An Autopsy on Casper: Lessons from a DTC Failure

Why Casper bleeds cash while Purple makes money

Kevin LaBuz
Marker
Published in
7 min readDec 5, 2021

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Source: Photo by Zulian Firmansyah on Unsplash

Failure is a great teacher. In late November, mattress-in-a-box firm Casper announced that it was being taken private at a valuation roughly 25% of its last private funding round. Some lessons from Casper’s failure.

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Casper’s gross margins are a few percentage points higher than Purple’s. Higher gross margins means more capacity to invest in customer acquisition, research and development (R&D), and other growth initiatives. Additionally, Casper and Purple spend a similar amount on sales and marketing (S&M), roughly $0.30 for every $1 in revenue. So far, so good.

Source: Casper, Purple, Casper 2020 10K and Purple 2020 10K.

General and administrative (G&A) expenses are where the wheels fall off. Casper jams a lot into this bucket, including retail employees, store leases and operating costs, corporate functions like finance, HR, and IT, credit card processing fees, professional services, and R&D. Casper’s G&A is 30–35% of revenue, three times higher than Purple’s. The company makes Peloton like the Bundesbank. This is why Casper bleeds cash while Purple makes money.

Source: Casper 2020 10K and Q3 2021 10Q and Purple 2020 10K and Q3 2021 10Q. Nope: Research & Development expense added to Purple General & Administrative expense for a more direct comparison with Casper, who reports R&D as part of G&A. Purple Q3 2021 net income excludes charge for Change in Fair Value — Warrant Liabilities which is not operational.

Spending on S&M or R&D spurs growth. Spending on G&A doesn’t. G&A is all about keeping the lights on and the trains running on time. Finance, HR, and legal are important functions, but they’re supporting actors. For a growth company, G&A is the first place where operating leverage should show up. It’s a good acid test for how a company treats expenses. Casper fails.

There are other red flags. Casper and Purple both generate sales through two channels: DTC and retail partnerships. DTC consists of direct e-commerce and retail sales while retail partnerships are sales through third parties. For example, Casper is sold at Amazon, Costco, and Target. A big difference between Casper and Purple are their retail footprints. In 2020, Casper operated 67 stores while Purple had nine…

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Kevin LaBuz
Marker

Head of IR & Corporate Development at 1stDibs. Previously finance at Etsy, Indeed, and internet equity research at Deutsche Bank. Find me on Twitter @kjlabuz.