Why is Target investing in a mattress direct seller?

Discussion
Photo: Casper
May 30, 2017
Tom Ryan

Target has made a $75 million minority investment in Casper Sleep, the leader in the direct “bed in a box” mattress market. The investment, first reported by Recode, comes after Target reportedly offered $1 billion to acquire the upstart.

Known for its foam mattresses folded into ultra-compact packages for shipping, Casper was valued at $550 million in its last private equity funding in 2015 and is said to be eyeing an IPO. Competitors such as Leesa, Tuft & Needle and Purple are expanding, but haven’t received significant funding. More traditional mattress companies are expected to enter the category in the coming year.

On May 16, Target revealed a partnership that lets its customers buy beds and accessories from Casper. That rollout begins on June 18.

“Target invested in Casper because we believe in their team, their ideas and their vision for reimagining sleep,” Target said last week in a statement released to the media. “The strategic partnership offers Casper access to an established retail brand and gives Target an opportunity to work with a future-focused digital brand that is exploring an area that is meaningful for our guests — sleep and wellness. We’re looking forward to exploring the future together.”

In other steps to expand its digital prowess and reach younger consumers, Target has partnered with Bevel and Harry’s to offer both men’s grooming startups an exclusive retail presence in their stores. A partnership with fashion style blog WhoWhatWear.com led to an exclusive collection of women’s apparel and accessories based on reader feedback, most-read posts and other social media engagement. Plans call for the launch of more than a dozen of its own brands over the next two years with a particular focus on home and kids.

The Casper move comes while rival Walmart has snapped up three smaller online boutiques, ModCloth, ShoeBuy and Moosejaw, following last year’s blockbuster purchase of Jet.com.

DISCUSSION QUESTIONS: What do you think Target is looking to gain from investments in brands such as Bevel, Casper and Harry’s? Do you think Target’s investment strategy is positioning the retailer to differentiate from and compete with Amazon.com, Walmart and other rivals?

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"Any single DTC brand is unlikely to change the landscape but, collectively, they've been restructuring some very key mature categories."

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19 Comments on "Why is Target investing in a mattress direct seller?"

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Jon Polin
BrainTrust

Target has repeatedly fallen short in comparison to competitors with regard to online. These recent investments are a smart way to leverage companies whose DNA is native to the digital world. While I don’t believe every press release, in this case I think Target is stating it clearly and honestly that their interest is in a “future-focused digital brand.”

Max Goldberg
BrainTrust

Target, like Walmart, is trying to gain digital traction. Management has found that it is easier to buy successful online companies than to grow them from within. Sometimes these acquisitions are designed to bring proven e-commerce talent on board. Some of these acquisitions will become valuable additions to the portfolios of these traditional retailers, others will fail.

Patricia Vekich Waldron
BrainTrust
Patricia Vekich Waldron
Retail and Marketing Expert; Former IBM Executive
6 months 15 days ago

I totally agree, Max. Legacy retailers are finally waking up and making build-or-buy decisions to become relevant to consumers.

Keith Anderson
BrainTrust

Casper is a differentiated brand in a high-margin category that complements Target’s portfolio. Irrespective of valuation, an acquisition would have yielded bolt-on growth, technology, talent and a customer database. Investment will potentially yield financial upside and knowledge transfer.

Digital native brands that originated in a consumer-direct model are finding that sustained growth is challenging without the platforms represented by large retailers.

Any single DTC brand is unlikely to change the landscape but, collectively, they’ve been restructuring some very key mature categories to the exclusion of most incumbents. Target is smart to forge connections.

JJ Kallergis
Guest

Agreed Keith, Casper is differentiated and in a complementary and attractive category for Target. As they continue to expand in urban areas and attract a younger generation of shoppers that are renting or buying their first apartments or homes, this is a big ticket item that will round out their home furnishings assortment. And I believe as more competitors enter this space, the partnership with Target should also be highly beneficial to Casper as well by tapping into their engaged customer base and adding POD. As we have seen with Walmart, Macy’s and others, offering exclusive brands differentiates you as a retailer and creates a reason for customers to shop with you.

Ian Percy
BrainTrust

I know of a free-agent NBA player who was given a lucrative contract by a team but was given very little court time. Turns out they did that just so other teams couldn’t get him. Might be some parallels here.

Investing in one of these great entrepreneurial ventures is one thing but actually acquiring them is another. This “we believe in their team, their ideas and their vision for reimagining sleep” is nothing more that corporate marketing-speak. That language is the kiss of death when innovative ventures are acquired. Entrepreneurial ventures are acquired because they are creative, fun, driven and energizing … and then are strangled for the very same reasons. So to the Walmarts and Targets of the world, invest if you will but for goodness’ sake leave them be.

David Livingston
Guest
6 months 15 days ago

New warm bodies in management need to do something to justify their hiring. Throwing mud at the wall to see what sticks. This is small change compared to trying to open stores in Canada. A “minority investment” of $75 million is small change but makes for a good press release. I would expect Target to continue to make similar small and safe investments like this. Although its not something that will take Target to the next level, it will keep the investment analysts busy with something to write about.

Brandon Rael
BrainTrust

This is not a complete surprise as retail powerhouses such as Walmart are strategically aligning with (or acquiring) innovative and creative e-commerce brands. This seems to be a key competitive differentiator as Walmart has already invested significantly in this arena with their acquisitions of e-retail sites Jet.com, ShoeBuy.com and Moosejaw.com.

However regarding Walmart and now Target, despite their impressive e-commerce acquisition strategies, they are both followers and not the leaders in the e-commerce world. There is much ground to be made up on the digital side. Via these strategic moves Target and Walmart are contenders in the all-out battle for consumer loyalty and retention.

