Mattress Firm Considers Bankruptcy to Get Out of its Real Estate Scams

This is so thick it’s hard to believe. It’s far beyond just a Brick & Mortar Meltdown.

“I recently sold a small strip center with my last Mattress Firm,” a relieved real estate developer told me earlier this year. “It traded at a 7.1% cap rate, which is just astonishing to me. During due diligence, the buyer’s lawyers focused on every minute risk and mentioned nothing about their parent company once. So crazy.”

Mattress Firm’s parent company is Steinhoff, now a familiar name in the Enron lexicon.

“Mattress Firm’s strategy is to have multiple stores on the same intersection in every town,” this developer had told me last fall. “This was accomplished by design and not just mergers. As a developer, I was literally asked to find sites across the street from existing stores in almost every town. Mattress Firm was able to get these sites because they would overpay market rent by up to $10 per square foot in every market that I was focused in, but it is the same all over,” he said.

To get out of these leases, and for other reasons, Mattress Firm, the largest mattress retailer in the US, is now considering a bankruptcy filing, people familiar with the matter told Reuters.

Restructuring in bankruptcy court would allow Mattress Firm to shut down unprofitable and excess stores and get out from under their over-priced leases.

Mattress Firm, which was founded in 1986, is a classic example of a private-equity pump-and-dump that has turned into an alleged real estate scam by insiders. Here is the turn of events:

The PE Firm Era:

2002: Private-equity firm Sun Capital acquires Mattress Firm, one of the largest Sealy dealers in the US, with over 300 stores, including 175 company-owned stores and over 125 franchised stores.

2007: Sun Capital sells Mattress Firm, which had grown to about 335 stores, to PE-firm J.W. Childs.

November 2011: J.W. Childs engineers the IPO of Mattress Firm, which had grown to 695 company-owned stores and 117 franchised stores.

Short life as a public company:

February 2016: Mattress Firm completes the acquisition of Mattress Holdings LLC, owner of Sleepy’s and related entities, for $780 million. At the time, Sleepy’s had 1,050 stores.

February 2016: After the Sleepy’s acquisition closes, Berkshire Partners (a PE firm not to be confused with Buffett’s outfit) acquired a 10% stake in Mattress Firm, which by then operated over 3,500 stores, including the Sleepy’s stores.

Steinhoff buys Mattress Firm at an inexplicable price:

September 2016: Steinhoff International Holdings, a global retail empire headquartered in South Africa, acquires Mattress Firm for $2.4 billion, a stunning and to this day inexplicable 115% premium.

The alleged real estate scam blows into the open:

2017: Mattress Firm fires its real estate and construction team, including in-house real estate executives Bruce Levy and Ryan Vinson, and its brokers at Colliers International.

November 2017: Mattress Firm sues Levy, Vinson, Colliers International’s Atlanta office, Colliers International Senior VP Alexander Deitch, and some developers, alleging they steered stores to locations with leases well above market rates. During their time, these people were responsible for about 1,500 new stores plus many lease renewals. The suit alleges that many of the properties were owned by an “inner circle” of developers that handed out kickbacks and gifts to Colliers, Levy, and Vinson in return for favorable Mattress Firm deals. The scheme may have started as early as 2009.

Just as parent company Steinhoff collapses:

December 2017: Steinhoff collapses after it admits to “accounting irregularities.” By now, this has become a wide-ranging, complex, and messy affair with off-balance-sheet entities, a €1.6 billion margin loan to Steinhoff’s former chairman, and other entanglements. Steinhoff begins an arduous restructuring process of its $21 billion in debts. Shareholders got crushed; bondholders, including the ECB, got whacked; Citi, BofA, HSBC, Goldman, and BNP are on the hook.

January 2018: Mattress Firm CEO Ken Murphy was shoved out due to “the need for a singular voice of leadership,” as the board said, and replaced by Steve Stagner, who’d served as CEO from 2010 to 2016.

Mattress Firm gets countersued:

January 2018: Fired Vinson claimed in a court filing that Mattress Firm has no right to sue him because it has “unclean hands,” and that Mattress Firm’s “alleged injuries are caused in whole by plaintiff’s own acts and not the acts of Mr. Vinson.”

February 2018: Fired Levy filed a motion to compel Mattress Firm to reveal documents showing any real estate investments current CEO Stagner and former CEO Murphy participated in with developers of Mattress Firm stores between 2010 and 2016. He is also trying to compel the company to reveal any gifts, trips, meals, tickets, and other outside compensation Stagner, Murphy, and other executives had received.

