Brand News
11 November 2022
Purple ramps up wholesale, store expansion
Bainbridge Growth spotlights a significant mix shift at the DTC mattress brand.

Inside a Purple Mattress showroom. (Courtesy photo)
Bainbridge Growth spotlights a significant mix shift at the DTC mattress brand.
This post originally appeared on the blog of Bainbridge Growth. It is being republished by The Current with permission.
Brothers Tony and Terry Pearce combined their experience in carbon fiber and polymers to invent the cushiony material that became Purple’s mattresses. Their interest in elastic polymers began in the late 1980s, and the duo eventually accumulated over 30 patents used in medical devices and shoes. Purple Innovations began in 2015 with capital the founders sourced from a highly successful Kickstarter campaign that brought in approximately $172,000. The Pearce brothers created their first king-sized mattresses and began selling them online. Sales growth driven by the monochannel ecommerce approach came very quickly and in 2017, Purple went public via a special-purpose acquisition company at a valuation of $1.1 billion.
The company describes itself as a “digitally-native vertical brand," manufacturing various comfort products developed over the last three decades. GelFlex Grid is their proprietary gel technology and is the core input to many of their products. These gel polymer innovations were the mattress industry’s cutting-edge technology over the last decade. DTC brands like Casper and Purple took the gel top layer much further, developing springless foam and gel-based mattresses that could be sold online and shipped to customers in tubes.
The pandemic was a roller coaster for the company, as they initially furloughed 35% of staff in Spring 2020, only to hire back over 900 people in 2H 2020 to support the home goods growth surge. YoY growth peaked at just over 50% during the stimulus boost of Q2 2021. Throughout the second half of 2021, the company experienced significant inventory shortages,leading to reduced sales and turnover among top executives. Former New Balance executive Robert DeMartini took over as CEO in December 2021. Analysts attributed the company’s 2021 difficulties to a blend of internal issues and market saturation but also mentioned that the company assets (gel patents) would be “attractive to many inside and outside the industry”.
In the recently reported second quarter of 2022, Purple Innovation saw net revenue decline 21% YoY to $144 million. This compares to management’s mention of a 1H 2022 decline in the total domestic mattress market of 25%. From a sales channel perspective, PRPL saw a 6% drop in wholesale and a 30% fall in DTC. These YoY declines resulted in a shifting business mix in the quarter, with revenue consisting of 57% DTC (64% in Q2 21) and 43% wholesale (36% in Q2 21). The underwhelming consumer demand led the management team to cut guidance on revenue to $570M to $590M ($650M to $690M prior) and reduced EBITDA expectations to -$15M to -$5M (Prior $21M to $27M).
Source: Purple Innovations Investor Relations
Gross margin fell from 44.7% in Q2 2021 to 33.9% in Q2 2022. This drop was driven by discounting in the DTC channel and a significant mix shift toward wholesale, even as the company opened 27 stores over the last twelve months to end Q2 2022 at 40. Wholesale distribution points were 3200 as of the end of Q2 2022, up by nearly 1000 on a YoY basis.
The decline in gross margin also reflects elevated costs of materials, labor, and overhead partially offset by labor force restructuring that occurred in February 2022 (the number of layoffs was undisclosed). Purple expects the full-year gross margin to be in the 35% to 37% range, as significantly more business comes from wholesale channels on a full-year 2022 basis. Pre-pandemic comparisons show FY19 gross margin at 44%, on a 62% DTC revenue mix.
Source: Purple Innovations Investor Relations
The company’s operating expenses as a percent of revenue were 42.3% in Q2 22, vs 46.1% in Q2 21. A substantial decrease in advertising drove this decline. Purple drastically cut advertising spend in the quarter, reducing it by $24.1 million or 56% vs Q2 21. Leadership wants to maintain this ad spend ratio of 30% of revenue on a go-forward basis, as one of their four core business initiatives is an intentional move away from performance marketing and toward brand spend. The team is very excited about their new marketing campaign, “Overnight Success”, which they launched on linear TV, online video, and social media. This strategy is aligned with their focus on growing store count in DTC and distribution points in the wholesale channel.
The question going forward is if Purple’s rapid expansion into more physical showrooms can offset their declines in online sales. This will likely be a hard lift, as Casper and Purple (to a lesser extent) have become the primary examples of DTC’s potential to oversaturate a market. Mattress brands caught the DTC wave early with huge ad spend, achieving significant sales growth only to struggle with profitability post-IPO.
A decade ago, mattresses were still a high margin heavily sales commissioned product, with customers unable to easily compare products and prices. Now the DTC sleep brands face similar threats primarily from each other as mattresses delivered in tubes and boxes have become an intensely competitive segment.
