Mattress Firm to close up to 700 stores in bankruptcy

Mattress Firm, which has been grappling with declining sales following an overexpansion and a scandal at its parent company, filed for Chapter 11 bankruptcy protection Friday.

The nation’s largest mattress retailer has been ailing amid a surge of bedin-a-box online retailers, too many physical stores and an accounting mess at its parent company, Steinhoff International.

Houston-based Mattress Firm plans to close as many as 700 of its 3,230 company-owned stores. Those stores are located “in certain markets where we have too many locations in close proximity to each other,” CEO Steve Stagner said in a statement.

About 200 stores will close within days. The company has nearly 10,000 employees and another 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 new stores in new markets, and strategically expand in existing markets where we see the greatest opportunities to serve our customers,” Stagner said.

Mattress Firm said in a court filing that it will not conduct typical liquidation sales, where customers might otherwise score a going-out-of-business deal. Instead, it will transfer mattresses to other stores, warehouses or distribution centers, or it 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.

Rebranding the acquired stores as Mattress Firm locations worsened the retailer’s troubles. In a court filing, the company also acknowledged “several well-intentioned, but ill-advised, marketing and sales promotions” in 2017 and 2018. Mattress Firm expects to lose $150 million in its 2018 fiscal year after making a profit before earnings, taxes, interest and depreciation of $251 million in 2017.

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 the company’s restructuring plan, which is not guaranteed.