Casper Sleep is facing uncomfortable questions as it prepares to go public — including the fact that it doesn’t make its own mattresses.
The six-year-old startup slashed its expected valuation to less than $750 million on Monday — well short of the $1.1 billion valuation it got in a private funding round last spring — as it looks to raise up to $158.6 million in an initial public offering.
Sources said the money-losing company’s IPO is slated to price Feb. 5. A roadshow is slated to kick off Tuesday in Boston, with plans to take it to New York Wednesday and Thursday. But events could get awkward as the company faces increasing scrutiny over its business model, according to insiders close to the process.
Casper — whose clever cartoon ads have long been ubiquitous on New York subways — has billed itself the “Nike of sleep.” But unlike Nike, which for years has tightly controlled its manufacturing costs, Casper is beholden to a small coterie of powerful US manufacturers.
When Casper was founded in 2014, it hired Atlanta-based manufacturer Elite Foam to crank out the foam mattresses it designed. Casper later added a Boston-based manufacturer to accelerate growth.
Last year in January, Elite got sold for $1.25 billion to Leggett & Platt, a Missouri-based bed-parts behemoth with $4.65 billion in revenue. Leggett also makes bed parts for several Casper competitors, including bed-in-a-box mattresses for Leesa, a privately owned mattress startup, and Serta Simmons’ Tuft & Needle, according to sources.
Leggett also makes springs for Sealy, Serta and Simmons — all of which are far bigger clients, a mattress industry source noted.
“It’s kind of funny that is their chief supplier,” the source said of Casper’s reliance on Leggett. “It would increase the risk for me that their supplier has divided loyalties.”
There are other manufacturers that make foam: Carpenter, Future Foam and Innocor Foam Technologies. Still, the relatively small pool is a sign that Casper may struggle to cut its manufacturing costs in the future, sources said.
In its IPO prospectus, Casper said it is pursuing a strategy to vertically integrate, meaning that it would control its manufacturing, but that it may not be successful.
That could be bad news for Casper, as the other key area for cost-cutting would be marketing — an area that becomes doubly difficult as the mattress space becomes increasingly crowded with deep-pocketed competitors like Walmart, Amazon and Ikea.
Casper lost $67 million during the first nine months of last year on $312 million in revenue, and was on track to lose more for the full year than in 2018, according to Casper’s public filing.
“The most successful specialty retailers have proprietary product or can create a voice by bringing together groups of products,” NYU Marketing Professor Scott Galloway told The Post. “Casper has neither.”
“The notion this firm is trying to go public is evidence we are in a frothy market, due for rationalization.”
A Casper spokesperson didn’t deny that the company relies on Leggett, which isn’t mentioned in its IPO prospectus. The company noted that it holds numerous design patents that couple layers of latex with foam, making its beds unique, no matter where they’re made.
“No one is getting a bed that is made of the same construction,” Casper CEO and co-founder Phil Krim told The Post in a 2015 interview. “Even if our manufacturers are making others’ beds, ours [that combine latex and foam] are different.”
Casper admits in its IPO prospectus, however, that “competitors have attempted and will likely continue to attempt to imitate our products and technology” — a risk that it “may not be able to prevent.”
Even if Casper keeps its designs proprietary, it’s doubtful whether it can build the kind of loyalty that’s enjoyed in other niches like clothing and electronics, says Craig Fruchtman of New York-based mattress retailer Craig’s Beds.
“They built their own brand, but people aren’t brand loyal in mattresses,” Fruchtman said. “I don’t get customers coming in saying ‘I’m a Sealy guy, my grandmother was a Sealy guy.’ ”
Additional reporting by Lisa Fickenscher and Thornton McEnery