Dial-A-Mattress Operating Corporation

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Dial-A-Mattress Operating Corporation

31-10 48th Avenue
Long Island City, New York 11101
U.S.A.
Telephone: (718) 472-1200
Toll Free: (800) 482-6554
Fax: (718) 482-6554
Web site: http://www.mattress.com

Private Company
Incorporated: 1976
Employees: 350
Sales: $90 million (2000)
NAIC: 731104 Marketing Utilities

Conducting business as 1-800-Mattress, Dial-A-Mattress Operating Corporation is a Long Island City retailer that popularized the selling of mattresses over the telephone. In recent years, Dial has expanded its 24-hour offerings to include bedding and other products and turned to the Internet to augment its telemarketing operations. The company sells brand name and private label mattresses, promising two-hour delivery in its primary markets. Sales outside of the New York City area are handled by franchises or through more than 500 partnerships with retailers across the country, for which Dial receives a commission. Although Dial’s business is predicated on the belief that customers are willing to purchase mattresses without first seeing them, the company has opened a number of showrooms where mattresses are available for sale and from customers to see, touch, or feel.

Dial-A-Mattress Founder Emigrates to America in 1968

Napoleon Barragan, founder and chief executive officer of Dial, was born in 1941 on a farm in Bilovan, Ecuador. Instead of farming he turned to teaching, eventually leaving Ecuador for Columbia, where he established a language school. In 1968, he sold the business in order to move to New York City with his pregnant wife and child. According to Barragan, he arrived with little more than ten dollars to his name and settled in a Queens neighborhood where friends and family also lived. While his wife, Kay, worked as an Avon Lady, Barragan took on manufacturing jobs, including work in a carpet factory and on the assembly line of a shoe factory. In 1973, he became a salesman in a furniture store, learned the business, and soon became the sales manager. By 1976, he scraped together enough money to open his own furniture store in a 1200-square-foot site on bustling Jamaica Avenue. This area of Queens was a major transportation hub and home to a large number of retailers—major department stores as well as mom-and-pop operations. Barragan’s small storefront was located near York College, part of the City University system, prompting him to name his business College Furniture Discounters. Because he lacked the money to change the signs at this and a future location, he relied on the names of former businesses, Lerner’s Sleep and Two Fingers Furniture.

With no credit or cash reserves, and relying on the sale of inexpensive furniture (such as seven-piece bedroom sets priced at $299), Barragan struggled to keep his business afloat and support his family. He worked 12 hour days and resorted to every sales strategy he could think of to move his merchandise, including the placement of one of his mattresses at a neighborhood fruit and vegetable shop with a hand-lettered sign that stated “Buy This Mattress!” An arrow directed customers to his nearby furniture store. On Sundays, when the store was closed, Barragan sold off some of inventory on the flea market circuit. Barragan’s constant search for a better way to sell furniture culminated in a break-through moment on a New York subway car in September 1976. While reading The New York Post, he noticed an advertisement for Dial-A-Steak, a company that offered home delivery of cooked steaks. It was little more than a clever twist on a long-standing New York practice of food delivery, but the ad struck a chord with Barragan, and he immediately decided to try selling furniture over the telephone. After considering his stock, he settled on mattresses as the item best suited for his telemarketing idea. It was by no means, however, an obvious choice. Retailers had always assumed that most people would want to try out a mattress before purchasing it, but there were a number of factors that favored Barragan’s idea. Mattress sales in New York were dominated by major department stores (Abraham & Straus, Bloomingdale’s, and Macy’s), each with enough clout to force the major mattress manufacturers (Simmons, Sealy, and Serta) to produce exclusive products of what were essentially the same item. The result was a confusing array of choices and prices that fluctuated wildly, depending on which retailer was conducting a sale at any given time. Moreover, delivery could take up to six weeks. Part of Barragan’s concept for selling mattresses over the phone included prompt delivery, just like Dial-A-Steak and the corner deli. Unwittingly, he would be tapping into a changing American lifestyle, where time and convenience would become crucial considerations.

Late-Night Television Ads Begin in 1978

Barragan launched his telephone retail business by placing a small ad in The Village Voice, promoting his cheapest line of mattresses: $29 for twin, $39 for full-size, and $49 for queen-size. Soon he began to receive telephone orders, growing to a high enough volume that he had to limit his delivery area to select parts of Queens and Brooklyn. Although Barragan’s main business continued to be his furniture store, the extra revenue from telephone sales allowed him to move to a larger location in Queens on Steinway Street and to open a second store in the Harlem section of Manhattan. To boost Dial’s mattress sales, in 1978 he turned to late night television, creating the company’s first television commercial with New York Broadcast Services, whose Tom Pirrone coined what would become Dial’s signature tagline: “Dial 1-800-MATTRESS, and leave off the last ‘s.’ That’s the ‘s’ for savings.” At the time, however, Dial relied on a local exchange rather than a 1-800 number. Nevertheless, late night television, which Dial chose simply because of low ad rates, proved to be an ideal time to sell to people in need of a new mattress.

