Sleep Synergies - Casper's Retail Store Expansion Strategy

Part I

In part I, we established that Casper is loosing money, but has relatively strong margins when compared to their strongest competitors. We left off with the open ended question - will Casper be able to scale retail and online channels and achieve profitability while maintaining margins?

Visit this link for part I of the Casper S1 analysis.


Casper, founded just seven years ago, was originally a D2C only brand. Today, Casper considers brick & mortar a critical sales channel and a major linchpin of growth. In fact, according to Casper's S1, in 2018 Casper sourced 13% of revenue from retail channels and increased that share to 17% in stub year 2019. As of the S1 publication, Casper has 60 direct stores, 18 retail reseller partners including Costco and Target, and line of sight into 140 additional stores in North America.

I'm interested in Casper's retail strategy for several reasons. While I understand that a retail presence is needed to test high-touch, personal products, I'm curious as to why Casper has expanded beyond a handful of stores in major metros. Typically, DC2 brands open just a few flagship stores in major metros. These stores are generally just as much advertising as they are sales channels. In Los Angeles, where I live, popular touristic thoroughfares on Melrose Ave and Abbott Kinney are dotted with D2C brands like Glossier and Outdoor Voices. Do they lack faith in their online channels or is there real opportunity?

Further, throughout the S1, Casper emphasizes how online and retail sales complement growth. As a consumer, it is helpful to have both channels, but I am suspicious of Casper's claims that online and retail sales have a significant and synergistic effect on each other. Is this a classic case mistaking correlation with causation? Lastly, I want to understand the forward-facing risks along with their store financials. Relative to competitors, are sales per square foot strong? Knowing these figures is critical to help us understand if Casper is on the road to curbing losses and achieving profitability.



Let's start with the inherent risk associated with a go-big retail strategy. [Actually, this post was originally supposed be an overview of Casper's most salient risks (marketing efficiency, manufacturing risk, etc), but I found the store strategy warrants it's own post.] If only based on the sheer number of bullet points listed in the S1, the inherent riskiness of retail store expansion seems to be one of Casper’s most important risk factors.

To pursue our retail store strategy, we will be required to expend significant cash and human capital resources prior to generating any sales in these stores. Delays in new store openings or an inability to generate sufficient sales from these stores to justify such expenses could harm our business and profitability.

  • Identify suitable locations, including our ability to gather and assess demographic and other related data to accurately determine customer demand for our products in the locations we select

  • Assess the potential profitability and payback period of potential new retail store locations

  • Hire and train skilled store operating personnel, especially management personnel, and our ability to immerse such personnel in our culture

  • Understand and assess the demographic profile of, and provide a satisfactory mix of merchandise that is responsive to the needs of, our customers living in the areas where new retail stores are established;

  • Establish a supplier and distribution network able to supply new retail stores with inventory in a timely manner

  • Scale our differentiated in-store experience that is unique to our brand, attracts customers, and builds deeper relationships

  • Create a technology infrastructure that serves our retail, e-commerce, and customer service channels connecting customer data and operational data to deliver a seamless user experience

Executing a major national store growth strategy is an extremly ambitious enterprise. Picking the right locations, the best products, training staff, building out systems, and optimizing supply networks must all occur, often simultaneously, in order to execute a strong retail expansion play. These challenges are almost is completely distinct from the business of selling online directly to consumers. In the next section we'll touch on the format, function, and footprint of the Casper store.



The Casper store on the fashionable Melrose Ave is painted with bright, candy-colored hues. The inside is even more colorful. The 3,330 square foot store looks like more like whimsical dorm room and less like a mattress store.

Thanks to the pictures featured in this blog post, we can see a test pod where a customer can evaluate the comfort as a mattress in a semi-private crisp, clean setting.

While we can clearly see why Casper sets itself apart from incumbent competitors, I wonder if Casper is able to harness the retail opportunities. Here are the store unit economics and goals for future store build out that Casper highlights in their S1:

Current Unit Economics:

  • Across our retail channel, our AOV increased from $437 in 2017 to $720 in 2018 and to $820 for the nine months ended September 30, 2019.

So AOV has almost doubled between 2017 and 2019, which seems promising.

  • Stores that have been operating for one year or longer have averaged approximately $1,600 in annual net sales per sellable square foot, which we believe is reflective of our high volumes of consumer traffic, our ability to successfully engage with consumers to drive sales, and an effective pricing strategy.

Future Targets:

  • We expect that our typical new stores will have between 1,750 and 2,250 square feet of selling space.

