Mattress seller Casper, in deal with Target, is latest to turn
to physical stores
By Eliot Brown
Casper Sleep Inc. rattled the mattress industry with a
bed-in-a-box that is sold only online, shipped free and comes with
a 100-night guarantee.
But after three years of robust sales as it lured customers
through Facebook ads and podcast sponsorships, Casper is finding it
can no longer shun the storefront. The startup is turning next
month to Target Corp. to sell pillows, sheets and other accessories
-- though not yet beds -- in 1,200 stores nationwide.
The New York company is among several specialty web retailers
shifting to brick-and-mortar stores after finding the pool of
online buyers is only so deep.
"You have to start with digital," said Philip Krim, the chief
executive and co-founder of Casper. Now that more people have
learned about the brand, "offline distribution -- that's where
you're really able to get a lot of scale."
Target, which said the deal came together after about a year of
talks, doesn't yet sell mattresses in stores, and the Minneapolis
retailer has walked away from or ended some e-commerce efforts over
the past 12 months to focus on in-store sales. But Casper said it
would become the exclusive mattress of Target.com and is discussing
the possibility of bringing the bed into stores.
Casper is joining several other web-retail startups that first
targeted millennials online with slick video ads and are now
expanding onto store shelves.
The turnabout might seem counterintuitive for startups that
trumpet low prices by cutting out the middleman. But they are
discovering that maintaining customers and finding new ones online
is more challenging and costly than expected. Retail stores allow
them to lower their advertising and marketing budgets and limit
pricey returns.
Harry's Inc., which started out four years ago selling discount
razors online through subscription plans, last summer announced a
similar deal with Target to put its blades and cartridges in retail
stores. Within weeks, the New York company gained a 50% market
share at Target for razor handles, according to Nielsen data.
Harry's co-founder Jeffrey Raider said the profit margins from
online sales ended up being similar to those from stores. "If I had
a crystal ball I'm not sure I would have predicted it," he said,
adding that the future of retail is a mix of online and in-store
sales.
The same is true for hip eyeglass maker Warby Parker, a
seven-year-old company that challenged conventional retailers with
$95 glasses mailed, and with free returns. It opened its own store
in 2013, and experienced better sales than it anticipated.
Today the New York company has more than 50 stores, with a total
of 70 expected by year's end, and co-founder Dave Gilboa said he
thought online and physical-retail sales could be even in a few
years.
"E-commerce is taking share but it's doing so more slowly than I
think we thought when we launched," Mr. Gilboa said. "If we were
just to focus on online at this time, we'd only be able to address
about 3% of the overall eyewear market."
This is an increasingly common realization for such startups.
Despite the rapid growth of online retail over the past 20 years,
it accounts for just 10% of all shopping in the U.S.
And as more e-retailers have entered the space and fought for
ads directed at similar customers, rates have jumped. Facebook has
reported that its average price per ad has more than tripled since
the start of 2014, though rates vary widely depending on the type
of ad.
With higher than expected online ad spending, brick-and-mortar
retail looks more appealing than before, despite the added costs
that come with it.
Ben Lerer, an early-stage investor in numerous retailers
including Casper and Warby Parker, said that three to five years
ago there was "a gold rush" of direct-to-consumer companies that
bought cheap online ads, largely through Facebook. "Now it's gotten
harder," he said.
Casper credits much of its early success to clever advertising
and branding. It plastered New York subways with posters featuring
cute cartoons, sponsored podcasts and flooded Facebook and
Instagram with ads.
The company's revenue doubled to about $200 million last year,
up from $100 million in 2015, Mr. Krim said. Casper raised prices
on its mattresses in January to $950 from $850 for a queen, saying
it made improvements that justify the higher cost.
Casper's marketing costs per customer have fallen slightly as it
spreads by word-of-mouth, Mr. Krim said, even as many online
advertising rates have risen. On Google, he said a rush of new
competitors and imitators have pushed up the cost of an ad that
appears alongside the result of a search for mattresses.
Still, if the company wants to keep up its rate of growth, it
needs stores like Target or West Elm, where it has a similar deal,
to reach more people.
Target expects in June to put Casper's products at the end of
rows, a high-profile area, and 35 stores are scheduled to have a
larger display with a Casper mattress to try out.
"The biggest barrier to growth is really awareness," Mr. Krim
said.
Write to Eliot Brown at eliot.brown@wsj.com
(END) Dow Jones Newswires
May 17, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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