The “Sleep Outfitters” retail chain has petitioned Kentucky courts for Chapter 11 bankruptcy protection. On January 11, 2019, Sleep Outfitters, a subsidiary of Innovative Mattress Solutions, LLC, filed for bankruptcy in the U.S. Bankruptcy Court for the Eastern District of Kentucky, Lexington Division.
Similar, large retail bankruptcy filings have become increasingly commonplace in recent years. There were 16 significant retail filings in 2018 and, as of early February, six more in 2019.
Sleep Outfitters’ Bankruptcy Case
In this case, Sleep Outfitters sought to borrow funding in order to continue business operations as the company looks for a buyer. Tempur-Sealy (Tempur World, LLC) announced an agreement to provide up to $14 million in debtor-in-possession financing to facilitate the process. Tempur-Sealy is a manufacturer and marketer of mattresses and related accessories and a primary supplier for Sleep Outfitters retail stores. Innovative Mattress Solutions also runs Mattress Warehouse and Mattress King brands.
As part of the Innovative Mattress Solutions Chapter 11 filing, the company filed a motion to authorize payment of wages and related items. Staffed by over 400 employees, Sleep Outfitters reports 142 retail locations and six distribution centers primarily located in the southeastern area of the U.S. The company blamed liquidity problems on “poorly timed” expansion in the national market.
Retail Bankruptcy on the Rise
Large U.S. retailers have been filing for bankruptcy at record rates. In 2018, retailers seeking bankruptcy protection included Toys R Us, Sears, Nine West, Remington Outdoor, David’s Bridal, and Mattress Firm, among others. So far in 2019, five large retail companies (in addition to Sleep Outfitters) have joined the list: Beauty Brands and Full Beauty Brands, Shopko, Gymboree and Charlotte Russe.
As discussed in a 2017 Business Insider article, a primary reason for this trend is the overall change in shopping habits of American consumers. Each year, the number of people taking advantage of online e-commerce grows, while fewer shoppers frequent malls and stores. There is also a trend toward expenditures on experiences and technology, as opposed to clothing and other items. Meanwhile, retailers who pursued aggressive expansion plans have found themselves with too many underperforming stores.
According to a USA Today article, competition in the mattress industry ramped up as many companies, including Mattress Firm, have pursued rapid expansion plans. There are also new forms of competition from “bed-in-a-box” style online companies, such as Casper, a mattress “e-tailer” that is expanding rapidly.
Chapter 11 Retail Bankruptcy
A Chapter 11 retail bankruptcy allows a business to reorganize, which means the company has a period of time to pay debt (and negotiate more favorable terms). As opposed to Chapter 7 business liquidation, Chapter 11 allows the principals to retain control and possibly stay in business.
As the bankruptcy creditor for Innovative Mattress Solutions’ Sleep Outfitters, Temper-Sealy’s next move will impact the future of this case. Tempur-Sealy CEO Scott Thompson said the mattress manufacturer “will review strategic alternatives related to IMS during its bankruptcy process, with a focus on what is best for Tempur Sealy consumers in the affected markets.”
For assistance with retail bankruptcy or any type of business bankruptcy filing in Kentucky, please reach out to Tom or Matt at Bunch & Brock today.
