It has long been speculated that Mattress Firm, the US mattress retailing giant, was in a solvency crisis, largely as a result of the spectacular collapse of its parent, Steinhoff International Holdings NV following an accounting scandal in late 2017 and has been struggling to restructure the debt of some subsidiaries with its creditors.
Now, according to Reuters, Mattress Firm, the largest U.S. mattress retailer, is planning to file for bankruptcy Reuters reports, as the firm struggles to exit costly store leases and shut some of its 3,000 locations that are losing money.
A bankruptcy filing would make Mattress Firm the latest U.S. retailer struggling due to competition from e-commerce firms such as Amazon.com putting pressure on brick-and-mortar retailers, as well as a decline in demand as the business model transforms. However, a key driver behind any Chapter 11 filing would be the sorry financial state of insolvent Steinhoff, which acquired Mattress Firm for $3.8 billion in 2016 as part of an aggressive global roll-up which ultimately pushed the company into bankruptcy.
According to Reuters, both the Houston-headquartered Mattress Firm and Steinhoff have been working with distressed turnaround consultancy AlixPartners, which is often hired just ahead of a bankruptcy filing.
A bankruptcy filing, while leading to numerous store closures, would allow Mattress Firm to clean up its real estate portfolio and improve cash flow and profitability, according to Piper Jaffray analysts. In recent Chapter 11 cases, discount footwear retailer Payless ShoeSource closed roughly 700 mall-based stores in bankruptcy last year, while children’s clothing shop Gymboree Corp closed about 300.
That said, some retailers have managed to close huge swaths of their store base outside of bankruptcy, although the inability to renegitate leases - unless the landlord is especially friendly as was the case with Bebe stores - usually requires an in court process.
The loudest warning sign for Mattress Firm came last year when the retailer lost Tempur Sealy, the maker of popular mattress brand Tempur-Pedic, as a supplier last year, limiting its offerings. Mattress Firm secured a $225 million asset-backed revolving loan last year.
As part of its breakneck expansion which prompted many questions in recent years, Mattress Firm acquired HMK Mattress Holdings, the parent company of competitor Sleepy’s, in 2016 for $780 million and then rebranded the shops. Sleepy’s had over 1,050 stores on the U.S. East Coast and Illinois.
Meanwhile, Mattress Firm's parent, Steinhoff, booked a $12 billion write-down earlier this year relating to accounting irregularities. Expect a similar outcome in this case.
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