Opinion: Has Eve Sleep missed its wake-up call?

Businesses such as US company Casper and UK firms Simba, Eve and Emma are all offering millennial shoppers, who often live in smaller spaces, the clever idea of mattresses that are delivered arriving in a small box – and most with a 100-night money-back guarantee.

The product may fit modern lifestyles, but it’s no wonder Eve Sleep, which has just posted its results, is struggling to sleep easy.

“The uncomfortable outlook for the year means it has a long way to go”

It wasn’t supposed to be this way. Casper, one of the original mattress-in-a-box retailers founded in 2014, was recently valued at $1bn – with $340m worth of investment by some of Hollywood’s biggest stars including Leonardo DiCaprio, rapper 50 Cent and actor Ashton Kutcher – as it prepares to float on Wall Street.

In the UK Eve Sleep floated at £140m just a couple of years ago and long-established British beds specialist Dreams muscled in on the action by selling £10m worth of its own version, Hyde & Sleep, last year.

But fast-forward two nightmarish years and Eve Sleep’s mattress in a box is starting to look more than deflated – at the time of writing the retailer was worth just £7.05m.

Have Eve’s springs lost their bounce or can a fix be found?

What happened?

Eve Sleep’s shares plummeted 35% after issuing its second profit warning this year last week, and revenues for 2019 are expected to be in the range of £25m to £27m, down from £34m anticipated in March. 

Eve’s total sales in the UK, Ireland and France fell by 8% to £12.9m during the six months to June 30, 2019, the retailer reported today. Underlying EBITDA losses were £5.9m – half the loss of the previous comparable period. Gross profit fell 13% to £6.7m during the period.

Discussions with rival Simba on a potential merger have been shelved after a potential partnership was announced back in August.

A source close to Eve said lots of companies have “early-stage exploratory talks” but unfortunately this one was leaked, otherwise “it would have been kept under wraps”.

Eve blamed the tough retail climate and bad timing for the failed merger, and maintained that it is “more appropriate to focus on the Eve rebuild plan”. 

In its last financial year, Eve posted a £19m pre-tax loss, which it attributed to its investment in marketing – £17.2m to be precise.

Direct-to-consumer retailers typically have to spend vast sums on marketing – in Eve’s case, the costs were one of the reasons it hoped to team up with Simba.

With an extremely tough retail market to contend with, selling a product you only need to buy once every 10 years and with such fierce competition, it’s hard to see how all of the mattress-in-a-box retailers will survive.

Partner swapping

Eve sold for a while through Dreams, as Emma still does with John Lewis, and bricks-and-mortar retail partnerships may be a good way to allow customers to try out their new mattress without the hassle of ordering and returning if needed.

But the partnership with Dreams and Eve ended this January after less than a year, after Dreams boss Mike Logue concluded that Eve was using his store portfolio for cheaper marketing.

Eve hasn’t been phased by that failed partnership and ramped up its bricks-and-mortar offering with new partners this year in Argos, Homebase and Dunelm. It also expanded its Next Home partnership to cover 158 sites.

And although Eve has halved its EBITDA loss in the first half, the uncomfortable outlook for the year means it has a long way to go to before people will be willing to get out of bed to invest.