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

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.

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."

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 😂😂🎉

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

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

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.

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.

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.

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.

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

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?

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.

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.

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.

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.

Start-ups really need to be aware of the threat of new entrants. If it was easy for you to enter the market, and if your product is easily replicated, then anyone else can copy your idea and start chipping away at your market share.

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.

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.

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.

As a Gen Xer I’m shocked that these guys turned down the cash in hand Target money for “mo money mo money mo money”, told you I was old. Take the bag. If you’re that business savvy start another company or remain a operating partner in this one with target. All that money gone…🤦🏽‍♀️🤦🏽‍♀️🤦🏽‍♀️

DTC works great for repeat purchases, ex. 1-800-contacts, but doesn't seem to work with big purchases you only make every 10 years.

I love seeing these companies that spend exponentially more on advertising and “hipster” marketing than their actual product go away. If only car insurance companies could do the same.

The reason these businesses fail is because they consider a 20% YoY growth to be small. Your business model has to be insanely broken for that not to be a very respectable sales growth.

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

“Are there jetpacks and laser blasters in the future?” “No, but you can order a generic mattress in the mail.”

Casper failed because they had one product that they sold at like 15-20x mark-up, except there was no valuable IP, literally any company would offer the same product, and many did.

when you're starting a mattress company you have to deal with the reality that no one has brand loyalty because you buy a mattress like every 5-10 years. You have no customer retention. Every customer is a new customer so if you're not constantly advertising you're going to fall off in DTC. That's why being available in a store is so important for this particular product.

As soon as a brand reaches a point where their primary advertising channel is email spam I assume that it's a pump and dump scam and won't go anywhere near it Casper hasn't quite reached that point yet, but there are a lot of these DTC brands that have.

This video is better than any CNBC or WS Journal special I've ever seen. Keep it up, more views will come. What a great video.

I used to work at a Casper distribution center before they closed in August of 2020. Their products were so overpriced for what they were worth, and they themselves were a horrible employer to work for. Charge thousands for their bedding, yet only pay us 13$/hr (minimum wage). They shut down and laid everybody off, they used Covid as an excuse, but really it was because we just weren't getting enough orders to stay open. We would do 200+ orders a day, to 50 all the sudden, if we were lucky. Seems like the customers finally realized and spent their money elsewhere.

Also the idea that the old mattress buying experience was “antiquated” when consumers are legit walking in, having to buy a mattress worth hundreds of dollars. Of course they’d want to see how it feels first. And no, just because their friend has one doesn’t mean they’ll buy one without laying on it. And how often to friends talking about their mattresses to one another?

I remember that online shopping brand called brandless or something similar where they sold “non branded” goods for a supposedly lower price. But what I always said was, brandless IS the brand. It’s their own food brand. Like great value or your local grocery store brand. It wasn’t “brandless” because brandless was the damn brand 🤦‍♀️

turning down 900 million, when you know you’re actually losing money, is really dumb.

Casper is struggling because the same offering is on Amazon now. Same goes for the other brands you've mentioned with a dilution of their unique brand proposition through rapidly upstarted competitors in the space. Casper was just early to the hype and like you said was dumb not to take the buyout and move on to another venture.

Working for a company that uses the DTC model as a small part of our business, I can say it’s a battle. We’ve realized that we need use DTC more as an advertisement in itself and also a test market. The shipping and transportation costs alone now-a-days are enough to kill the margins.

Years ago I ordered a Temperpedic while laying in my hotel room. Best product placement ever.

I wondered why I wasn't hearing Casper and on my podcasts anymore and now I know. Thanks!

honestly if Target did acquire casper, the brand will likely prosper, as they'd have massive online and offline presence

On the topic of DTC products, recently I was interested in getting some function of beauty shampoo and conditioner but i couldnt justify the high price tag. Walked into target a few days later and right there in the hair care section was an entire display with their products. Glad i didn't spring for the 2-3x online markup.

My brother in law ordered a casper matress every time he went camping and had it delivered to a random RV park, then just dumped it on the ground, slept on it for 3-4 days, and returned it. Absolute Madman

This was a well researched and delivered video with plenty of data to back it up. Yes casper messed up, it's arrogance and ego won & the business failed as a result. But in my opinion they failed because 1. Their acquisition costs were never low enough & more importantly 2. They didn't have a proper strategy to market other products to their existing customers. Boot strapped DTC brands are a much better idea because they get their numbers right from the get go.

