How Casper Failed & Why DTC Startups Lose Money

Through 2014 to 2018, Casper was everywhere on the Internet, flooding advertisements into every trendy podcast, website, and YouTube video. Need a mattress? Want a mattress? Buy Casper. Not comfortable buying a mattress you’ve never seen or touched before? No problem! Sleep on it for three months and return it anytime for a full refund within those 100 days, no questions asked. With a radically generous return policy and aggressive multi-million advertising budgets, Casper quickly rose to fame as the flashiest and fast growing online consumer brand.

Silicon Valley fueled Casper’s meteoric rise, eager to showcase the company as a shining example of technological innovation and business transformation. Casper, Warby Parker, Dollar Shave Club were all pioneers of a new revolutionary type of business called Direct-To-Consumer.

0:00 Direct-To-Consumer (DTC) Business Model
3:50 Turning Down A Billion Dollars
5:41 A Broken Business Model
8:40 Bursting of the DTC Bubble
11:30 Irony of Retail

[ModernMBA]

Chapters:
0:00 Introduction
0:53 Direct-To-Consumer (DTC) Business Model
2:45 3 Billion in Venture Capital
3:50 Turning Down A Billion Dollars
4:30 Casper's Embarrassing IPO Debut
5:41 A Broken Business Model
7:46 Rising Costs of Online Advertising
8:40 Bursting of the DTC Bubble
10:45 Reality of Mattress Buying Habits
11:30 Irony of Retail Sales

[macbruce]

The biggest problem facing the DTC business model, it’s disingenuous. The promise of ‘cutting out the middle men’ when in reality, that’s all they are. Dollar Shave Club used rebranded Dorco Razors/MVMT with alibaba watches/ Fresh Clean Tees are rebranded next level tee shirts etc… In nearly every case, the DTC company has near zero intellectual property and exists as a trading company/marketing firm. The only thing that really gets cut out, is the engineering of a viable product and the valuable IP that comes with it. It doesn’t necessarily make the product not worth purchasing, but it does make itself non-investable.

[Kuroiikawa]

I always remember what my logistics professor told us during one of our classes: "Businesses aren't stupid. If cutting out the middlemen was profitable most businesses would already have done it. If there's a middleman, then it's probably the cheaper option."

[SoulFlavor]

I worked for GotJunk in NYC. We were contracted for Casper mattress returns.

They told us throw them all out instead of donating or take it home. Thousands of mattresses per month, in landfills for their “DTC” model 😂😂🎉

[MichaelJCaboose]

If a company does a ton of advertising through influencer sponsorships, yet you don't know a single person who knows their products, there's a good chance it's going down in flames

[fartywood]

Company got acquired by a PE firm for $6.90/share, valuing it at 286MM in Nov'21. So, its valuation collapsed from $1.1B, to $286MM. Key to making money is not building a cash flow positive business, but to fake your valuation sky high and get out before others. Moral of the story.

[johngablesmith]

I think Casper inadvertently advertised on behalf of its competitors. I don’t think customers can differentiate between these mattress companies.

[Rickles]

Very often when I hear aggressive advertising on social media I take note to not purchase that product because it's clear that the company is investing more into advertising than the product itself.

[Mitsuraga]

The first ones that I encountered were the grocery ones, like Hello Fresh and Blue Apron. What really blew my mind was how expensive they were for fairly basic, simple meals that don't even make enough for leftovers. It's so easy to do the math, based on what you're paying for what you normally get at the supermarket, to determine that those guys are completely ripping people off.

[bradarnold]

I loved the “try it for 100 days” model. Laying on a mattress at a store tells me nothing. What’s comfortable for 5 minutes may not be comfortable at all for 8 hours. Case in point: I thought the Casper was super comfy when I first lay down on it but after a week of miserable, painful, “worst sleep of my life” sleep, I returned it.

[ameliavelasco]

I work in a grocery store and have seen more and more D to C brands coming into the shelves. Particularly the shaving companies 😬

[TheMl]

I've always wondered about so many mattress companies advertising on podcasts. Especially since most of the time it's the same people listening to all the episodes, and most people purchase a new mattress every 10 to 15 years at the most.