March 2018: Former Colliers VP Deitch countersues Mattress Firm, claiming that it “essentially weaponized the real estate department and its brokers to advance the larger agenda of removing all competition it could,” the suit claims. “Mattress Firm’s aggressive roll-up was reckless, resulting in massive clustering of stores, assumption of bad locations which needed to be propped up, and astounding redundancies in certain markets.”

The developer who’d sold his last Mattress Store location just in time earlier this year told me last fall: “Each buyer was an unsophisticated retiree looking for safe yield!”

Because you can’t lose money in real estate.

“The amount of Mattress Firm’s that flooded the market is staggering,” he said at the time. “There will be many vacancies but at least there is one saving grace: they are usually good real estate but will have to be re-leased up at market rents. So much for safe yield.”

Wells Fargo made a Friday-afternoon-in-August disclosure so that no one would notice. Read… It Just Doesn’t Let Up with Wells Fargo

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  73 comments for “Mattress Firm Considers Bankruptcy to Get Out of its Real Estate Scams

  1. njbr says:

    I was astounded when a 3rd store opened within a couple of miles of me. They all looked liked the Maytag man commercials “the loneliest person”…only one car in the parking lot ever, that being the salesperson/manager/factotum.

    Only once did I go into a mattress store–it was the attack of the lamprey–used car lots being preferable to that–I used to buy at warehouse sales of department stores when they had them, now IKEA or on-line.

    Desperation never sells well.

  2. alicat says:

    In search of a good night rest on a mattress firm,

    the Destroyer stops at nothing,

    until nothing’s left.

  3. Suzie Alcatrez says:

    The markup on mattresses is phenomenal, how can these people not be profitable?

    • MC01 says:

      You need to sell a whole lot of mattresses to pay that extra $5-10 per square foot Mattress Firm pays for its stores. A whole lot.
      If Mattress Firm operates 3,500 stores, let’s do a bit of math.
      For the sake of simplicity let’s say the average store is 1,000 square feet and that Mattress Firm pays $7 per square feet a month above market price for half of those stores. That means an extra $12.5 million a month, or an extra $150 million a year for… absolutely nothing.
      And I bet many of those Mattress Firm stores see a lot of weeks pass by before selling a single mattress, no matter how high the markup is: multiple nearby locations mean they cannibalize their own business.

  4. Matt says:

    Wolf. Speaking of Mark ups. This company is so desperate to move stuff. The top line orthopedics vibrating reclining bed cost 8 grand from them. We literally stole it from them at a home show for 3.800 this past spring. !!!!

  5. Mark says:

    “Each buyer was an unsophisticated retiree looking for safe yield!”

    This. I hear scam ads on Bloomberg radio every morning about “secured, 20% cash flow prime New York real estate”…blah, blah, blah.

    Always wondered what kind of sucker calls them up and invests. Because, hey, you can’t lose money in real estate!

    • Frederick says:

      Guaranteed 20% yield Yeah and I’ve got a bridge for sale too

    • WheresOurTeddy says:

      even Madoff knew not to promise more than 12-15%

      Greed never goes out of style does it

  6. ChillenAzn says:

    Classic pump and dump.

    • Michael Fiorillo says:

      Ponzi, maybe yes,combined with Control Fraud on a huge scale.

      Question: is it entirely correct to call this behavior by Private Equity a Ponzi scheme?

      You could argue that it’s fundamentally not, since a Ponzi scheme presupposes a departure from established norms, whereas this is the systemic norm for Private Equity.

      Brazen stuff…

  7. Boatwright says:

    How about Walgreens / Rite Aid ? All over the place they now have real estate “across the street”. The hundreds of closed or about to be closed stores have a market value of zero.

    Or maybe someone will snap them up for a new Mattress City.

    • David Miller says:

      I think that with respect to ubiquitous drug stores – in some cases there are regulatory/zoning issues that drive their proliferation.

      I vaguely remember there being some issue in the late 90s involving some regulation that more or less drove a mass wave of drugstore construction in the state I lived in. Something to do with not being able to have them in the same contiguous structure with another sort of business.

      Also, there is the issue of being a society upon which new pharmaceuticals and invented “diseases” are regularly pushed.

      • Michael Fiorillo says:

        Well, as Veblen correctly observed over, “Invention is the Mother of Necessity.”

        • Michael Fiorillo says:

          “… as Veblen correctly observed over a century ago,…”

          Whoops, sorry for the poor proofreading…

  8. raxadian says:

    Wolf, I am not a ecnomist so I have to ask, does “Private-equity firm” means “I will leverage buy out any company I get and screw customers and workers?”

    Because so far they go together like horse and carriage.

  9. Harvey Cotton says:

    People buy mattresses at least every five years, but Mattress Firms are ubiquitous without me anecdotally ever having seen customers in them.

