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Mattress Firm Is Days From Emerging From Bankruptcy, 600-Plus Stores Lighter

Mattress Firm Is Days From Emerging From Bankruptcy, 600-Plus Stores Lighter

With the blessings of a Delaware bankruptcy court, Mattress Firm is expected to complete its bankruptcy reorganization soon.

The Houston-based mattress retailer got court approval for its reorganization plan late last week and was expected to emerge from bankruptcy “in the coming days,” the company stated in a press release.

“This short process has enabled Mattress Firm to strengthen our balance sheet and optimize our store footprint, giving us the flexibility to continue with our mission,” Mattress Firm CEO Steve Stagner stated in a press release. “Furthermore, our significantly improved financial and operating position will enable us to strategically expand our business in new as well as existing markets, while continuing to focus on enhancing our omni-channel capabilities and product offerings.”

Once it emerges from bankruptcy, Mattress Firm will continue to operate some 2,600 stores nationwide. It shuttered more than 600 stores during its bankruptcy, according to a list compiled by the real estate firm A&G Realty Partners, which was tapped to handle its retail leases. That number could climb above 700 in the coming weeks.

This has been one of the faster bankruptcy reorganizations for a retailer this year. Claire's took six months to complete the process and The Walking Co. exited bankruptcy after four months, Retail Dive reports. It puts Mattress Firm in position for the holiday shopping season, which generally starts with a bang on Black Friday.

Mattress Firm CEO
Mattress Firm CEO Steve Stagner

Once out of bankruptcy, Mattress Firm's bondholders will own 49% of the company going forward, with the embattled parent company Steinhoff International Holdings still owning a majority stake and controlling interest, the Wall Street Journal reports. On top of the shuttered stores, the retailer also amended more than 1,000 leases at other locations and resolved more than 50 objections in the courts. Another 500 stores “remain subject to negotiation,” the WSJ reported.

These renegotiated leases came after Stagner gave landlords a stark ultimatum last month: agree to new terms or face closure.

“I want to be clear that we are only asking for what we need and have no wiggle room for negotiations,” Stagner said on a conference call with its landlords. “Unfortunately, without concessions, we will have to close more stores."

While an exit from bankruptcy shores up Mattress Firm's immediate financial issues, problems that will continue to haunt the retailer remain.

For one, the shrinking of Mattress Firm's footprint means some $380M in bedding revenue is now in play for competitors, Furniture Today reports. That number represents the average sales per store under the premise that it would close 700 stores in bankruptcy.

Even if Mattress Firm managed to recapture half the business at its nearby stores — many of its locations are in tight clusters — that could still mean nearly $200M in potential sales up for grabs by competitors, according to Furniture Today.

It also remains to be seen what will result from Mattress Firm's ongoing lawsuit against two former in-house real estate executives and a former executive with Colliers International Atlanta, who the retailer accused of operating a kickback and bribery scheme by steering it toward high-priced real estate leases in exchange for gifts, cash and on-the-side investments. 

The defendants, former Colliers broker Alex Deitch and former Mattress Firm executives Bruce Levy and Ryan Vinson, have denied the charges. Most recently, Deitch won approval from a judge in Houston to continue to pursue his own counterclaim against the company. 

The other outstanding issue is with Mattress Firm's parent company, Steinhoff, and its ongoing accounting investigation that at one point wiped out as much as 95% of the company's market cap. Former CEO Markus Jooste remains under investigation by South African authorities, and PwC is expected to issue a final accounting forensic investigative report sometime before the end of the year.

Steinhoff is now under the leadership of Louis du Preez, who will have the task of addressing continued concerns by regulators and authorities in probes that could last years, fighting lawsuits over the accounting scandal and running a retail conglomerate that had to sell divisions and oversee Mattress Firm's bankruptcy, Bloomberg reported