After Years Of Real Estate Controversies, Mattress Firm Seeks To Open 300 New Stores Post-IPO

After closing nearly 1,000 locations following a blockbuster bankruptcy and real estate scandal, Mattress Firm has filed to return to the public markets with the same strategy that helped it dominate the bedding industry: adding hundreds of new stores.

Houston-based Mattress Firm filed for an initial public offering on Jan. 7, seeking to raise some $100M from investors on the New York Stock Exchange. In its IPO filing, the retailer said it planned to open 300 new stores over the next three years in “under-penetrated markets” such as Los Angeles, Upstate New York and Detroit. 

The store expansion is a reversal of three years of store closures following its 2018 bankruptcy. Between 2019 and 2021, Mattress Firm shuttered 972 stores across the country, according to its IPO prospectus.

The store culling following Mattress Firm's bankruptcy burned many of its landlords, with then-CEO Steve Stagner telling them they could accept lower rents or face the threat of closure, Bisnow previously reported. Mattress Firm replaced Stagner as CEO in 2019 with John Eck, a former media executive.

Mattress Firm has continued to open new locations during that time as well. It spent $24M between 2019 and 2021 on new store construction, according to the IPO filing. 

Mattress Firm declined to comment for this story.

Mattress Firm's retail footprint is massive by any metric, and company officials maintain that its real estate presence is critical to driving sales. Mattress Firm has 2,353 stores, a portfolio that puts 82% of the U.S. population within 10 miles of a store, it said in the prospectus. The firm also operates 70 distribution centers and uses 30 delivery providers, and the retailer is now testing same-day delivery in some markets.

“Our national scale enables us to provide convenience to customers that we believe our competitors cannot match,” the retailer said in its prospectus offering.

The retailer said it would continue to shutter underperforming stores throughout its expansion process but didn't say how many.

Real estate has been the source of great controversy at Mattress Firm over the past few years. In November 2017, a year after Steinhoff International purchased Mattress Firm for $3.8B and took the retailer private, the retailer sued three former real estate executives and consultants, alleging the men perpetrated a multimillion-dollar real estate fraud scheme against it by agreeing to leases above market rents while receiving gifts and kickbacks from landlords and developers.

Even though Mattress Firm is under new management, that lawsuit and a counterclaim are still active in Harris County, Texas, Superior Court. Alex Deitch, a former Colliers Atlanta broker who represented Mattress Firm and is a defendant in the original lawsuit, claimed in a countersuit that Mattress Firm had full knowledge of the arrangements of all its leases and “weaponized” its real estate department to squeeze its competition out of various markets.

Deitch also claimed Mattress Firm fostered a culture of accepting gifts from vendors — he has asked a judge to force the retailer to disclose what other company executives had received — and alleged that Stagner himself privately invested in Mattress Firm real estate deals.

In a new motion filed last week, Deitch claimed that of the nearly 1,000 leases cut by Mattress Firm following its bankruptcy, only 14 were cited by the retailer as part of the alleged kickback scheme. Mattress Firm re-emerged from bankruptcy at the end of 2018.

Mattress Firm previously stated that its real estate obligations were a big reason for its bankruptcy, claiming it had too many stores in redundant locations — in some instances, it had stores across the street from one another. Its retail footprint also became the centerpiece of a debunked online conspiracy theory that the retailer was laundering money through its stores, given how few people were regularly seen shopping in them.

Mattress Firm's South African parent company, Steinhoff, was embroiled in its own accounting scandal in 2017, which led to billions of dollars in restatements and losses.

In 2020, South Africa's Financial Sector Conduct Authority fined former Steinhoff CEO Markus Jooste nearly $15M for sending texts to a cadre of associates, warning them ahead of time of coming financial difficulties.

The authority's report found that Jooste had told investors Mattress Firm would contribute billions to its revenues in its first year, but it instead saddled Steinhoff with steep losses.

The report found that Jooste privately called the acquisition one of the two worst mistakes he ever made and a disaster. Even after Steinhoff executives allegedly discovered that Mattress Firm was paying inflated rents, the South African regulatory report found that Steinhoff told investors Mattress Firm was profitable as it was taking on heavy losses.

Today, Steinhoff owns 50.1% of Mattress Firm, and its creditors own 49.9%. The retailer said in the prospectus it has $3.5B in liabilities, including $1.2B of debt.

The company posted a $165M loss for the fiscal year ending Sept. 28, mainly due to an impairment charge, but the company posted a net income of $125.6M in 2020, it said in the prospectus. It said its revenues have grown from $2.9B in 2019 to nearly $4.4B last year, a 21.8% compounded annual growth rate.

Mattress Firm executives in the IPO say the retailer is riding a wave of new housing growth, millennials forming households and new wellness and health awareness where sleep plays a critical role.

“We are the clear market leader in the large and growing U.S. retail mattress and foundations industry, with a market share we estimate to be approximately 20% as of the end of 2020,” the prospectus reads.