    • Paulo says:

      Every five years? Are they incontinent?

      When we change the sheets we flip the mattress and sometimes rotate it. It is like new after 25 years. Our mattress is supported by a grid (custom built bed I made out of white oak) as opposed to a box spring support, which probably provides more air flow/exchange. Still, I see no reason to replace it as mentioned above…it is in excellent condition.

      I know people who always change out bathroom taps. Maybe it’s the same with mattresses?

      Every time I drive by furniture stores I see empty parking lots. How much of this modern made-to-wear-out crap can be sold, anyway?

      • IdahoPotato says:

        Mine is 20 years old and doing well. My car is 17 years old. And my Refrigerator is 15 years old. I keep hanging on to them ‘cos I don’t expect the replacements to last as long.

        • polecat says:

          Go long on dry leaves and straw !!

        • Frederick says:

          Well you had better get busy buying Gotta keep this Ponzi going a little longer ya know Be patriotic and spend Better yet take out a loan and squander it on stuff you don’t need

        • Chris says:

          How old are you?

      • Wolf Richter says:


        Modern mattresses cannot be flipped. They’re asymmetrical: padding on one side, no padding on the other. It seems you haven’t been mattress shopping in a while :-]

        • Kent says:

          True story. I bought a new mattress 3 years ago. I wanted one that was very firm, with light padding and could be flipped. What I got was asymmetrical as you say.

          The flip side was exactly like the ‘top’ side but without light padding. And they made it an ugly green and black fabric. So I went to walmart and spent $20 on a padded mattress cover. Worked like a champ.

        • Ethan in NoVA says:

          So that is why they made pillow top…. to prevent them from being flipped (physically.) Planned obsolescence.

        • NEAL WOODARD says:


          I own a mattress and furniture store and we sell – or I should say we offer – double sided mattresses. Ours are made to order in the same factory in NC, USA that makes major brands, many of which use the Spring Air Back Supporter innerspring system. It’s the best selling and most copied of all time and that’s what’s in our mattresses that have springs. The reason I say we offer double sided models is because we have them but rarely sell any. They cost more to make and yes they last longer. But as soon as you tell a customer they cost $200-300 more most of them say they’ll just take the one sided model. It’s crazy!!! But you CAN still get them; just find a dealer who cares enough to have them made to order for the few customers who will pay a bit more to have one. Most dealers won’t carry them because they don’t sell as well and last longer. Economics.

          Our business model as independent owners with iDEAL Furniture is basically to do everything the opposite of Mattress Firm and other big corporate stores. We keep retail rents and all other overhead costs to a minimum, most stores have no employees outside of the owners, we spend very little on forms of traditional advertising, etc. When you cut all that bloat and keep fair and reasonable margins the consumer wins. It’s just a matter of them finding us! Those who do are very happy.

        • Joe says:

          Not true. The cheap ones are asymmetrical.

      • Frederick says:

        Paulo are you a Mennonite by chance you thrifty devil you? Twenty five years Oy Vey

    • Petunia says:

      Nobody I know buys mattresses every five years, more like every ten years.

      • Frederick says:

        Well the Petunia What kind of people do you associate with? Lol I agree ten years is about the average I assume

        • Petunia says:

          I associate with people whose mattresses are older than 10 years old and still can’t afford to replace them.

    • raxadian says:

      Make that six. Foam mattress last about that if the quality is good, after that they start to get too thin. But I have seen people stack two or three thined foam mattress to avoid buying a new mattress.

      Heck foam mattress last so long some models come with one side too hard to sleep on, so people are supposedly forced to buy a new one sooner.

      Fools, they have never meet my family.

      By the time I bought a new mattress is was because my current mattress was a health risk.

      And if you need too many matress, just buy the foam itseft, cut into the shape of the bed and a a cover so you can sleep over it, presto!

  10. fajensen says:

    Berkshire Partners (a PE firm not to be confused with Buffett’s outfit)

    Hehehehe – Yes, sure. I’d say it was named *Exactly* to be confused with Mr. Buffet by those people who don’t read past page 3 in the prospects!

    Like, one finds here quite a lot of ”Company_X’ AB’ (a probably decent Wallenberg outfit, double-digit turnover, et.c.) together with a shoal of ”Company_X’ Trading/Invest/Services AB’ (local hero up to this & that, turnover suspiciously close to the price of a Mercedes 800 series).

    It’s entertaining to see those rats, that were all chummy-chummy, on the way up getting into fights on the downslope

  11. Yet again, a typical example of failed corporate governance.

    Much needs to be done to regularise and codify the corporate world. The directors need to be held personally responsible for malfeasance.

