their minds about making a purchase.

These partnerships take effort, and not all of them work smoothly. In some cases, if a store has extremely high turnover and we constantly have to train their new associates, it may be hard to achieve the results we both want. Or if a retailer faces serious financial problems, we may not be able to offer credit terms for our merchandise, because it is too risky.

To maintain quality in our partnerships, we do monthly checks to ensure that stores have good sales velocity, meaning they order the monthly minimums we require. We also have benchmarks of what success looks like based on previous experience, such as keeping returns below 5%.

If a store is not keeping pace, we are willing to retrain the sales team to course-correct. We've invested heavily in this, hiring a vice president who specializes in this area of the business and sending our sales training team around the country to work with associates in stores. We consider these investments worthwhile, and they ultimately cost us far less than what we spend on our online marketing.

We also send secret shoppers from our staff to visit partners' stores at unpredictable intervalsto make sure our customers have a good experience, and I even go myself. If a specific store or retailer mistreats our brand and doesn't respond to suggestions, we remove them from the "Store Locator" on our site and stop sending foot traffic their way. One thing we don't like to see is salespeople failing to encourage consumers to test our mattresses before showing them another brand.

We spend a lot of money educating consumers on our product so they come to stores ready to buy. By the time they get to the point of looking up their nearest mattress retailer and heading to the store, they already have done their research online and have a good idea of what they want. Once consumers come to the store, retailers have to take the baton from us or the partnership won't be successful.

Fortunately, none of the retailers we partner with have proprietary mattress brands, so there is no potential for competition between our brands and theirs. Meanwhile, physical retail is being consolidated across many industries these days, and mattress retailers are all well aware of this.

They understand it costs them $100 to $200 to create a door swing on their own, money they can now save or invest elsewhere in their business. That's not something to be taken lightly in today's retail environment.

— Ran Reske is co-CEO of Resident, a digitally native home furnishings brand, and a member of the CNBC-YPO Chief Executive Network

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