The algorithm somehow brought me here and I loved the video. I have since watched all of your other videos and they are all amazing. I look forward to the next one. I hope you get the success to match the quality soon.

It's a FREAKING mattress company, it was destined to fail. You may purchase a mattress once every 10 years or so. Sure, it's cool to get the mattress delivered and watch it "grow", but after that process is done, it's just a regular mattress, the novelty is gone. Plus we all know mattress companies are just a front anyway.

Excellent video, but that one headline about “there are now over 175 online mattress brands, and you can’t tell them apart” really stood out to me, because I have noticed there were seemingly a ton of them and they all seem to go for the same look and aesthetic, and it’s like - why??? Why are there SOOO many companies trying to exist in this space ? We do not need that many mattress companies, so why do people keep starting new ones? If the original online mattress company is struggling then I doubt any of the other ones are gonna make it. It would be great to see a follow-up video that examines why this is a thing and why so many companies think they can exist in the insanely crowded space, and why none of them are trying to be different.

That’s sad. I actually have a Casper mattress and love it. I guess a good product doesn’t help you if the business model sucks

Casper's business model would work if they offered a superior product. For a product that is suppose to last years, you have to offer something unique

I've been starting to wonder if we might see a resurgence in traditional travelling salespeople. They could help bridge the gap between online-only DTC and brick-and-mortar retail by offering demonstrations and samples.

It's the same thing over and over: Without any secret sauce, you can only live on hype so long. Casper as a firm didn't have any special talent or ability - just connections with the right people.

I needed a super cheap hybrid mattress when I moved apartments last year and didn't want to pay shipping costs twice. These bed in a box companies seem cool but they were outside of my cost (I seriously want a Purple mattress, but that definitely is outside of my budget right now). As such, I went with Walmart. With lots of searching, I found a bedframe I loved and a not-perfect but decent 14 inch queen sized hybrid mattress, total about $800-ish. Not sure if I'll have it 10 years but it's a million times better than when I was sleeping between the floor and an air mattress that repeatedly had issues. Also, a word of advice, always get a mattress protector, even if you don't have kids. Some people might think they're still made from stiff, noisy plastic, like what the mattress originally might have come in, but we've moved well beyond those days now. For $40, you can get one that's mostly fabric with just one side that's something like a polyurethane material that also operates like fabric (not sure if that'swhat it is made from, you'll have to check the packaging). You won't feel it under your sheets. However, it's invaluable for how it protects the bed, especially for those who will be spending a lot on theirs. After spending about 12 hours building my bed and setting up the mattress, I fell sick. And that sickness...had some troubling side effects that about caused me to damage my mattress, lol. After the close call, I made a trip to Bed, Bath and Beyond for a new one. I just wash and dry it with the rest of my bedding (though check the labeling to see if drying is recommended. I dry mine on low).

Sad to hear this! I just bought a new mattress for the first time in my adult life and I bought a Casper. I bought it from a retail store because personally I’d never buy a mattress without laying on it first. I think with a company like Carvana, they have a great idea there and I bought my car online last year because you can read the Carfax, and mileage and determine if the car would be good or not. You can also test drive the car in 7 days and return it and with a car dealership you can only test drive it once. So with carvana their 7 day return policy allows you to bring the car to a mechanic, get it looked over before deciding if you want to keep it. I get Casper has a 100 day return policy but who wants to deal with that hassle if the mattress isn’t comfortable enough

Warby Parker succeeded because Luxxotica was a vertically-integrated monopoly that owned just about everything related to glasses, so WP was able to heavily undercut them while still giving themselves a healthy profit margin. Mattress retail is saturated.

DTC 's usually have generous return policies, which often lead to abuse. I managed returns for a DTC clothing company. We'd ship clothes out, and the customer would only pay for what they kept. Return abuse was rampant. Most would get the box on Wednesday, and ship it all back Monday. It was obvious that they'd wear the clothes for the weekend,ship them back, and wait for the new box . We paid shipping both ways, so the abuser had a brand new wardrobe for the weekend without spending a dollar.

