Philip Krim, Co-Founder and CEO of Casper, shown here on August 2, 2017 in New York City.. said in … [+]
2017 Benjamin Lowy
Online mattress company Casper really needs an IPO. But the real question is, does anyone else need a Casper IPO?
Casper’s IPO success depends on being able to sell itself as a category killer in sleep, rather than just another online mattress company.
Interestingly, according to the IPO prospectus filed today, the success of this five-year-old brand that was born as a digital disruptor depends being able to position itself as a brick and mortar retailer.
Pretty much everything Casper has done since it was launched in 2014 has been leading to an eventual IPO. Its strategy was to invest heavily in marketing and publicity, own the online category, and get to the IPO starting line before anyone else.
It also spawned dozens of online mattress competitors, in part by showing other entrepreneurs how easy it was to enter the category, once you figured out how to deliver a mattress in a box.
The mattress category used to have high barriers to entry, as Hart Posen, professor of management at the University of Wisconsin, explained when I interviewed him in May. Posen is fascinated by the changes in the mattress industry, and has studied the explosion of online sellers over the past decade.
In the past, Posen said, getting into the mattress business was very difficult. You had to have local stores, because you needed local distribution. “You needed two big guys to carry a mattress up a flight of stairs,” as Posen put it.
Then, in the mid-2000s, a machine was invented that could roll a foam mattress and fit it in a box. “Once you could put it in a box, then you didn’t need furniture retail stores to sell it,” he said. “The UPS guy could drop it at the door and you could carry it up the stairs yourself.”
“What’s happened is getting into the mattress business now is trivially easy – anyone can do it,” he said. Startups didn’t have to own inventory, but could contract with mattress manufacturers who would drop ship directly to buyers. So companies like Casper had to find a point of differentiation, or an advantage, to stand out in what had become an extraordinarily competitive space.
For Casper, part of its strategy was moving aggressively into brick and mortar retail. It opened its own stores, and signed up big name retail partners, including Costco, Target, and Amazon.
Casper, in the prospectus, says expanding its retail store base is key to its future, and lists it as a possible risk factor for investors. “If we do not successfully implement our future retail store operation, our growth and profitability could be harmed,” the prospectus states.
Casper, Posen said, had to create a barrier to entry, such as an extensive and expensive store base, to fend off dozens of new online sellers.
“Any industry where anyone can get in is going to be a very unattractive industry,” he said.
Casper can boast impressive growth rates in sales and revenues, but many of the online mattress startups have enjoyed similar growth rates, particularly in their first years of operation.
Casper acknowledged that it isn’t making a profit, and that it probably won’t do so any time soon. What may concern investors more is that its losses are widening, reaching $93.1 million in 2018, compared to a loss of $73.1 million in 2017. Losses for the first three quarters of 2019 are also slightly ahead of the same period in 2018.
Casper’s other strategy to break away from the online mattress crowd was to position itself as the one-stop shop for all things sleep-related.
“Our ambition is to build the first consumer-centric sleep brand that will endure for generations,” Casper CEO and co-founder Philip Krim wrote in a letter included in the prospectus. “Today, the sleep revolution is just getting started,” Krim wrote, noting that Spotify’s sleep playlist is one of its most popular, that two of Target’s bestselling vitamins are sleep vitamins, and that athletic teams are investing in sleep coaches to boost player performance.
“I believe a single company will orchestrate this movement and successfully capture this opportunity. That company is Casper,” Krim wrote.
So Casper, in its IPO, will be asking Wall Street to bet on demand for sleep.
Betting that people will pay for better sleep seems like a safe bet. The risky part is betting that one company can own sleep.
In May, Krim told Forbes contributor Andria Cheng “What Nike did for exercise and what Whole Foods did for organic, we want to do for sleep.”
Here’s the risk factor with that analogy: What Whole Foods did for organic was trigger mainstream supermarkets to greatly expand their organic offerings, taking sales back from Whole Foods. Nike dominates in exercise but it doesn’t own it. Saying it will own sleep will be a hard sell for Casper.