Significantly lower the rent or face losing the location. This is the ultimatum Mattress Firm is issuing landlords as it begins the bankruptcy process filed on October 5th, 2018. Mattress Firm operates more than 3,000 stores and plans to reduce its store count by more than 500 units. The mattress retailer has experienced aggressive expansion in the recent years including several mergers which has resulted in the filing of bankruptcy mainly due to an accounting scandal.
The main cause of its current troubles included the acquisitions of competitors Sleepy’s, Sleep Train and Mattress Giant that were rebranded under the Mattress Firm banner. This led to multiple locations in the same trade area which in turn cannibalized sales from the surrounding stores all owned by the same company. In addition, leadership decisions to rebrand more than 1,300 former Sleepy’s and Sleep Train stores to the Mattress Firm banner which led to inefficiencies throughout operations negatively impacting their bottom line. This in-turn led to under productive stores with excessive fixed cost on long term leases, diverting sales away from other more profitable locations.
The Mattress Firm situation is a very interesting one for landlords. A lot of the time, landlord’s made investment contributions to these lease deals with include tenant improvement dollars and brokerage commissions in exchange to secure a credit tenant with a stream of cash flow over a period at an agreed upon rent. The fact that Mattress Firm is coming back to the table on these deals and requesting a reduction in rent puts landlords between a rock and a hard place. The bet that Mattress Firm is taking is that landlords would rather take less rent and keep their doors open than fish the market for a new tenant, one of which would likely not pay as much in rent than Mattress Firm was obligated to. Any way you look at this, it is not a fun situation and position to be in as a landlord, however at the end of the day, the real estate that is occupied by Mattress Firm is traditionally very well located and can be re-tenanted or re-position at some point with a quality user due to desirability.