Two-year-old online mattress startup darling Casper is quietly planning to open physical stores. It appears that to become a significant player in any retail category physical brick and mortar retail stores are still required.
To scale quickly however, you do not need to invest in your own retail infrastructure as this is costly, time consuming to execute, and not a guaranteed success. Rather than investing significant capital with an unknown return brands of this magnitude should consider partnering online with in-market retailers using a clicks to bricks strategy. There are multiple benefits that branded manufacturers can experience and here they are:
Customers Can Experience Product
In Casper’s case if they were to partner online with retailers where consumers can buy online and pickup in-store they would have retailers stocking their product in limited quantities. All of a sudden rather than a select few shops in the United States Casper could provide retail experiences within existing stores allowing consumers to trial the mattress before purchase. 9 out of every 10 sales still happen at retail, and in the mattress world arguably this figure is even higher.
Instant Distribution & Better Customer Experience
Partnering online with retailers brings instant distribution to a disruptive company like Casper to make serious in-roads with in-market retailers and take market share from incumbents. Consumers could browse online, opt to buy online and pickup at a retail partner of Casper’s, or be directed to a store with inventory for the consumer to purchase. Giving the consumer more choice allowing them to buy on their own terms will only improve the service quality. Most consumers I would imagine are reluctant to even consider the free return policy a benefit. Have you ever unboxed a mattress and tried to fit it back in the exact way it came? Most customers wouldn’t dare try and hence do not purchase without trial. Read how consumers want the best of both online & offline when shopping.
Better Margins Than Traditional Retail
If Casper were to sell a product online for a retailer, should they provide the same margins? We don’t think so especially if the mattresses were not in stock or on display. If the mattress is sold for the retailer they should expect to make less and Casper make more resulting in increased value of having an in-market retailer. By the time Casper considers free shipping, free returns, higher customer acquisition costs, the cost of running a store it starts to add up quickly and working with existing in-market retailers starts to make more sense and eliminate the barriers customers have to choose between buying online and in a store.
More Exposure Working with In-Market Retailers
Would you visit a store with only one brand of product that you were going to sample/try? Or would you rather go to a store with multiple brands where you can obtain the best product for your lifestyle? Maybe I am missing something but it seems like a slam dunk decision to me. By integrating themselves into mainstream retail they have the potential to get a lot more bums on their mattresses where the difference can be experienced. Right now it cannot happen online and experiences are limited currently to pop-up shops and isolated Casper locations.
Online and offline sales channels do not have to be separate. We’ve heard of siloing data, the same can be applied to siloing sales channels. Combining sales channels in omni-channel harmony has the power to delight consumers, enhance relationships with retailers, and improve margins for brands. Want to learn more? Reach out and contact us.
Update
Since this article was written in 2016, we thought we’d provide an update. Fast forward to 2020, Casper is now looking to file an IPO (Initial Public Offering) and has released its prospectus and it is looking like early investors are looking to dump the company on public markets. Since we last wrote the article, Casper has expanded into at least 70 of their own stores with plans to open up to 200 locations. What this is showing you is that even opening stores does not necessarily improve operations as a single branded location. Think about it, would you go to a toothpaste store, or a store where you can only lie down on one mattress?
We as consumers want some choice when it comes to how we spend a third of our lives and prefer to visit markets (i.e. Stores). From Casper’s strategy going at the market alone is a difficult proposition and the economics for Direct to Consumer are only getting worse as rising acquisition costs and fulfillment take up more margin. See below for Casper’s Profit/Loss per mattress and how they may be better off selling mattresses with $300 in cash inside the box as they still are seeking profitability.
In sum, to reach scale it requires working with high volume customers (i.e. resellers/retailers/dealers). These days disrupter means subsidizing consumers hoping you can hang on long enough to knock incumbents out but in this case the bulk of the sales still happens at independent physical retail, the spot Casper needs to look next to obtain profitability.
