Target Offered $1 Billion To Buy Startup Casper Mattress: Is This Just The Start?

Last week, big box giant Target Corp. (NYSE:TGT) reportedly offered $1 billion to acquire budding startup Casper Mattress, a company that designs, manufactures, and produces mattresses, bed frames, pillows, sheets, and even dog mattresses.

The two companies were apparently in serious discussions over the last few months, but according to Recode, who cites multiple sources, neither could work out a deal. Instead, Target will plan on taking a minority stake in Casper, and will “likely be the lead investor in a large new round of funding for the startup that could be announced in the coming weeks,” said Recode.

Launched officially in the summer of 2014, and named one of Fast Company’s most innovative companies in the world of 2017, Casper has a devoted fan base among millennials, especially those living in bustling metropolitan areas. The company has certainly taken the mattress industry by storm, slowly stealing away market share from giants like Mattress Firm and Tempur Sealy (NYSE:TPX) .

To try a Casper mattress out, the company offers a 100-day free trial; customers order the mattresses online, and they get shipped straight to their home folded up in a box. Casper is based in New York City, and while it used to have a showroom there, customers could only check out Casper products at West Elm stores. But now, Casper is coming to Target.

“At Target, we strive to bring guests amazing new products and exciting partnerships, says Jill Sando, senior vice president, merchandising, home. “We love Casper’s brand and innovative products—and we really love the idea of giving our guests a simple way to get a better night’s sleep, with everything they need in one convenient place.”

Target will begin selling Casper mattresses and bedding on its website and in 35 if its stores located near college campuses; Casper will be the only mattress brand for sale on Target.com when the partnership launches next month, notes Recode. And, Target will exclusively sell the Casper Lounger, a seat that can be folded up or laid out, and is perfect for relaxing or studying.

Like many retailers in the age of Amazon (NASDAQ:AMZN) , Target has struggled with figuring out how to get shoppers in their stores. But while the company’s plight is not as hard as its peers, Target has certainly felt the effects of customers turning to the e-commerce behemoth for all their shopping needs.

Rival Walmart (NYSE:WMT) has tried to counteract this consumer behavior with a unique digital shopping spree, notably buying up Jet.com for $3 billion in 2016, as well as Shoebuy, Moosejaw, and Modcloth; Walmart is also reportedly in talks to acquire men’s fashion retailer Bonobos. The strategy appears to be working: Walmart noted that its e-commerce business saw gross merchandise volume soar 69% in its latest quarterly earnings report.

Is Target’s deal with Casper a sign it may start to acquire digital brands? While deal talks did eventually fall through, Target is no stranger to embracing digital-first brands. The company has partnered with grooming startups Bevel and Harry’s, as well as popular fashion blog Who What Wear in women’s clothing, in order to get young shoppers into its stores.

Target is also making a serious commitment to introduce over a dozen exclusive brands over the next two years, as part of its plan to boost sales in its apparel and home departments; it found success with the launches of the Cat & Jack and Pillowfort brands.

I’m not sure Target could begin acquiring smaller brands at the same pace Walmart is, but building relationships with digital companies like Casper is certainly a way to keep pace in a retail environment dominated by Amazon, especially if the relationships allow Target to operate in new sectors and industries and reach new customers.

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