Casper, the buzzy mattress seller adored by millennials, has a costly returns problem that could be a nightmare for its IPO

Casper CEO Philip Krim speaks onstage during Day 1 of TechCrunch Disrupt SF 2018 at Moscone Center on September 5, 2018 in San Francisco, California.

Casper’s generous return policy on its mattresses is costing the company tens of millions of dollars, the company revealed recently in its initial public offering paperwork.
In the first nine months of last year, returns, refunds, and discounts cost Casper $80 million — or about 20 cents of every dollar in sales it took in during that period.
The company has also had to set aside increasing amounts of money as a reserve against future returns.
In part thanks to such costs, the company is operating in the red at a time when Wall Street is increasingly skeptical of money-losing companies.
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It turns out that offering an extraordinarily generous return policy on mattresses can be super-costly.

At least that’s what Casper’s financial statements indicate. In the first nine months of last year, refunds, returns, and discounts cost the company $80 million, according to the document the company filed last week in advance of a planned public offering. That’s about 20 cents out of every dollar in sales the company took in, including those that it ultimately refunded.

“That’s a high number,” said Rob Siegel, a lecturer in management at Stanford Graduate School of Business.

Worse for Casper, that rate is going up. In all of 2018, returns, refunds, and discounts cost the company $80.7 billion, or about 18.4 cents of every dollar it saw in sales, including the amount it refunded. In 2017, such costs added up to $45.7 million, or 15.4 cents for every dollar in sales.

For its part, Casper has recognized that returns represent a significant issue. Reducing returns was one of the top initiatives it listed in its public offering document for improving its financial results.

“As a young company, we are still learning about the factors affecting customer returns and believe we have the opportunity to reduce customer return rates,” the company said in the document. “We have identified several opportunities that span policy change, process improvement and consumer education to reduce return rates and increase overall customer satisfaction.”

The double-edged sword of selling mattresses online

Traditionally, consumers have purchased mattresses through department or furniture stores where they’ve had the chance to test them out before purchasing them by sitting or lying on them. By contrast, most of Casper’s customers don’t get that chance. While the company has several dozen physical stores, it largely sells its mattresses online through its website.

The benefit of such an approach is that on the mattresses that it sells itself, Casper doesn’t have to share its profits with retailers or distributors. It also can showcase its products in the way it thinks is best; it doesn’t have to worry about having its mattresses side by side with a competitor’s in a retail showroom.

But purchasing a mattresses without feeling it first would seem to be a tough sell for many consumers. Mattresses are among the most expensive products consumers buy, and people tend to hold on to them for years and years. What’s more, people’s tastes in mattresses tend …read more

Source:: Business Insider – Tech

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