    The sections in the UK companies act 1986, Secs 214, 238, 239 are not generally enforced, even after the event when creditors have lost everything. Liquidators should act on this and the people sent to jail.

    Not sure abour the American system, but still nothing much happens I understand.

    • Gershon says:

      Not sure abour the American system, but still nothing much happens I understand.

      Our political parties and institutions of governance, especially regulars and enforcers, have been captured by the corporate grifters. The latter now have a free hand to defraud with impunity.

  12. Unamused says:

    The Invisible Hand will take care of it. It’s not a problem.

    • wkevinw says:

      The invisible hand will take care of it. However, what people like to forget is that part of the action of the invisible hand is bankruptcy, ruin, etc. You need the pain for the free market to work. The invisible hand does not prevent pain.

      • two beers says:

        What people like to forget is that there is no such thing as an “invisible hand.”

        “Invisible hand” was a figure of speech, mentioned just once in all of Adam Smith’s writing on political economy, that he used to try to give form to a completely a priori theory which two hundred years of data have since repeatedly disproven. The concept has been taken far out of the context in which Smith situated it, and generously applied to any market in which the oligarchs wish to gain competitive advantage.

        Smith theorized that aggregate consumer preference towards lowest price would compel all capitalist businesses to behave ethically. All it takes is for one business to profit through and get away with unethical practices, and the whole theory is shot to hell.

        How’d that work out?

        • wkevinw says:

          Not really.

          Smith used the phrase to describe the incentives for private/individuals to take actions that ended up doing good things for the greater society. He used it first in ” … Moral Sentiments…”

          In addition, the interpretation by later economists should be given some weight, in my view.

          Bankruptcy, ruin, pain, etc., incentivize some desirable behaviors. The exception does not disprove the general rule.

          Note that, without this “natural law” you could only hope to live in a police state. (some thorough thought is required to realize this).

          If the executive branch (law enforcement) generally does not enforce law and order, then yes, your assertion begins to come true in certain circumstances.

        • sierra7 says:

          “I was wrong!” Allan Greenspan before Congress after the 2008 fiasco!!
          (We would have been better off if Mr. Greenspan had stuck to the clarinet!)

        • two beers says:

          wkevinw, notice that I said the invisible hand was mentioned “just once in all of Adam Smith’s writing on political economy.” Smith used the term several times in his writings, but only once in reference to markets (i.e. one aspect of political economy). Smith (and all good libertarians) might imbue the concept with the status of “general rule,” but it is merely a theory. It may help you model some human behavior, but that doesn’t make it a “general rule.”

  13. Gershon says:

    Mattress Firm, which was founded in 1986, is a classic example of a private-equity pump-and-dump that has turned into an alleged real estate scam by insiders.

    Jeff Sessions and the SEC will get right on that.

    • Frederick says:

      Sessions is permanently out to lunch so I wouldn’t count on much from him or the his Orange highness

  14. No Free Lunch says:

    “Each buyer was an unsophisticated retiree looking for safe yield!” was Madoff’s siren song too. It will repeat over and over again because “Because markets are driven by humans and human nature never changes.” – Jesse Livermore. The government can’t protect you from your own greed + ignorance. If you want government protection, but a CD. Otherwise, don’t expect the same safety.

    • Fedup says:

      The government can protect you some with reasonable regulation and holding perpetrators accountable (including CEOs). But this administration is gutting any regulation. The prior administration held no one accountable.
      It will get worse so watch out for your money. Corporations and the wealthy or the grifters want it all and the government is now willing to give it to them.
      It will never be perfect but it could be better and people need to learn some finance.
      And re Madoff: The SEC was told about him for years. It could have been stopped.

      • nick kelly says:

        I read ‘No one would listen’ by Markopolous (SP?) about his attempts to alert SEC.
        Marko was a serious math guy and said Madoff’s consistent 8 % returns over decades were impossible.

        (unlike Ponzi, Madoff knew better than to promise lavish returns)

        Several SEC guys and gals did drop in on Madoff and were waltzed thru his trading room. All a sham, he never made an investment.
        All the SEC had to do was confirm his trades.
        One of two were so mesmerized they left their resumes.

        Towards the end Marko or his associate were asked by a prospect out of the blue: what do you know about Madoff?

        Their reaction was paranoid and a bit angry. The guy was supposed to be listening to their investment ideas.

        The guy apologized: “I’m marrying into a wealthy family and I’ve been told Madoff will let me in”

        So they warned him. After the arrest he phoned: we lost it all but thanks for trying.

        They tried to warn a French feeder fund to Madoff, A guy called Thiery (Sp?) He had all his money in it plus his clients.
        He slashed his wrists.

