The parent company of Mattress Warehouse, Sleep Outfitter, and Mattress King has become the second bedding retailer to file bankruptcy in the past three months, citing an ill-timed expansion effort.
Lexington, Ky.-based Innovative Mattress Solutions, which filed for Chapter 11 bankruptcy protection on Friday, operates 142 stores, the majority of which are in Kentucky and Ohio.
iMS’ supplier and largest unsecured creditor, Tempur-Sealy International, has agreed to provide up to $14 million in financing during the bankruptcy process.
The Chapter 11 filing came only three years after iMS had its most profitable year, with approximately $146 million in gross sales and EBITDA of more than $8 million. In 2018, the company reported negative EBITDA.
“At this point … debtors have determined that a Chapter 11 going concern process will produce the best outcome for the benefit of all creditors and equity holders,” founder and CEO Kimberly Knopf said in court papers.
iMS currently owes Tempur-Sealy $21 million for unpaid inventory.
“We believe iMS’ overextended retail footprint and thin capital structure were not designed to effectively respond to the competitive pressures of the recent retail environment,” Tempur-Sealy CEO Scott Thompson said in a news release. “This caused the unexpected need for bankruptcy protection.”
Knopf opened her first mattress store in West Virginia in 1983 and formed iMS in 2002. According to her court declaration, an expansion push that began in 2016 led to increased occupancy and personnel costs and “was poorly timed in relation to several other events in the overall market.”
“The national mattress market has suffered along with the general brick-and-mortar retail market,” she said in court papers.
Knopf also attributed iMS’ problems to rival Mattress Firm, which itself filed bankruptcy in October 2018 due in part to overexpansion.
“The highly aggressive promotional strategy employed by Mattress Firm … further challenged the business through heavy discounting, product liquidations and free product give-a-ways,” while its expansion into iMS’ core markets resulted in lost sales, Knopf said.