Well done video!

I’ve gotta say though, I’ve bought two Casper mattresses in the last 8 years and love them.

As a millennial, I prefer to know the product I buy is going to be of decent quality. No amount of FB advertising is going to make me buy a product because I cant even do the touch and feel test... especially with a freaking mattress. And returning things in the mail is a pain in the ass. Much easier to return something to the store if you don't like it or it's defective. Also, I REALLLLLLLLY hate that bland text format and logo design layout those companies use. Makes it really difficult to differentiate between brands and just makes it look like some generic store brand.

Just stumbled upon your video in my recommended, and the quality is amazing! The way the video is sectioned allows me to follow your point, the footage provides visual representation of what you are saying, and the voiceover is clear with no overly loud/annoying/distracting music. I truly thought you had millions of subscribers just from the look of this video. You are doing great work, keep it up!

It's vey bizarre to me that they were touting the idea that people wouldn't want to go to stores to try them out before buying them. Like that was some awful thing. What the heck are you smoking? What I really don't want is buying something like that sight unseen, and even if returning it is free, the damned hassle of waiting for pickup and replacement. And there are SO many mattress stores everywhere! I don't know how they get as much business as they do.

I got a mattress from Casper. Perfectly happy with it but at the same time, it really wasn’t any different than just buying a mattress at the mattress store. Problem is for me, I was more annoyed by the week it took to ship. Next time I rather just drive 30 minutes and put it in the back of my car and have it immediately

I just got this in my feed. Great videos, just binged your whole library.

wow this is such a good video :) i was so surprised it only had 2k> views, you deserve more!!

I wouldn’t say all birds was a cheaper option for shoes. $250 for a pair of trail running shoes is still quite expensive.

I have yet to drive by any matress store that is not having a going out of business sale. Amazing industry.

This is literally the best channel I’ve ever came across we need more conversations like this

I am sure they wanted to cut out the middle man so they can provide higher quality products to consumers and it had nothing to do with them being able to keep a larger profit share for themself.

Brick and mortar retailers might seem antiquated but they do help acquire new customers and give you major help on selling your product

They definitely should have taken a wider product range near the start like they have now. People rarely buy mattresses; and even when I did, I found a 12" memory foam one on Amazon for $300. They may have been in a much better spot today if they had always pitched themselves as "the mattress and bedroom shop".

One big thing that kept me from buying a DTC mattress is that I heard if you return a mattress, they can't reuse it and they have to throw it away. I don't know if this is true or not, but that is such a blatant waste that can be completely avoided by going into a brick and mortar store

Can you make a video of one/some examples of DTC companies that are doing it right or being successful?

Such a brilliant, brilliant explanation! You are obviously extremely knowledgeable and it was a pleasure to watch this. Thank you for the work you put into this!

I have a casper original hybrid mattress that I bought in 2019, and I think it is very good. Had no idea they were struggling.

What a great channel! I'm almost finished with my MBA now. Subbed right away

Casper failed by killing customer confidence. I was in the market when they were hot, but instead of responding with respect to criticism, they doubled down on abusing their customers. MeUndies went from quality fabric to crap, too bad.

There was a D2C company trying to put their products on the shelves of a company I worked for. So they book training for staff to sell the mattresses and the very first thing out of the trainers mouth is that the company was a marketing company that decided to get into the mattress business. What a shitty way to get sleep specialists motivated to sell your product. It appeared to us that the product was a total afterthought.

I built several successful D2C brands from 2011 - 2018 and what I noticed was that increasing ad costs and competition made it more difficult every year. If you're not focusing on organic growth or retail channels/Amazon then you simply will die off with increased ad costs. I was already back in Fintech by the time COVID came out, so I can't even imagine how hard it is now.

This video was perfect! Please continue to make more! It’s like a CNBC or Business Insider video that actually did research! Bravo!

This brings us to the overarching question: how do mattress stores in general stay in business?

Sum this up quick: their LTV/CAC is shit. Plenty of DTC small caps that do this way better than Casper and either are profitable or extremely close with a lot of cash on the balance sheet.

