By David Gill
LOS ANGELES–Having filed for Chapter 11 bankruptcy protection, Southern California retailer Mattress Gallery now faces a tough road toward financial health.
The company submitted a plan of reorganization Nov. 2 to U.S. Bankruptcy Court in Delaware, which includes a debtor-in-possession financing arrangement to allow it to continue operating. However, the retailer then had its franchise arrangement with 1800mattress.com terminated the following week. The latter firm also said it would service the customers normally handled by Mattress Gallery through other bedding retailers in the area, and that it had begun discussions with other retailers about possible franchise relationships in those markets.
In September, Mattress Gallery had agreed to be acquired by Mattress Firm, the Houston-based specialty mattress retailer. But Mattress Firm withdrew from the deal last month, stating, in the words of Chief Executive Officer Gary Fazio, that "the timing was not quite right" for the acquisition.
Mattress Gallery has 53 locations, all in Southern California. Its difficulties are another indication of the tough economic environment in the mattress industry—indeed, for all consumer products—according to industry analyst Steve Colbert with Canaccord Adams.
"What has been a bad year for the bedding industry turned worse after Labor Day," Colbert said. "The housing slump accelerated and gasoline prices rose again. As far as real estate goes, if you have a big Southern California exposure you're at risk. That area had a big runup in real-estate prices during the bubble of the past few years. Now they're feeling the downturn harder than the rest of the country."
Southern California is also feeling a major crunch from prices at the pump. According to data from the U.S. Energy Information Administration, average prices for regular unleaded in that area were nearly $3.20 in the first week of November, about 18 cents higher than the national average and more than 80 cents higher than average prices for the region one year earlier.
"We have to remember that the lion's share of mattress purchases are replacement," Colbert said. "When you're paying that much more for gas, it's easier for you to put off that mattress purchase and stick with your old bed."
In a Mattress Gallery statement, Jim Ristas, the company's CEO, said it intends to continue normal business operations and its relationships with its principal vendors throughout and after the completion of the bankruptcy process. Ristas said he "looked forward to emerging from bankruptcy and operating Mattress Gallery in a new corporate structure, with the additional resources of a strong operating partner, going forward." The statement did not provide information on who that "operating partner" might be, and calls to Mattress Gallery by HFN were not returned.