Casper Disrupted the Sleep Economy; Then the Covers Came Off
The self-proclaimed “Nike of sleep” proves there’s no such thing as a $1 billion mattress company
I’m on holiday today (happy easter weekend) so today’s Trend Mill edition is a fun little article I wrote early last year.
Casper — the original DTC darling and self-proclaimed “Nike of sleep” — proves there’s no such thing as a $1 billion mattress company.
In a whirlwind two years, the mattress-in-a-box company went from being the lead disrupter in the ‘sleep economy’ with a value of $1.1 billion to being sold to a private equity firm for around $300 million. It was a downfall and then some. For context, the company was sold for less than it raised in capital ($350 million). In the deal concluded in January 2022, Durational Capital Management agreed to pay $6.90 per outstanding share, a nearly 90% premium on the current stock price of $3.55.
In short, it could have been even more of a nightmare.
Despite its lofty dreams to “awaken the potential of a well-rested world” (giving WeWork’s “elevate the world’s consciousness” a run for its money), the company has failed to deliver. The writing was on the wall ever since it went public in 2019 with a lackluster IPO that valued the company at half of its peak valuation. For starters, it has never been profitable, losing $92 million in 2018 and over $70 million in 2019. It even warned in its S-1 filing that it wouldn’t be profitable “anytime soon,” and, true to form, those losses have continued through 2020 and 2021, compounded by supply chain issues and slowing growth.
At the same time, the company has spent a huge amount on marketing and customer acquisition (we’ve all heard a Casper advert on a podcast), which totaled $114 million in 2019 — enough to keep anyone awake at night. Casper’s 100-night trial program also cost the company a small fortune — over $80 million in 2018 alone — because the mattresses cannot be reused after being returned. In 2020, Casper closed its European operations, and in the same year, it stopped selling mattresses directly to UK customers, both in a failed effort to achieve profitability.
It wasn’t just financial issues that resulted in the fall from grace. The very product that Casper sold had an obvious problem — mattresses last a long time. The average consumer is not a hotel chain; many will keep their mattress for up to 10 years. So repeat business was never going to be the company’s strong point — unlike fellow DTC brand Warby Parker, whose repeat business model is one of its strongest assets — and this left Casper constantly chasing and paying for new customers to continue growing. The problem is that others saw the market opportunity and joined in; at one point, there were over 175 “bed-in-a-box” brands offering similar products and services. For customers, it was difficult to tell them apart. For Casper, it was difficult to stand out, and cost more to do so. The company’s move into WeWork-like self grandiose — not quite going as far as to label itself a tech company, though — was a sure sign the wheels were coming off.
In its defense, Casper has lost a lot of sleep trying to make itself more than just a mattress seller. It partnered with Target to sell some of its products through the chain’s stores. In New York, it launched the Dreamery, a luxury “nap bar,” which allowed customers to pay $25 for a 45-minute beauty sleep. The hope was to “destigmatize napping” while also selling mattresses. Unfortunately, it did neither. Despite its DTC roots, the company moved into physical retail to appeal to hybrid shoppers, opening over 60 locations in the US. It had plans to open over 200 more before the pandemic paused the expansion and left the company holding money-losing empty stores. To coincide with its foray into physical stores, Casper announced a string of products designed to “promote the ideal ambience for sleep,” including bedside clocks, sleep trackers and more. The only one that came to life was The Glow Light, and it did little to move the needle. These strategies couldn’t solve the fundamental problem — convincing people to buy mattresses and making a profit at the same time.
Casper’s downfall spelled bad news for the other mattress sellers considering going public. It also signaled that the DTC market still has to prove it is more than just online brands selling a good story and that these brands can establish themselves as credible, profitable businesses. Companies can only lose money if they continue to grow at breakneck speed; several of the bigger DTC brands are beginning to hit their growth ceilings and face serious challenges ahead to survive. Throw on top of this, supply chain problems, the growing cost of materials and market saturation and many others will likely meet a similar fate to Casper.
The “Nike of sleep” was a bold mission statement.
But, in reality, the company was more like the Allbirds of sleep; big hype, big valuation, but, under the covers, little justification as to why.