The Rise and Fall of Casper
Here is the video from this transcript: YouTube
Not too long ago, people had to make trips to mom-and-pop stores to buy mattresses. Don’t get me wrong, they still do. But now more than ever, they have the luxury of buying it online. And if you thought that Casper introduced the bed-in-a-box concept, you’re wrong. In 2007, Bill Bradley built a machine that could compress and roll foam mattresses to fit in shipping boxes. There was no need to rely on retailers to sell the mattresses anymore.
However, his company, named Bed in a Box, did not gain much traction. It was definitely not the right timing, with the financial crisis on the horizon. Sometimes, being the first to market does not really matter. Someone else might copy the idea and launch it again at the right time.
The bed-in-a box concept was simple. Eliminate the middlemen, pass on the cost savings to customers and solve the often-painful in-store buying experience. In 2014, Casper re-introduced the concept successfully. The company ships affordable mattresses in a box to customers for free. To win over customers’ trust, Casper offers a 100-night guarantee in case customers are not satisfied with their purchase. This guarantee does an excellent job of de-risking the online buying experience.
Needless to say, in their first 3 years, Casper raked in over 300 million dollars in cumulative revenue. In 2019, it raised a 100-million-dollar funding round and was valued at an impressive 1.1 billion dollars.
Their unicorn status did not come at a surprise. I took a look at their S-1 and read that Casper essentially positions itself as a tech firm. They mention buzz words like “cutting-edge technology, data and insights” before even mentioning mattress. They needed to show investors why their valuation made sense. And coupling tech with anything implied a higher valuation for some reason.
Now, I am not saying that all mattresses are the same. The foam, layers, size, color and design might differ. But since the buying experience is online, customers don’t necessarily see all of these differences. Therefore, they differentiate themselves with ads. Their digital marketing game must be on point. They need to spend a lot in order to rank first in searches. Most of the times, customers are greeted with limited-time discount offers as soon as they land on the websites. I would say that most of the bed-in-a-box companies are essentially digital marketing companies specializing in mattresses. They don’t own any proper proprietary tech per se.
An important player in the marketing space is mattress review sites. In 2016, Casper sued three mattress review sites, including Sleepopolis, claiming they did not disclose their commission structure. Obviously, Casper wanted in on the review sites. What’s the best way to have your mattress featured on the review sites? Just buy a review site. Casper provided financial support to a subsidiary of JAKK Media to acquire Sleepopolis. Although the site publishes disclaimers alongside the reviews, people still doubt their authenticity.
Customers still come out as winners. Since these companies exist online and most outsource their manufacturing and shipping, their operations costs are lower. And thus, most cost savings are passed on to consumers. But it’s a double-edged sword for the firms. Since the barriers to entry are so low, it means that it’s easier to set shop. Essentially, anyone with a Google Ads account and a mattress subcontractor could open a bed-in-a-box company.
There are now hundreds of these companies in the U.S. competing for the same customers. This naturally drives up customer acquisition costs on Facebook and Google. Firms such as Walmart and Amazon have launched their own mattress brands, priced well below the 1,000-dollar price average point charged by bed-in-a-box retailers. Casper diversified its marketing efforts to podcasts, subways and television. They needed to be the first online mattress brand customers came into contact with.
Indeed, Casper could not afford to cut its marketing expenses. In order to generate recurring revenue, they need to maintain their brand’s presence. This is due to the lifecycle of mattresses, which are not a repeat purchase. The average mattress is replaced every 7 years. In Casper’s S-1, it is mentioned that only 16% of customers through its direct-to-consumer channel have returned to purchase another product.
Although they were a direct to consumer business, Casper did own some brick and mortar stores. But it seemed that it was not enough to reach an important customer base. Online mattress firms only captured 10% of the mattress industry, which stood at around 18 billion dollars. Remember. Online mattress firms wanted to eliminate the painful mattress buying experience. Partnering with retailers would go against their whole premise. So I thought.
But in 2017, Casper partnered with Target to offer their mattresses in stores. Competitors followed suit. Purple partnered with Mattress firm. Leesa with West Elm. And Tuft & Needle even merged with Serta Simmons. Casper even received an offer to be bought out for 1 billion dollars by Target. And maybe they should have taken the deal.
Up to that point, Casper was only similar to tech startups in that they made losses in every quarter leading up to their IPO in February 2020. Gone was their billion-dollar valuation. They had to settle for around half of that amount. Although their revenue rose from 251 million dollars in 2017 to 439 million dollars in 2019, their losses widened. Investors’ main question was where will Casper look for growth and pave its way to profitability in light of the saturating industry.
Casper could introduce new mattresses to cater for various customers and expand into more adjacent product categories. Another possibility is to incorporate proper technology in their business model. The future of the mattress industry might be in producing smart mattresses that contain features such as built-in sleep trackers, heat sensors, adjustable firmness and built-in alarm.
Did you try any of the bed-in-a-box mattresses? Or do you still travel to brick and mortar stores to buy your mattress? As always, let us know.