        • nick kelly says:

          He had more honor than Madoff

        • sierra7 says:

          Mr. Markopolos testimony before Congress on the Madoff mess is/was a true classic and angrily refreshing………..Also read his book…….

  15. Petunia says:

    The elephant in the room was that they were trying to create a monopoly by buying up all the mattress stores. I guess the Sherman Anti-Trust Act must have been repealed.

    • Frederickf says:

      Looks like everything’s been repealed They just forgetto Tell us about it

  16. Petunia says:

    I recently watched the movie “The Founder” based on Ray Kroc’s history with McDonalds. The underlying business message of the McDonalds story was that the money wasn’t in hamburgers, it was in the real estate.

    • Poppa-z says:

      re:no money in hamburgers

      LOL, don’t forget sodas, that’s where the real money is. The cup, cover and straw are basically the only expense on a 3 dollar soda.

  17. aqualech says:

    Great article. I could never figure out why there was so much saturation my MF – they are obviously crowding each other. So it was all about insiders making money selling the locations to the stock holders.

    • Arizona Slim says:

      Exactly. If you’re a large institutional buyer, say, a hotel or a university with multiple dorms, you’re not going to trundle on over to the corner mattress store. You’re going to order 500 mattresses via a commercial furnishings supplier.

    • Duke DeGuise says:

      More Groaf !!!

  18. mvojy says:

    Wow! This clearly should be made into a mini-series or Docudrama. This story has it all.

  19. nick kelly says:

    ‘Former Colliers VP Deitch countersues Mattress Firm, claiming that it “essentially weaponized the real estate department and its brokers to advance the larger agenda of removing all competition it could,” the suit claims. “Mattress Firm’s aggressive roll-up was reckless…’

    And Colliers has a course of action…how?

    Is it: ‘our client’s greed in amassing leases was against our will….we always discourage customers from overextending themselves….we would NEVER suggest trying to outdo the competition by grabbing the best leases.’

    A mystery.

  20. Arizona Slim says:

    They were all over Tucson. And, I think, still are. Yours Truly hasn’t been in mattress shopping mode for a number of years.

    And, guess what: Last time I shopped for a mattress, I picked up the phone and called the company. Yup, I made a call to Tempur-Pedic. Took delivery a few days later, and I’m still quite content with that mattress.

    • Neal Woodard says:

      Slim, that’s often a good move to go direct if you can. Saves the shopping which is often not a pleasant experience in many mattress stores. But it won’t always save you money. Only a couple of my suppliers sell direct to the public (I have a mattress & furniture store) but the ones who do sell their products to consumers for 3-4 times the price they charge me as a dealer for them. My total markup never exceeds 2X so I’m literally underselling them by a bunch! I just can’t advertise prices below theirs. So really it’s a matter of finding someone who is in business to make a living, not a killing. You won’t find that at the big corporate stores, FYI.

  21. WheresOurTeddy says:

    Someone should create an app that changes any instance of “Private Equity” to “Rapacious Pirates” in your browser or phone. For accuracy.

  22. Mean Chicken says:

    The moral of the story being: “Don’t put your money in the mattress store.”

    • Frederick says:

      Good one Chicken lol I knew there was a joke in this story somewhere and you managed to find it

  23. ThePieman says:

    Nothing to do with crowding out competition. Everything to do with $. Every mattress firm was sold as a NNN lease to investors. The more the rent the more the investment is worth. A $200k lease is worth more than a $100k lease. To keep it simple if you sell at a 10% return (the article here examples a sale at a 7.1% return, which means an even higher price than a 10% return) the difference is a $2m price tag as opposed to $1m. $200,000/10%. The problem is the rents are way over market for the tenant. What typically happens is the tenant just opts out of the renewal after the initial term of 5-10 yrs and bails on the location. In this case the rents were so egregious tMattress Firm couldn’t even make it to the end of their lease term. Hence bankruptcy. Brokers, developers and mattress firm were all in on it. Mattress Firm signed the lease nobody held a gun to their head. And the simplest site selection program will tell u market rents pinpointed all the way down to the immediate vicinity. The problem this triumvirant has is the music stopped before natural selection could run its course and they could chalk it up to changing market, changing demos, bad operator or some other garbage. I hope that plaintiff council goes out and finds a commercial broker to explain it. Such a simple scam. -From a honest comm real estate broker.

  24. Rusty says:

    I’ve had a super single waterbed for 30 years – I ain’t given’ it up!

  25. Mike says:

    I had wondered for the past 10 years why mattress stores sprung up on every street. I guess this explains it.

Comments are closed.