I’ll be honest I have zero care about what you’re talking about but you’re so good at making this video that I’m going to finish watching it. You should explain fishing and just about anything else it’s really incredible how you put together this video very well organized very prepared it’s incredible

This is awesome. This is one of the best videos on the internet. And your honesty and clarity is awesome.

I looked into Casper when I was mattress shopping several years ago. The product looked good, however I ended up picking up a Nectar brand mattress on Amazon for almost half the price of Casper.

Funnily enough I'd never even heard of Casper or if I did then they felt so insignificant that I'd forgotten about them. There are DTC brands that work though. The mountain bike world has a few good examples like Polygon and YT Industries. Part of a bike shop bike's price is the service they provide so DTC actually does end up being cheaper for a brand new bike. Enough YT and Polygon bikes have been out there and reviewed by real people without sponsorships to show that they truly do offer more bike for the money (for the right person: one that's able to set up their own bicycle).

Your video was great! Definitely subscribed, your voice was very calming to listen to after a hard and stressful day.

Amazing content! Didn't know this story and the approach your used to explain all is super interesting. You have a new subscriber

Every time I hear a story like this about some new business fad, it makes me want to abandon the capital market entirely. Whether you're buying from Target or a hip new D2C company, it's all the same shit. I wanna get my shoes from a cobbler, my mattress from the one old lady in town who knows how to make mattresses. Why does everything have to be made out of bullshit?

I think Casper just didn't have a distinguishing feature that could be advertised online. Purple is a pretty *good* example of how to run a DTC "newfangled" company. They had an easy-to-demonstrate feature that was plastered on every KZfaq video for like a year or two. They even eventually expanded into having some presence in retail stores so that you could try them out in person before you buy. It's so simple.

How come have I never heard of this awesome badass channel? Subscribed. Can’t wait for more

Good video for sure. As you and others have pointed out, the mattress industry is particularly tough to grow in. No one buys an extra mattress to look more stylish when they feel like it and it’s not a consumable. It would be very interesting to see Warby Parker and DSCs revenue and advertising spend trend lines compared with Casper along with industry wide revenue growth. Then you’ve got an MBA level analysis - was it the DTC model, industry/product mix, a combination of both, or other factors that drove the decline in EV? Thanks for the hard work on the video!

Amazing Case Study which deserves more views and i am positive that this channel will take-off to new heights with such brilliant case studies.

It's interesting because my first exposure to DTC mattresses was with those egg-based Purple commercials all over KZfaq. Then I saw some stuff from Nectar and Tuft & Needle, but only saw Casper in some furniture stores. I assumed they were a cheap copy of the others. Had no clue they were the original ones

I just found this channel but have a hobby of reading and researching business failures. This fell so much directly inline with the trend of “podcast promoted startup” frauds that it’s hard to classify anyone who buys those products as a non-moron. The late night infomercials of the 90s were less fraudulent than your typical podcast advertisement

the quality and depth of these videos are great thank you

As someone who has been a customer of many DTC products I found that a lot have something and that’s their customer service stinks! I know this isn’t all of them, I’ve experienced some with good customer service but like you mentioned they spend so much on ads, marketing and overhead that the service is bare minimum.

I'm not into global branding and marketing but cracking the EU market is way harder I believe since there is more difference between countries than you'd think. USA market is I believe way easier to scale if you have the right skills and resources. In EU you have to have teams/companies to nearly all countries or it won't work.

I just found my new fav channel. Keep up the great work.

Wow! Excellent, articulate and thorough analysis. Subbed.

Interesting topic, there are a lot of reasons why these sorts of concepts can fail. I think today's digital landscape has addressed many of the issues that marketers were having in the past

So true about 100% mark up price from heavily advertised like Casper . I just bought queen size mattress in the box for less than $400 compare to those that cost $800 -1200 . Likely made from the same factory in china.

A couple of months ago I was in the market for a new mattress and went to a number of stores trying out different mattresses. In the end, I wound up buying a mattress off the internet sight unseen because it appeared the mib brands had better reviews than the in store brands. Now I am strongly considering sending that mattress back because I now wake up with worse body aches than I did with my previous store bought mattress.

this channel is stunningly high quality. well done sir.