Adobe Analytics looked at how ecommerce shopping habits shifted in 2022.
Ecommerce is showing staying power with consumers following the pandemic, leaving room for the growth of more product categories and digitally-enabled ways to shop.
That’s the takeaway from new data released by Adobe Analytics this week that offers the latest evidence to help understand shifts in digital shopping behavior that accompanied the lifting of pandemic restrictions in 2022.
While there is evidence that more people returned to stores in 2022, Adobe found continued growth in several areas of ecommerce that spiked during the pandemic, including grocery and Buy Now Pay Later. At the same time, a slowdown in curbside pickup and uptick in mobile shopping offer a reminder that behavior will continue to evolve.
Here's a look at the data:
There are signs that consumers are turning online to buy more types of products. Categories like home furnishings and grocery previously struggled to take off in ecommerce, but both saw notable growth in 2022.
Home furnishings grew 10.2% year-over-year, reaching $126 billion in spend. This continued in February 2023, with 12.9% sales growth to $9.4 billion.
Grocery, which saw a surge during the pandemic, saw continued growth of 10.8% in 2022, reaching $86.8 billion. In February 2023, there was even more pronounced growth of 26.7% YoY, driving $8.4 billion in spending.
Not every category saw such a dramatic uptick. Electronics, which consistently has the largest share of ecommerce spend, grew 4% year-over-year in 2022. Meanwhile, apparel fell 3.8% year-over-year.
“Ecommerce demand has remained resilient in an uncertain economic environment, driven in part by lasting pandemic habits where consumers had no choice but to leverage online food and home furnishing shopping services,” said Vivek Pandya, lead analyst at Adobe Digital Insights, in a statement. “Now consumers have embraced the rich ecommerce experiences that made them feel comfortable getting these necessities delivered to their doorsteps, making these categories new growth drivers in the digital economy.”
The pandemic ecommerce boom also led consumers to embrace new types of digital shopping experiences, from how they paid to how they received items.
In this area, there are also signs of continued expansion. Buy Now Pay Later, which allows shoppers to pay in installments, had a fast rise in 2020 and 2021 amid the ecommerce boom. Expansion continued as a higher cost of living due to inflation left consumers seeking to spread out payments. In 2022, the share of online purchases made with BNPL continued to grow at a rate of 14% year-over-year, while revenue grew 27%.
Adding to evidence of staying power, BNPL is proving to be popular in the categories showing the most growth. In the first two months of 2023, groceries’ share of BNPL grew 40%, while home furnishings grew by 38%.
“The rise of Buy Now Pay Later usage for groceries tells us that consumers are likely making bigger purchases online to take advantage of special promotions and stock up on staples, thus managing living expenses in more flexible ways,” Pandya said. “The strong online growth of home furnishing purchasing is expected to bolster Buy Now Pay Later adoption, given the higher ticket prices in this category.”
Price is also playing a role. According to Adobe’s Digital Price Index data from January 2019 through February 2023, share increased in the cheapest pricing tier for categories such as groceries (35.6%) and electronics (57.1%).
The pandemic also introduced more shoppers to fulfillment methods that blended ecommerce and stores. One of these was curbside pickup, which was a must-have option for retailers amid the health emergency that required distancing. But this practice has seen a slowdown. In 2021, 23% of online orders from retailers who offered curbside pickup used this option. In 2022, it fell to 19%, followed by a further fall to 17% in the first two months of 2023. However, there are still more signs of interest in grocery, which was a prime use of curbside pickup. That category grew 8% year-over-year in early 2023. By contrast, electronics grew only 2%.
Many retailers now have curbside pickup, and that's unlikely to go away. Rather, it is now best considered one of a number of options that retailers are offering consumers who want to have choices, alongside in-store pickup and local delivery.
The return to stores didn't replace ecommerce. Rather, the two channels are now blended more than ever before. As shoppers move across physical and digital retail, they are embracing mobile devices that help to connect the two. Adobe noted that the 2022 holiday season marked a “turning point” for mobile shopping, as a majority (51%) of Cyber Week sales were made using smartphones for the first time. This trend is expected to continue. By December 2023, Adobe expects smartphones to drive the majority of sales every month.
Yet there’s a gap between the largest retailers and smaller retailers in growth. Retailers with over $1 billion in annual sales are driving 38% more visits that result in purchases than retailers making $10-50 million in annual sales. For smaller retailers, share of revenue is also 8.6% lower.
It underscores how there are still plenty of opportunities to expand and improve digital commerce. The pandemic proved to be a great leap forward for retailers introducing ecommerce capabilities, but it is not the end of the expansion.