March 25, 2009, 12:00 AM files for Chapter 11, plans sale

Direct bedding retailer has announced it will be acquired by Sleepy’s, a New York bed retailer. 1800Mattress filed for Chapter 11 bankruptcy protection Tuesday to fend off a creditors’ petition to liquidate the company to pay its debts.

Direct bedding retailer filed for Chapter 11 bankruptcy protection Tuesday in an attempt to fend off a move by creditors to have the company liquidated to pay its debts. 1800Mattress plans to be acquired by East Coast bed retailer Sleepy’s Inc., pending court approval.

Bed maker Sealy Inc. led a group of creditors claiming 1800Mattress owes them about $1.65 million, according to a Chapter 7 liquidation petition filed in the U.S Bankruptcy Court of Eastern New York. Sealy’s portion is $1.16 million.

The Chapter 11 filing capped a tumultuous two weeks that saw 1800Mattress announce its intent to sell the company to an investor group led by Ken Mazda, a bed retailing veteran and vice president of business development at 1800Mattress. That announcement apparently triggered the creditors group’s Chapter 7 petition, which in turn prompted 1800Mattress to file for bankruptcy. Negotiations with other parties ended last week, says 1800Mattress, No. 266 in the Internet Retailer Top 500 Guide.

Any sale will include an open bidding process and requires the bankruptcy court’s approval. 1800mattress has asked to court to convert the Chapter 7 involuntary bankruptcy petition to Chapter 11 status.

1800Mattress says Sleepy’s will provide financing that, “together with the company’s existing cash flow, will enable 1800mattress to fulfill obligations associated with operating its business, including payments to suppliers and other business partners for goods delivered and services provided after the start of the Chapter 11 process.”

The sagging housing industry cut into sales in 2008. As a result, 1800Mattress laid off about one-third of its 320 employees, scaled back advertising and closed 15 stores.

1800Mattress had been exploring options for several months, the company says. “There are tremendous business synergies we can leverage by affiliating with Sleepy’s,” says 1800Mattress chairman and CEO Napoleon Barragan. “This combination offers us the opportunity to realign our capital structure and to pursue our historic strengths in phone and Internet sales. Our call center, Internet, chat and retail stores remain open and it is business as usual for our company. We have the right assortment and depth of inventory to satisfy our customers’ needs and no one should see any disruption of service during this process.”

Sleepy’s has about 700 retail stores in 11 states, but does not sell online. In early 2008 1800Mattress had about 450 corporate, franchise and independent retail affiliate stores.

1800Mattress’ franchisees in several East Coast states are separate companies and are not included in the bankruptcy filing.

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