Ed Dunn
Guest
6 months 15 days ago

Nordstrom recently wrote down a $197 million loss on Men’s Trunk Club which is the same strategy Target is now pursuing but expecting a different result.

As someone who purchased a foam-based mattress that arrived in a big box brought by my mailman — it was the most exciting experience I had purchasing a mattress (next to being scared of a mattress I bought flying off of my car onto the highway on the way home). The problem is that I purchased the foam mattress from Amazon.com with Prime membership from another manufacturer.

Not one of the upstarts Target is investing in has Amazon-killer qualities and they appear to be “me-too” offerings. Amazon is investing in the product channel while Target is mistakenly chasing specific vendors.

Adrian Weidmann
BrainTrust

Historical brick-and-mortar retailers are analog natives. Everything they do from a design and operational point-of-view is done through a traditional lens. The status-quo is analog. We live in a hybrid world where we expect the best of both the analog and digital worlds. Traditional retailers are trying to find their digital side and these investments and acquisitions are about injecting digital natives into their foundational DNA.

Art Suriano
BrainTrust

I think what we are seeing with Target and other retailers like Walmart is the next phase of the retail evolution. There is no doubt that a blend of both e-commerce and brick-and-mortar is taking place. More e-commerce businesses are opening stores as more retailers are investing heavily in e-commerce companies. And it makes perfect sense. Shopping online has advantages entirely different from shopping in-store and for maximum success, we need to have both. Target and Walmart are wise because they are making investments that are different from their competitors. Also, Amazon is making strong strategic moves to expand their brand through a variety of brick-and-mortar concepts. Twenty years from now we’ll be looking back at this period as the innovation days no differently than today when we think back to the early days of the Internet with dial-up and AOL. The future of retail will be the perfect blend of online and brick-and-mortar.

Gene Detroyer
BrainTrust

Hopefully this is the first step for Target developing a new business model. Target is a retailer, not a store. Too often they try for that silver bullet. This is not that.

Ricardo Belmar
BrainTrust

Target is following a similar path to Walmart in either buying, trying to buy or investing in small companies with interesting products, a loyal online following and a name that will draw lots of attention in a press release. Is this investment in Casper a game-changer? No. Will it bring Target positive attention? Yes. The trend appears to be a realization that innovation in the digital realm is not going to come from within in these large retailers and that it’s easier to invest/buy your way to that innovation.

As for Harry’s and Bevel, this is more of a traditional merchandising approach to bringing popular products into the store in an exclusive way. These brands have quite a following already established and, as a Harry’s customer myself, I welcome the ability to buy their products while at Target as another option to buying them direct. This was a good move by Target.

Ed Rosenbaum
BrainTrust

Target is reminding me of the ping pong ball in the wind tunnel blowing in every direction. They need to focus on a direction. I have not seen that from them yet. They need to become a factor in the digital world. Investing in a company selling fold up mattresses does not seem to be the best path to follow. But what do I know. I am not part of the Millennial generation. My back would never allow me to buy a mattress online.

Joan Treistman
BrainTrust

I see this investment as an opportunity for Target to capture a unique and yet unacquired audience. While others have posted valid observations about enhancement of channel differentiation, another perspective may ultimately focus on the potential for increasing the consumer base. There seem to be an increasing number of mattress shoppers, maybe younger and more urban, willing to experiment with less traditional products that are promoted and delivered in ways that suit their lifestyle and home environment. Ultimately it makes Target a more formidable competitor, but it happens organically.

Carlos Arambula
BrainTrust

For all retailers, whether online or brick & mortar, it’s evolve and differentiate or die. Different retailers have different challenges and there is not a one size fits all solution.

A relationship between Casper and Target provides Target another category to feature and sell to its consumer base and provides Casper a showroom where folks can experience the tangible product and eliminate purchase barriers.

As a consumer, I like the Target approach because it ultimately makes shopping more convenient. As a marketer, I think it helps Target retain consumers and get a bigger share of the consumer dollar.

Jane Sarasohn-Kahn
Guest

I’m particularly cuing on the mention of Target’s commitment to “sleep and wellness.” They’ve been adjusting their health & beauty aisles, and curating grocery, aiming at the health-oriented shopper. They are building out the health/wellness portfolio with this investment as sleep is the “new black!” For more on that, see my post on sleep’s central role for health consumers, emerging at CES 2014.

gordon arnold
Guest

A 75 million dollar investment for a minority position from a company bleeding paper everywhere is not a good move at face value alone. A five year ROI with an acceptable profit does not seem likely. This will only add to the woes of the company and may result in close to the bone cutbacks. It was sad to watch the rapid disintegration of the USA’s middle class that was once able to support companies like Target and Whole Foods. These companies do not have the time or money to play merger and acquisitions. These companies need to place products made by struggling vendors willing and still able to work with them in stores and on line that they can sell and profit from. Now would be a good time to do it.

Jeff Miller
BrainTrust

I don’t think the investment strategy in any of these brands is much of a way to position Target to compete with Amazon or Walmart. Casper, Harry’s and Bevel are all quality brands that I respect, but at their core are pretty much the same as Gillette and literally dozens of similar mattress brands available on Amazon and other retailers.

I think they are looking to gain some short-term PR and obviously sales but these investments from Walmart overpaying for Jet and Target almost over-paying and not investing in Casper look to be in some ways desperation moves. Trying to cozy up and almost always over paying for a date with the pretty girl or cool dude at the dance to show how cool, smart and rich you are.

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Braintrust
"Any single DTC brand is unlikely to change the landscape but, collectively, they've been restructuring some very key mature categories."

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