Barragan was unable to accommodate late night calls, which always followed the running of its television commercials. At the time, he had two salespeople working with him in the Steinway store, and together they called back customers who had left messages the night before. During regular business hours, in between waiting on walk-in customers, they also took phone orders, although they continued to rely on the answering machine when everyone was busy. Dial fueled its growth by adding radio spots, allowing the company to expand its reach. Barragan acquired additional phone numbers for other area exchanges, so that print ads became crammed with the various combinations. Moreover, Dial’s many satisfied customers spread the word about the company’s bargain prices and strong service.

Barragan’s early emphasis on prompt delivery, which became same day delivery and ultimately a two-hour guarantee, was perhaps just as important as the telephone concept. The key was convenience: not only could customers place their orders from home, they did not have to take off a day from work to accept delivery. Moreover, they had the right to refuse delivery if the mattress failed to meet their expectations. At first Barragan relied on his own truck for delivery, although he and his salespeople were also known to deliver mattresses strapped to the roof of their cars. Eventually he would engage a number of independent truck drivers who were paid in cash. Because a large number of its customers paid for their mattresses in cash, Dial had enough currency on hand to pay its drivers as well as other staff, allowing everyone to under-report their tax liabilities. Although this was a common practice among small businesses struggling to make ends meet, Barragan continued to rely on it even after Dial emerged as a successful and highly visible business in the late 1980s.

Dial’s reputation for solid customer service was also the result of its evolving telemarketing style, which was greatly influenced by an employee, Joe Vicens, who only began working the phones after he strained his back loading trucks. On Vicens’ first day, Dial enjoyed its best sales day. He now became the person assigned to return messages left the night before and the first one to take phone orders during the day. His intuitive technique would soon be understood and adopted by Dial as standard policy. In essence, Vicens listened and asked questions to determine what the customer needed, rather than focussing on what he wanted to sell. Moreover, he was friendly and knew the products he was selling. However simple, it was an effective technique. Even as Dial computerized its operations, the company would make sure that its “Bedding Consultants” were thoroughly acquainted with the products they were selling, as well as the Dial-A-Mattress telephone style developed by Vicens.

Dial-A-Mattress Makes 1991 Move to Long Island City

In the early years of its operation, Dial relied on no-name mattresses. The major manufacturers simply refused to sell quality mattresses to what they considered a maverick operation, fearful that they would alienate buyers at traditional department stores and larger retail operations. Dial’s customers, however, often requested brand name mattresses. Around 1984, Dial resorted to buying quality mattresses from Jack’s Furniture in Manhattan, and later Cosmo’s Furniture in Queens. Because Dial bought in quantity, it received a discount. The profit margin was smaller than with house brands, but at least Dial was now able to meet the specific requests of its customers. Eventually the leading mattress manufacturers noticed that Jack’s Furniture and Cosmo’s Furniture were selling an usually high number of mattresses, and they learned about the ties to Dial. By the mid-1980s Barragan was finally able to convince the manufacturers to directly sell their mattresses to Dial.

Company Perspectives:

With its astounding success, 1-800-Mattress continues to develop an international presence and as in the United States has many imitators around the world.

Dial placed increasing emphasis on television and radio spots, cutting back on print, so that by 1986 virtually all of the company’s advertising was electronic. After hiring radio shock-jock Howard Stern to do Dial-A-Mattress ads on his morning program, sales surged. Many of the calls came from outside the boroughs of New York City, prompting Barragan to expand Dial’s delivery area to a 50-mile radius. He stopped selling furniture and instead used his Steinway store to warehouse mattresses. In late 1987 he leased 5,000 square feet in the Ridgewood section of Queens, a space cut out of three adjoining brownstones where Dial was now able to have warehouse space, a call center, and a small showroom. Staff was spread out over three shifts in order to answer the telephones 24 hours a day. To accommodate his growing business, Barragan also sought to gain control of the 1-800-MATTRES telephone number, which would allow customers to call a single toll-free number and eliminate the various exchange-specific numbers to simplify Dial’s advertising. While in the midst of securing the number, however, he learned that a New York businessman named Anthony Page had somehow managed to gain control of the number. Following litigation, in a landmark decision a court granted Dial the use of “mattress” with any exchange. Although Page retained the 1-800-MATTRES number, he was prevented from using it. An accommodation was eventually reached and at the cost of $500,000 Dial gained control use of the toll-free number.

