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Is a battle of two bedding behemoths on the horizon?

Larry Thomas -- Furniture Today, January 2, 2012

Larry Thomas Business EditorDon't look now, but the two Goliaths of the retail bedding business - Sleepy's and Mattress Firm - are quietly positioning themselves to do hand-to-hand combat for the first time.
     The two specialty store chains have grown rapidly in the past five years, each finishing 2011 with well over 700 stores and $700 million to $800 million in sales. Sleepy's could top $800 million, in fact.
     But except for a small overlap in the Raleigh-Durham, N.C., market, where Mattress Firm has 16 stores and Sleepy's has three, the two have managed to stay out of each other's way as they have grown their businesses.
     Currently, the majority of Hicksville, N.Y-based Sleepy's stores are in the Northeast, while Houston-based Mattress Firm has most of its stores in the South and Southeast - more than 200 locations are in Texas alone.
     However, it appears that a clash is inevitable, probably sooner than later, because of three ongoing events.
    First, Mattress Firm successfully completed an initial public offering in November - a move that made its balance sheet stronger and gives the company the financial flexibility to grow more rapidly through store openings and acquisitions.
     Even before the ink was dry on the IPO prospectus, the retailer acquired 54 stores in the Atlanta, St. Louis and Minneapolis markets from Mattress Giant, a major mattress retailer that doesn't appear to have the financial strength of Mattress Firm of Sleepy's.
     Second, Richmond, Va.-based RoomStore, which filed for Chapter 11 bankruptcy protection last month, owns 65% of Mattress Discounters, a mattress retail chain that has 81 stores in Delaware, Maryland, Virginia and the District of Columbia. And while Mattress Discounters isn't part of the RoomStore bankruptcy proceedings, we suspect creditors may try to force a sale of the RoomStore ownership stake. Other than Sleepy's and Mattress Firm, who would have the financial wherewithal to pull off such a deal? The list of other potential suitors is very, very short.
     Third, it's no secret that the aforementioned Mattress Giant is trying to sell more of its roughly 300 remaining stores - potentially a lot more. The company won't publicly discuss its sales efforts, but it has numerous stores in the Northeast (where Sleepy's is strong) and Florida (where Mattress Firm is strong).
     In our view, the most likely place for the first fullscale battle between Sleepy's and Mattress Firm is the Maryland-Virginia-Washington, D.C., area. Sleepy's already has several stores in that region, and Mattress Firm has seven units relatively close by in the Hampton Roads-Newport News, Va., market.
     Both are probably salivating over the prospect of acquiring those 81 Mattress Discounters stores. And RoomStore's creditors would like nothing more than a bidding war between the two.

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