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Mattress Firm, which has been grappling with failing sales later an conquering spree gone bad and a scandal at its parent visitor, filed for Chapter 11 bankruptcy protection Friday.
The nation'due south largest mattress retailer has been ailing amongst a surge of bed-in-a-box online retailers, also many physical stores and an bookkeeping mess at conglomerate owner Steinhoff International.
Houston-based Mattress Firm plans to close as many every bit 700 of its 3,230 visitor-endemic stores. Those stores are located "in certain markets where nosotros have too many locations in close proximity to each other," CEO Steve Stagner said in a statement.
More than 200 stores volition close within days. (Encounter the full list here.) The visitor has nearly 10,000 employees and some other 125 franchised locations.
"We intend to use the additional liquidity from these actions to improve our product offering, provide greater value to our customers, open up new stores in new markets, and strategically aggrandize in existing markets where nosotros see the greatest opportunities to serve our customers," Stagner said. The company declined to make Stagner available for an interview.
Mattress Business firm said in a court filing that information technology will not bear typical liquidation sales, where customers might otherwise score a going-out-of-business deal.
Instead, information technology volition transfer mattresses to other stores, warehouses or distribution centers, or could "determine to abandon" showroom products, according to a court filing.
In Chapter eleven defalcation, retailers typically try to get out of expensive leases and slash debt to have a improve chance of surviving profitably.
Mattress Firm ballooned in size in contempo years through a series of acquisitions — including Mattress Giant in 2012, Slumber Train in 2014 and Sleepy's in 2016.
It was too much, too fast.
The visitor has since closed hundreds of locations, seeking stability amid upheaval in the mattress market.
A move to rebrand acquired stores every bit Mattress Firm locations exacerbated the retailer'southward troubles. In a courtroom filing, the visitor also acknowledged "several well-intentioned, but ill-brash, marketing and sales promotions" in 2017 and 2018.
Mattress House expects to lose $150 million in its 2018 fiscal twelvemonth after making a profit earlier earnings, taxes, interest and depreciation of $251 million in 2017.
A feverish rush in recent years to open up stores, which tin can exist operated with low stock-still costs, is at the heart of the troubles that take befallen Mattress Firm.
In that location are now more places to buy a mattress in the U.Due south. than places to buy a Big Mac.
Kyle Owusu, a senior distressed debt analyst at Reorg Research, who tracks Steinhoff'southward crisis, said Mattress Firm "didn't anticipate there wouldn't be as much of a need for its stores."
"In this retail environment, it's probably necessary for companies that have leases that (are expensive) to employ Chapter 11 and the courtroom system to turn down those leases and restructure those leases so they tin can position themselves better," he said.
Collateral damage
The bankruptcy could cause meaning collateral harm:
• Landlords that bet on Mattress Firm'southward expansion will be left with empty stores.
Nigh 43 percent of Mattress Firm stores are located within one mile of some other one, according to financial data firm Thinknum.
And the company has most 2,500 landlords, according to a court filing.
"At that place are many examples of a Mattress House shop beingness located literally across the street from another Mattress Firm shop," Primary Financial Officeholder and Chief Operating Officer Hendré Ackermann said in a courtroom filing.
• Mattress makers could face huge losses. Mattress Business firm owes Serta Simmons Bedding alone more $90 meg, according to a court filing.
Serta Simmons Bedding last year won a contract to supply Mattress Firm later rival mattress maker Tempur Sealy International had a falling out with the retailer. But sales have since disappointed.
"According to their filing, Mattress Firm has financing that will allow it to go on running its business concern, which includes buying product from SSB," Serta Simmons Bedding said in a statement. "For now, information technology is business as usual for SSB. We will continue to support Mattress Firm as they piece of work through the Chapter xi process."
• Competitors could face a alluvion of cheap mattresses. If the visitor can't survive defalcation, enormous disruption would ensue.
Serta Simmons Bedding private disinterestedness majority owner Appearance International is a possible buyer of Mattress House, Southward&P Global Ratings said.
Owusu, the Reorg Enquiry analyst, said Mattress Business firm would likely emerge from defalcation without liquidating and without a sale. He said any potential auction would likely occur afterward.
Mattress Firm said it had secured plenty support from secured lenders to stay in business, only a federal judge must corroborate with the company's restructuring plan, which is not guaranteed.
Online competition takes price
Bed-in-a-box sellers like Casper and Leesa take surged in recent years, offer complimentary trial periods, free delivery, easy ordering and production innovation.
"I retrieve Casper is the reason why they are in this position," Casper CEO Philip Krim said Fri. "Casper has actually pushed the industry to reinvent itself. We keep to give the customer what they desire, and that'south non how the incumbents in this infinite operated."
Krim said Mattress Firm needs to "brand some big changes," but he doubts it volition happen.
"I think they're going to try to hide the fact that they're going through this procedure from consumers as best they can," he said. "It's difficult for them to modify the way they operate."
Online retailers could capitalize in the long run. But online mattress makers are facing their own problems, including steep discounting, intense marketing and the threat of Amazon out-muscling them.
About x- to 12 percent of mattress sales are online, Krim estimated. He said it would probable double within a few years.
Meanwhile, Casper plans to open more than 200 stores inside the next three years. Leesa is also expected to open stores.
Mattress Firm has its own bed-in-a-box offering, just Krim said it "has not impacted us."
"Candidly, information technology's not a great product," Krim said. "If anything, it's helped us because it validates to the market that bed-in-a-box is here to stay and it's a great way to buy a mattress."
Complicating Mattress Firm'due south situation is a scandal at Steinhoff, a global conglomerate that has acknowledged accusations of "bookkeeping irregularities," including an overstatement of how much cash information technology had. Steinhoff sells more than xl brands throughout the world in areas such equally household goods, clothing and automotive dealerships.
Asked for comment, Steinhoff referred to a argument by CEO Danie van der Merwe: "Mattress Business firm has been facing meaning operational challenges which management is addressing through its turnaround programme" and bankruptcy "is the all-time fashion to back up and accelerate the turnaround plan and then as to ensure a future for Mattress Business firm and its employees and unlock value for shareholders over time."
Mattress Firm told a federal judge in a court filing that Stagner'south turnaround efforts since being appointed as CEO March 1 have begun to acquit fruit.
The visitor said information technology'due south focusing on improving advertizing, "financial accountability," "a rewarding in-store customer experience," meliorate products and an upgraded e-commerce offering.
Follow The states TODAY reporter Nathan Bomey on Twitter @NathanBomey.
Source: https://www.khou.com/article/news/nation-now/mattress-firm-files-for-chapter-11-bankruptcy-protection/465-3fe047eb-b021-4e21-8122-1d2485410ac0