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Mattress Firm, which has been grappling with declining sales amid an overexpansion and a scandal at its parent company, filed for Chapter 11 bankruptcy protection Friday.
The Houston-based retailer has been ailing amid a surge of bed-in-a-box online retailers, too many physical stores and an accounting mess at its parent company, Steinhoff International.
Mattress Firm plans to close as many as 700 of its 3,230 stores. Those stores are located “in certain markets where we have too many locations in close proximity to each other,” Mattress Firm CEO Steve Stagner said in a statement.
About 200 will close within days.
“We intend to use the additional liquidity from these actions to improve our product offering, provide greater value to our customers, open new stores in new markets, and strategically expand in existing markets where we see the greatest opportunities to serve our customers,” he said.
Mattress Firms said in a court filing that it will not conduct typical going-out-of-business sales, where customers might score a deal.
Instead, it will transfer mattresses to other stores, warehouses or distribution centers, or could “decide to abandon” showroom products, according to a court filing.
In Chapter 11 bankruptcy, retailers typically try to get out of expensive leases and slash debt to have a better chance of surviving profitably.
The retailer ballooned in size in recent years through a series of acquisitions – Mattress Giant in 2012, Sleep Train in 2014 and Sleepy’s in 2016.
It was too much, too fast.
The company has since closed hundreds of locations, seeking stability amid upheaval in the mattress market.
More: There’s a fierce battle over your bed: Industry goes to the mattresses
More: Mattress Firm is ‘conspiring’ to sell bogus mattresses, Tempur-Pedic alleges in lawsuit
More: With Mattress Firm reeling, Serta Simmons merges with bed-in-a-box company Tuft Needle
Overexpansion is at the heart of the industry’s troubles. There are now more places to buy a mattress in the U.S. than places to buy a Big Mac.
Mattress Firm filed for bankruptcy in a federal court in Delaware. The company said it had secured enough support from secured lenders to stay in business, but a federal judge must approve with the company’s restructuring plan, which is not guaranteed.
The case could have significant collateral damage:
• Landlords that bet big on Mattress Firm’s expansion will be left with empty stores.
• Mattress makers could face huge losses. Mattress Firm owes Serta Simmons Bedding alone more than $90 million, according to a court filing. Serta Simmons representatives had no immediate comment.
Serta Simmons last year won contract to supply Mattress Firm after rival mattress maker Tempur Sealy International had a falling out with the retailer. But sales have since disappointed.
• Competitors could face a flood of cheap mattresses. If the company can’t survive bankruptcy, enormous disruption would ensue.
Bed-in-a-box sellers like Casper and Leesa have surged in recent years, offering free trial periods, free delivery and easy ordering.
“I think Casper is the reason why they are in this position,” Casper CEO Philip Krim said Friday in an interview. “Casper has really pushed the industry to reinvent itself. We continue to give the customer what they want, and that’s not how the incumbents in this space operated.”
Krim said Mattress Firm needs to “make some big changes,” but he doubts it will happen.
“I think they’re going to try to hide the fact that they’re going through this process from consumers as best they can,” he said. “It’s hard for them to change 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 10 to 12 percent of mattress sales are online, Krim estimated. He said it would likely double within a few years.
Meanwhile, Casper plans to open more than 200 stores within the next three years. Leesa is also expected to open stores.
Mattress Firm has its own bed-in-a-box offering, but Krim said it “has not impacted us.”
“Candidly, it’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’s situation is a scandal at Steinhoff, a global conglomerate that has acknowledged accusations of “accounting irregularities,” including overstatement of how much cash it had. Steinhoff sells more than 40 brands throughout the world in areas such as household goods, clothing and automotive dealerships.
Asked for comment, Steinhoff referred to a statement by CEO Danie van der Merwe: “Mattress Firm has been facing significant operational challenges which management is addressing through its turnaround plan” and bankruptcy “is the best way to support and accelerate the turnaround plan so as to ensure a future for Mattress Firm and its employees and unlock value for shareholders over time.”
Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.