To support his dream of creating a national enterprise, Barragan now invested heavily in computer systems. This endeavor was spearheaded by Joel Stewart, a Dial supplier who became the company’s comptroller in 1988. Sales transactions that had been done on paper were now computerized, which not only improved inventory control but allowed Dial to better gauge the effectiveness of its advertising. The information resulted in smarter media buys. Nearly ten percent of Dial’s sales were earmarked for advertising, fueling a period of rapid growth for the company. Despite reaching a new level, however, Dial continued its practice of relying on cash transactions and under-reporting tax liabilities, as employees were able to determine how much of their salary they preferred by check and how much in cash.

In 1988, Dial generated $4 million in revenues, an amount that doubled the next year, then grew to $12 million in 1990 and $16 million in 1991. By now Dial controlled 10 percent of New York’s mattress business. Even a national recession that strained so many sectors of the economy proved to be a good business environment for the mattress discounters. In 1991, Barragan moved his expanding operations to Long Island City, located in Queens, the company’s current location. The new 70,000-square-foot facility featured a high-tech telemarketing room where 90 bedding consultants worked around the clock, answering approximately 4,000 calls a day. Barragan and his rags-to-riches story was also gaining media attention, resulting in an appearance on the “Donahue” television show as well as an invitation to the White House.

Barragan aspired to greater heights by teaming up with distributors and selling some franchises in order to gain national reach for Dial, while also exploring the possibility of taking the business overseas. Moreover, he considered using 1-800 numbers to sell products other than mattresses. He teamed with a Brooklyn baker to create Dial-A-Bagel to sell New York bagels over the telephone and deliver them by Federal Express. Other telemarketing products he considered included pet beds, cosmetics, vacuum cleaners, computers, and carpets. Newspapers also reported that Barragan was thinking of taking Dial public. To assist him in his far-ranging plans, Barragan hired Jay Brzezanski, an experienced executive from Federated Department Stores, to become the company’s chief financial officer.

On March 18, 1993, 35 employees from the New York State Department of Taxation and Finance, search warrant in hand, descended upon Dial to collect some 90 boxes of potential evidence, including a computer back-up tape that would ultimately reveal the company’s accounting discrepancies. Officials estimated that Dial evaded over $300,000 in sales tax during the period of October 1988 and December 1992. Moreover a paper trail revealed that 150 employees received cash payment for which they did not pay income tax, including Barragan and other executives. Ultimately Barragan reached a plea bargain with officials. To gain immunity for his employees, who would be allowed to file amended tax returns, he agreed in the fall of 1994 to plead guilty to grand larceny in the second degree, subject to a $1 million fine and a year in prison. In addition, because he had never become an American citizen, Barragan faced deportation. In the end, he spent just 36 hours in confinement and served out the rest of his term in a individualized monitor program that allowed him to continue to run his business during the day and live in his own home at night.

Barragan’s conviction clearly hurt Dial on a number of levels. Many of its competitors in mattress telephone sales, who had risen in recent years to challenge Dial, did not hesitate to turn Dial’s notoriety to their advantage. Lenders were also reluctant to fund the business, and plans to go public were shelved, even denied to have ever existed. Nevertheless, Dial continued to grow, reaching $75 million in annual revenues in 1995 before beginning to slip. Primarily due to increased competition, sales fell to $70 million in 1996, prompting cuts in management salaries. Poor conditions then continued in 1997, resulting in Barragan laying off staff for the first time in Dial’s history. He also cut his own salary by 50 percent.

Key Dates:

1968:: Napoleon Barragan emigrates to New York City.
1976:: Barragan opens a Queens furniture store and begins to sell mattresses by telephone, creating Dial-A-Mattress.
1978:: First television ads for Dial-A-Mattress are run late at night.
1988:: The company’s sales reach $4 million.
1991:: The company moves operations to Long Island City.
1994:: Barragan pleads guilty to tax fraud.
1997:: The company forced to lay off 20 percent of work force.
1999:: The company’s sales reach $90 million.

To regain momentum in the late 1990s, Dial began to sell furniture. Barragan returned to the furniture business, launching 1-800-4-FURNITURE. Dial, which actually began selling mattresses over the Internet as early as 1994, also made a concerted effort to sell its products on-line. Coming full circle, Barragan opened a number of New York-area showrooms where customers could try out Dial’s mattresses. He also continued to display an innovative spirit, creating what he called “mobile showrooms,” converted school buses that traveled to customers’ homes or offices in New York City. Revenues improved to $80 million in 1998, then settled at $90 million in 1999 and 2000. In July 2000 Dial, opened its first superstore. Although Barragan and Dial faced difficult conditions, there was little doubt that he would continue to seek out new and innovative ways to continue to grow a prosperous business.