Some Thoughts

If Casper opens up one store at 2,000 square feet and $1,600 in annual net sales per sellable square foot, they would generate $3.2 million. In the first 9 months of 2019, Casper generated about $53.1m from retail sales. I dug up the 10K of competitor Sleep Number and see that their most recent sales per square foot is $998.00. Casper's higher sales per square foot is most likely driven by their simple product offerings. Casper currently offers only three editions of the mattress - The Wave, The Casper, The Essential - and thus needs less space. I purchased a mattress at a standard mattress store in 2013. There must have been at least 20 different types of mattresses. I see how the Casper store has the potential to generate even more revenue as they bump up AOVs with complementary products, optimize prices, and devise clever store experiences to induce purchases. However, I still wonder if 140 more stores is a sound investment.

Remaining Opens

To my earlier point, it's hard to model out the COGs/OPEX associated with the retail store as Casper doesn't break that out, but they do mention how stores are profitable after 1 year excluding build out costs.

  • Existing stores that have been operating for one year or longer are all four-wall profitable, calculated as gross profit, less operating expenses (excluding one-time build-out costs and non-allocable marketing and overhead expenses), for each store.

  • Consistent with our experience to date, we target for our future retail stores a cash-on-cash payback period ranging from 18 to 24 months.

Given that Casper is starting to look more and more like a traditional retailer, does Casper expect to be valued like a fast-growing technology company or more like an old-school mattress company?



Casper leads their S1 with this thought-provoking data point:

  • D2C sales have grown on average over 2X faster (or 100%) in markets with ecommerce and retail stores than in markets without out a retail store

In other words, Casper believes that their D2C and retail stores are synergistic - every dollar of retail sales drives $2 dollars in online sales. Initially, this could tell us that Casper stores produce a halo effect - e.g my favorite Chloé perfume drives my affinity for higher price point items such as bags and apparel. In this case the store is the perfume. Keep this assertion in mind as we dive into their store location strategy.

In keeping with the original goal of the post, here is how Casper views the risk surrounding opening new stores:

  • Identify suitable locations, including our ability to gather and assess demographic and other related data to accurately determine customer demand for our products in the locations we select

Can Casper find profitable, suitable locations for an additional 140 stores? Let's start by understanding the locations of their current roster of stores. Note, I could not find one master list of stores on their website, so I went to their store finder on the Casper website and typed in the names of states one by one. I may have missed a few.

Glance through the list, perhaps paying attention to regions that may be familiar to you, and scan for patterns.

Source: Casper Website

What Did you Notice

Casper stores appear to be located in affluent areas within major population centers. For example, in California, my home state, there are a total of ten stores concentrated in the most economically productive areas of the state. The Bay Area is home to three stores in the Bay's distinct subregions: SF, Pleasanton (East Bay), San Jose (South Bay). There are also six locations in Southern California including Melrose Ave, the South Bay of LA - close to affluent neighborhoods including Manhattan Beach, Palos Verdes, and the San Fernando Valley - an urbanized valley in LA with nearly with 1.7 million people. World famous La Jolla, San Diego is also home to a store. Interestingly, they also have an outlet concept in the Camarillo Outlets in Ventura county, a coastal county north of Los Angeles. The sole Northern California location is located in a high-end Westfield mall in the thriving suburbs just outside of Sacramento. This pattern repeats itself on a slightly smaller scale in other states like Texas, Georgia, and Florida. For example, I colleagues in Austin who shop and eat at The Domain, which is close to many tech offices. You do not see store saturation - e.g only one store in the South Bay Area of San Jose. Multiple stores in one municipality do occur only in major metros.

When there are smaller populations to support, Casper will open a single store as is the case in Denver, Colorado, Portland, Oregon, and Bellevue, Washington. Although each market only supports a single store, those cities are filled with professionals earning high incomes. In other words, you don’t see a Casper store in Rutland, Vermont. [Sorry to anyone reading this from Rutland, it were the best example I could think of off the top of my head. I still love the Green Mountain State!]

Now that we’ve conducted a qualitative analysis of store locations, let’s revisit 2X synergy statistic, which posits that Casper’s online and direct retail channels somehow interact and influence each other.

  • D2C sales have grown on average over 2X faster (or 100%) in markets with ecommerce and retail stores than in markets without a retail store

Casper views this phenomenon as a major competitive advantage and a key pillar of their expansion strategy as evidenced by the number of mentions in the S1. As an economics major with formal training in statistics, understanding correlation vs. causation is a way of life. To truly test this statistic, one would need to build an econometric linear regression model (another project for another day). Before embarking upon this model, one would ask, what are the a prior expectations - a fancy way of asking - what do we think is going on? My theory is that the selection effect is at play. Casper stores are located in several of the most populated cities in the United States. The stores are located in bigger markets so there are simply more people to sell into.

  • Ranked by population size, Casper has stores in these “proper” cites: NYC (1), LA (2), Chicago (2), Houston (4), San Antonio (7) , San Diego (8), San Jose (10).

  • Casper has stores in the suburbs just outside of two major metros: King of Prussia - Philadelphia (6) - and Southlake - Dallas (9)

In other words, the only top 10 city without a Casper store is Phoenix.

Source: U.S. Census Bureau.

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