Casper’s recent acquisition has us reflecting on the brand, its history and the lessons its story can yield other bedding and mattress manufacturers and retailers.
Just shy of two years as a publicly traded company, Casper Sleep announced this week that it will be heading back to the private sphere. The company said on Monday that it has agreed to be acquired by private equity firm Durational Capital Management. After exploring the rise in DTC brands looking to IPOs a few weeks back, we wanted to examine this new chapter in the Casper saga and consider what the larger implications of the transaction may be and what the industry can take away from it.
Casper is hardly the first bedding brand to look to acquisition. Back in 2018, Tuft & Needle was acquired by Serta. And more recently, both Brooklyn Bedding and Helix Sleep were acquired by Cerberus Capital Management in September of this year. What is interesting is that one can assume that Casper opted for IPO route to avoid this fate. But unlike Purple, which was able to successfully go public back in 2017, Casper struggled from the onset of its public filing.
Let’s Look At The Details
Casper was acquired by Durational Capital Management for $6.90 a share—a 94% premium over its closing price the week prior. While the company reported its revenue was up 27% in Q3 to $156.5 million, that increase was coupled with ever-widening losses as well. Its net loss for Q3 was $25.3 million, up from $16.1 million in the same quarter of last year.
In face of these losses, Casper's board "evaluated a range of strategic and financial alternatives over several months and determined, after careful consideration, that the transaction proposed by Durational is superior to all other alternatives available.” This will be the first home furnishings investment for Durational, which currently owns the fast-food chain Bojangles.
As part of the deal, co-founder Philip Krim will also step down. He will be replaced by Emilie Arel, who previously served as president and chief commercial officer for the brand.
What Went Wrong?
According to Casper, industry-wide supply chain challenges were partly to blame for this move, citing inflation pressures that damaged its ability to meet the consumer demand. But questions of profitability had plagued the brand pre-pandemic as well. While its business model largely upended the traditional ways mattresses were bought and sold, the company was continually plagued with high operational costs. Casper had initially rationalized its lower price tag with the idea that it had “cut out the middle man”—but the low frequency of mattress purchasing and the skyrocketing cost of customer acquisition drove the brand to amend many aspects of its original strategy. Over the years, the company had introduced new mattress models and other product offerings, opened its own branded brick-and-mortar stores and partnered with traditional retail chains.
Despite these efforts, Casper continued to struggle—especially in the face of the logistical issues brought on by the pandemic. Without the support of this acquisition, the company risked running out of cash within a year, it disclosed this week. This sale, along with additional loans and planned cost-cutting measures, should keep that from happening.
What Happens Now?
The deal is expected to be finished by the first quarter of 2022, pending approval from Casper’s shareholders.
As part of the deal, Emilie Arel will take over as CEO of the brand. In its coverage of the deal, Forbes noted that Arel previously served as CEO for plus-size apparel company FULLBEAUTY, where she “led the Company through a debt restructuring and put them on the path to a digital transformation.” She went on to work on the merchandising side of both Target and Gap, two companies that have been successful in turning around struggling financials.
Under this new leadership, the company presumably aims to make changes that will help it become profitable. Whether that includes further investment in its in-store retail business (which has been successful over the past year) or more expansion into more frequently purchased products, it remains to be seen.
What Can We Learn From It?
While there is no doubt that supply chain disruption was part of the problem, we think there is more to learn from this story—beyond any sweeping conclusions about the online DTC mattress model or the very nature of the IPO process.
Perhaps Casper’s financial troubles say more about the challenges of focusing on the $1,000 mattress category? Or the limitations of risk-free at-home trials and free shipping? While all of these elements were attractive to consumers, they created an unsustainable business model—both financially speaking and, in some ways, environmentally as well.
In other ways, the struggles Casper has had gaining profitability may also say something about the limits of consumer brand visibility. Over the past few years, Casper has become something of a short-hand for the bed-in-a-box category among consumers. But that visibility did not translate into profit—especially at a time when digital customer acquisition has gotten untenably expensive.
The very idea of selling mattresses online and shipping them in boxes seems here to stay—but there is still room for change and growth within that concept. Maybe the showroom model, where consumers can come try out the bed in-store before buying it online, is the way of the future? And while social media advertising may have once seemed like a silver bullet in terms of cost-effective marketing, it is once again just another tool in the marketing toolbox. How else can brands meet their customers where they are, both online and IRL?
Despite its financial precarity, there is no doubt that Casper has had a profound impact on the mattress industry. It helped successfully reimagine how the bedding market could function. And even as it moves into the next stage of its business, the legacy of its disruption will likely live on throughout the marketplace.
We’re excited to see what sort of innovation Casper may come up with next and what the company will become known for in the future. And, at the same time, we’re curious to see what other brands and business models might come out of the woodwork in the years to come. Looking ahead, the question becomes: what does profitable, ethical and sustainable disruption really look like in the sleep space?