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Purple CEO: April bed sales surge, the 'biggest obstacle is our own manufacturing capacity'

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Joseph B. Megibow, Purple CEO, joins Yahoo Finance's Alexis Christoforous and Brian Sozzi to discuss the surge of mattress sales in the month of April, how the company is keeping up with demand and future outlook for the company.

Video Transcript

ALEXIS CHRISTOFOROUS: Well, it's not just sales of paper goods that have been soaring throughout this pandemic. Bed sales have also woken up, especially over at Purple. The mattress company saw a 46% jump in sales in the first quarter, and here to join us now to discuss more about this is Purple's CEO Joe Megibow. Joe, good to see you.

Quite the rise in sales there in Q1. I'm curious if you're seeing that same sort of demand here in Q2.

JOE MEGIBOW: Yeah, we did very well in Q1. Thank you. But it's even more interesting is what's happened. It's really only in the last couple weeks of Q1 was when we began to see impact from COVID-19.

We've been-- I've said in these very unfortunate times we've been very fortunate. What we've seen is a fairly seismic shift from a predominantly brick-and-mortar category into online. In April, we reported 170% increase in DTC, which was approximately $54 million of sales for us just in the month alone.

BRIAN SOZZI: And, Joe, what-- you know, why do you think-- what is driving that demand? A mattress isn't cheap. Pillows aren't cheap. Sheets aren't cheap. The stuff is expensive.

JOE MEGIBOW: Yeah, it's interesting. We play on the more premium side of the category. So, I mean, on a unit-volume basis, about 65% of mattresses sold are value mattresses. But interestingly, they only represent about a third of industry revenue. We've been much more interested in the premium side and especially in sort of that sweet spot of $1,000 to $3,000 for a mattress.

What we've seen is as people have-- really have more discretionary spend right now-- they're not traveling. They didn't take their spring breaks. They didn't go on vacation. They are not dining out. They're not doing entertainment. And on top of that with shelter at home and spending more time at home, we've seen much more interest in the home category in general, and that really starts with the bedroom where, you know, most people spend a third of their lives. And that demand for premium has been underserviced online, and we've just seen this massive shift online.

Interestingly for our business, on a unit-volume basis we really haven't seen any decline at all. All we've seen is this seismic shift from what has been a traditionally omnichannel business for us where roughly half of our units were sold through brick and mortar to the entirety of that being recaptured in the online channel.

ALEXIS CHRISTOFOROUS: Do you see this being a sort of a permanent shift where you come out the other side of this, Joe, in terms of the way you're going to sell your products? because direct to consumer has really taken off. Will there being a smaller footprint when it comes to brick and mortar, a smaller wholesale footprint for your business?

JOE MEGIBOW: Yeah, so certainly we don't believe that things are going to go back to how they were. I think you cannot come out the other side of this without some significant behavioral changes and expectations and the role of brick and mortar.

We don't, by any means, believe brick and mortar is dead, and certainly on something like a multi-thousand-dollar purchase that feel is a big part of, we believe that consumers are going to still want to have ways that they can try a product out beforehand. But we do believe that the pendulum isn't going to swing back all the way. There is going to likely be a significantly larger percentage of the category driven online.

And yeah, we think, you know, for a business like ours that's digitally native at our core and a manufacturer at our core-- I mean, we have a unique product that only we make. That creates an interesting opportunity for us.

BRIAN SOZZI: Joe, you just mentioned that the online sales in April up 170%. I've not seen numbers like that before in the mattress space. Has that continued into May? Because that's quite-- that's pretty big momentum.

JOE MEGIBOW: Yeah, so we have not reported on May yet. We are a public company. But, you know, just at a category level, the data we've seen, especially through Memorial Day-- which early read from the catalog seems to have been strong for most players. Certainly we anticipate similar trends into May.

ALEXIS CHRISTOFOROUS: What about how you're able to meet demand right now, Joe? Because if I'm right, you source your material, almost all of it, domestically. So what has the supply chain been like for you, and have you been able to keep up with the increased demand?

JOE MEGIBOW: Yeah, so fortunately-- and that's correct. Thank you, Alexis. We do source most of our raw materials domestically, and we are a manufacturer. We've got over 700,000 square feet of manufacturing and warehousing space, nearly a thousand employees now.

So at our core, we really make these products, and we're proud to be a US-based domestic manufacturer. But because most of our supply is sourced domestically, we've had really very little disruption on our ability to secure raw materials, and we had ample inventory on hand beforehand.

Really, our ultimate challenge, which has been what Purple has dealt with since we launched nearly five years ago now, is just our own manufacturing capacity. It's a very complex process. We actually have to build the machines that build the beds. We've got our seventh of these machines coming online. Actually, it just got its first test run yesterday, so it should be online in a matter of a week. And we've said that we're planning to add another half a million square feet of manufacturing space on the East Coast later this year.

So that's it. We're a supply-constrained business, and the supply is of our own ability to manufacture.

ALEXIS CHRISTOFOROUS: So, Joe, I'm curious in this new world order, have plans changed to open up within malls? What are you doing there?

JOE MEGIBOW: Yeah, so, you know, we've opened five of our own showrooms, and it's been a terrific way for us to not only sell our mattresses but we sell seat cushions. We have some incredible pillows that we launched late last year and have had some-- our original pillows for many years now. And our ability to show the whole brand story, the technical background, the assortment has been great for us. So we continue to look for opportunities, and I think it's likely going to be a buyer's market in retail for us to continue to look for new showroom opportunities.

As to other brick-and-mortar players, we're in about 1,800 doors right now. Call it 8,000 to 10,000 doors around the country. So we see lots of opportunity, however it plays out, to continue to expand there as well.

ALEXIS CHRISTOFOROUS: All right, Joe Megibow, CEO Purple mattresses, good to see you. Thanks for coming on.

JOE MEGIBOW: Thanks for having me on. Take care.