Direct-to-consumer (D2C) mattress brands Purple Innovation and Casper Sleep are losing sleep over supply chain issues amid increasing demand for their products as consumers remain focused on home, health and wellness coming out of the COVID-19 pandemic.
For Casper, which recorded a record $152 million in revenue in the second quarter, the issues primarily center on a lack of available raw materials and labor shortages at its manufacturing partners’ facilities.
“Labor was much more of an acute issue over the last six to 10 weeks than our manufacturing partners and we expected,” Casper CEO Philip Krim said on a conference call Tuesday (Aug. 10). “That ended up causing a lot less supply than they had expected.”
He added that the labor shortage is emerging in a splintered way, with various jobs impacted from week to week. “Attracting labor across our entire footprint was a real challenge,” Krim said.
Last month, Sleep Number executives also said that component shortages and issues with suppliers slowed down deliveries in the second quarter, extending customer delivery windows up to six weeks.
Purple, on the other hand, is attempting to recover from a manufacturing accident in May that killed a woman after she was pulled into a machine. The company said that following the implementation of additional safety measures, production levels returned to anticipated levels during the last week of July, but a backlog will continue through the end of August.
“Demand across channels remains incredibly strong,” CEO Joe Megibow told investors and analysts. “We have just unfortunately been unable to meet that demand during this period.”
Purple estimates that across both the second and third quarters, production issues have caused approximately $50 million in lost sales, which Megibow said he expects are fully lost, not deferred. In the second quarter, Purple saw $183 million in net revenue, a nearly 11 percent year-over-year increase and a 77 percent increase compared to 2019.
Both Casper and Purple said they plan to continue increasing production capacity — Purple said mattress production will increase by over 65 percent by the end of 2021 — as well as raise prices to cover increasing supply chain and labor costs. Casper said it already implemented a small increase in prices earlier this year, and a bigger price increase is expected at the beginning of October.
Additionally, in a sign of confidence that consumers’ return to in-store shopping will stick, the mattress companies are both emphasizing wholesale and retail partner sales over D2C efforts. Megibow said that for Purple, it comes down to optimizing the “long-term opportunity and the health of our business.”
“We try to make sure we’re meeting the consumer on their terms,” he said. “The strongest demand channels right now are brick-and-mortar … and we’ve been underservicing our terrific partners there.”
Amid these challenges, though, Casper and Purple are looking beyond mattresses for other opportunities to get into bed with consumers. Casper, for example, ended the second quarter with $58.1 million of inventory on hand, largely comprised of non-mattress items ahead of the launch of pillow sales at Costco locations, Bed Bath & Beyond and 500 Walmart stores.
Krim said he’s excited about expanding Casper’s pillow footprint, as the company has found that pillows are a great entry point for consumers into the brand. “That’s part of a key distribution strategy, which is to grow distribution not just of our mattress business, but also of our other product categories,” he added.
Purple’s new products are also being designed to meet retail partners’ demand, as Megibow said the company has found that wholesale is becoming “increasingly critical and strategically beneficial for us.”
“As we retire and sunset existing products and launch new products and new capabilities, it’s all being designed ground up with wholesale in mind,” he said. “That means more relevant price points and more relevant features,” in addition to more premium products.
Megibow said Casper also intends to expand internationally in 2022, but the current focus is on meeting domestic demand.
“Thing one is, let’s take meaningful share in our backyard and in Canada,” he said.