[NovelNovelist]

Yeah, I've always found the saturation of mattress companies in America perplexing. Whether we're talking about the absurd number of physical mattress stores like Mattress Firm, or online sellers like Casper, Purple, Leesa, etc., it's like...why? As the video points out, people only buy a new mattress about once every ten years, so why are companies fighting so tooth and nail for this market?

[PSNDonutDude]

I also think that there is some misunderstanding from tech bros. Millennials were deemed to be the retail store killers, but many of us like to try things before we buy it, we want to buy quality products that will last. Sure you can return a Casper mattress, but that's way more annoying than just buying the right mattress the first time. A mattress is a 10 year investment that affects my sleep and costs less than my cell phone. I'm going to make sure I get the right one.

Same goes for other products. I'm old fashioned maybe, but I hate buying 3 sizes of something and returning 2 that don't fit for clothes. I think people are becoming aware of the environment impacts of such policies as well.

[foreignparticle]

I hate not being able to see and touch an expensive product before buying it. And ironically, the most expensive burn I had from buying an asset sight-unseen, was a... mattress. Even an all-expenses-covered return is still a nuisance. Why would I want to buy a mattress and then have to send it back? What am I going to sleep on in the meantime? Do I want to spend my time and energy continually lugging mattress in and out of my apartment building, ensuring I'm home to accept delivery/pickup, and potentially going long periods of using an airbed while I wait for the most suitable mattress to be shipped? I wouldn't buy a car or a house without seeing them first...
Far more efficient to go to a retail store, lie on the bed and make an informed, experiential decision.

[kensier]

Most DTC companies have been started by marketing professionals that greatly underestimate the logistic/operational challenges and costs of shipping direct to consumer. They’re ops teams can never keep anything in stock because they throw all their budget at marketing and will spend 50k on a singular photoshoot and use the images for a month and a half. I can say as a marketer within these companies we have been talking about the DTC bubble for years and the drastic rise in CAC in the last year and a half has only brought us closer to the burst but we are riding out the high salaries and bouncing from one freshly VC-funded startup to the next for as long as we can. Definitely would recommend all marketers getting well versed in retail because that’s where these companies are turning for their hail mary.

[dawert]

What companies fundamentally misunderstand is that online buyers are almost always buying from companies or specific products that they already use and trust. The big fad of buying everything online died out once everyone realized how easy, expensive, and frustrating it was to get scammed. Trying to create a new product online-only by its own nature will garner a lot of scrutiny and immediate distrust. Especially with that corporate art veneer that many have already come to learn is nothing more than a cheap coat of paint on a usually mediocre product.

[mAviralbhanu]

Most of the D2C brands end up selling through retail. D2C is just catalyst for a new brand to get the name around and test the product market fit.

[remainanonymous]

Im involved in the mattress industry. I have a company we rebuild mattresses, what i do makes me dig deep in every single mattress brand. With casper theres a few issues in my view. First off they make cheap quality mattresses, they focus on making a one density foam which is more on the soft side. Its a preferance thing though, some perople prefer a firm or a medium or a soft mattress, but again everybody is different. The casper mattress is made from a thin layer of memory foam and pretty much the rest of it cheap basic foam. They can advertise as much as they want, it doesnt change the fact that its a cheap quality foam. What really hurts them also is the 100 night sleep satisfaction or they issue a refund, It doesnt take long for someone to realize that the casper mattress is not the best, so their return rate is much higher than other companies. And a return to them is 100% loss, sometimes donated to a thrift company but mostly resold through smaller 3rd party companies, like the companies that pick those mattresses up from the customers homes when they ask for a refund. For example, compare tempurpedic to casper; they both make memory foams, but tempurpedic can easily last someone 10-20 years and the foam will still be in very good condition compared to casper the foam barely reaches a couple years until it starts to soften out.
Ps: casper mattresses are not made in china. They have plants in europe and even here in the united states, ill tell you this though, they do not build that mattress from scratch, they have 3rd party companies make the foam for them and another compamy making the cover and another making the box. If they made the whole thing from scratch, that would definately help them but it wont save them from the cheap quality unless they step their game up.

[MiamiMarkYT]

Honestly for the longest time I genuinely thought the whole goal of these trendy DTC online brands was to build enough brand recognition and sales for attracting traditional retailers and justifying giving the shelve space. The idea of blowing off the retailer always sounded too far-fetched to me to believe it was the end goal