STACEY VANEK SMITH, HOST:
Hi, Dan Bobkoff.
DAN BOBKOFF: Hi, Stacey Vanek Smith.
VANEK SMITH: So we are in New York, Midtown New York. It is a very cold evening. And we are standing in front of a store.
BOBKOFF: We're standing in front of a mattress store. And this is some of the most expensive real estate in New York. This is prime Manhattan real estate.
VANEK SMITH: And we've been sitting here for a while, and no one has come in or out of this mattress store. There's nobody in it.
BOBKOFF: Literally empty.
VANEK SMITH: This is THE INDICATOR FROM PLANET MONEY. I'm Stacey Vanek Smith.
BOBKOFF: And I'm Dan Bobkoff. I'm from the podcast "Household Name." We tell surprising stories about how brands affect our lives. And today, we're talking about a brand that has become ubiquitous lately, Mattress Firm. There's so many of them. And it's actually launched popular conspiracy theories, many wondering, if there's almost no one in these stores, how could they possibly make any money?
VANEK SMITH: I mean, actually it turns out that there are legitimate reasons that there are so many Mattress Firm stores and that the Mattress Firms are sometimes even across the street from each other. But then some of the reasons are maybe not so legitimate.
BOBKOFF: Wait, Stacey, I have breaking news. Someone just brought pizza into the Mattress Firm.
VANEK SMITH: I think he's bringing it to the guy who works there. I don't think he's actually shopping for a mattress. Maybe he's shopping for - no, he's asking for a direction. No, he's asking if he can use...
BOBKOFF: Oh, he's going up the stairs.
VANEK SMITH: I think he's asking if he can use the bathroom.
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BOBKOFF: So Stacey, these conspiracy theories appear to have started on Reddit, as all great conspiracy theories do. And so we went to a Reddit expert.
AMORY SIVERTSON: Hey, I'm Amory Sivertson. And I'm co-host of the podcast "Endless Thread." And we just feature amazing stories on Reddit.
BOBKOFF: So this started as a thread on Reddit. What exactly was this thread?
SIVERTSON: So there was a post in the AskReddit community that asked what conspiracy theory do you 100-percent buy into and why.
BOBKOFF: So this thread is going all these conspiracy theories. Why are people talking about mattresses?
SIVERTSON: OK, because there was one response to that post made by someone who goes by the username Crazy Potatos.
VANEK SMITH: I like them already.
BOBKOFF: That's where I get all my ideas.
SIVERTSON: I know, me too. And they wrote...
VANEK SMITH: Crazy Potatos.
SIVERTSON: ...Mattress Firm is some sort of giant money-laundering scheme. They are effing everywhere and always empty. There's no way there's such a demand for mattresses.
VANEK SMITH: And did you end up being a believer?
SIVERTSON: I'm not not a believer, (laughter) I'd say.
VANEK SMITH: Oh (laughter).
SIVERTSON: I don't know if I would go full-blown conspiracy theory, but there's definitely more to look into with Mattress Firm. There's a reason to be suspicious of their dealings.
BOBKOFF: Well, thank you, Amory.
SIVERTSON: Yeah. Thanks, guys.
BOBKOFF: All right. So first of all, it is true that there are a lot of Mattress Firm stores in the U.S. Five years ago, the chain had 700 stores. Earlier this year, there were 3,300. That's about a third of the 10,000 mattress stores in this country.
VANEK SMITH: Just to put that in perspective, that is almost as many mattress stores as there are Starbucks. There are 14,000 Starbucks, 10,000 mattress stores. And, you know, I would imagine that people buy a lot more coffee than they do mattresses.
BOBKOFF: Right. I mean, how often do you buy coffee, and how often do you buy a mattress?
VANEK SMITH: I don't even know how old my mattress is, if I'm being honest. And I've already gotten three coffees today (laughter).
BOBKOFF: And so this is the big thing. Michael Magnuson runs a website called goodbed.com. It's a guide for mattress buyers. And he says that mattresses are not like other purchases. He calls them a grudge purchase.
VANEK SMITH: A grudge purchase?
MICHAEL MAGNUSON: Meaning you can really screw up your mattress purchase. You have to pay attention to it. But, like, if you get it right, it's not like, oh, my gosh. Like, my social status goes up. Like, I just - you know, all these, like - you don't get, like, that great Instagram moment (laughter) from buying the perfect mattress. (Laughter) Like, people know they can't blow it off. They know they got to spend a lot of money on it, but they don't want to. It's not fun.
BOBKOFF: So most people hate buying mattresses. And on top of that, the stores are empty most of the time, which makes sense if you think about it because most of us only buy a mattress every decade or so, although the industry...
VANEK SMITH: Grudgingly.
BOBKOFF: Exactly. But this explains why, when you walk by, you might just see a whole bunch of salespeople sitting around.
VANEK SMITH: Which would seem to raise the question, how is it possible to make money selling mattresses in all of these thousands of stores?
BOBKOFF: Well, first of all, it depends on what price you sell them for. The markup on the typical mattress is often around 100 percent. So...
VANEK SMITH: I knew it (laughter).
BOBKOFF: It's a very nice, round number.
VANEK SMITH: I knew a mattress could not possibly cost that much.
BOBKOFF: So let's say the mattress costs $1,000. It might cost the store $500.
VANEK SMITH: So in this way, mattress stores are kind of like any other retail establishment, even like a McDonald's. They pay a certain amount for something. They mark it up, and they sell it. And for a mattress store, this could mean making something like a million or maybe a million and a half dollars a year.
BOBKOFF: And so whether it's a McDonald's or a mattress store, Magnuson says they still have to pay the same rent.
MAGNUSON: The thing is, though, they're selling not $1, $5 hamburgers. They're selling 1,000, $2,000 mattresses. And so they get to that million, million and a half dollars with basically 100 mattresses a month, is kind of (laughter) how the math works out. So - and a lot of that is weighted towards weekends. So the typical week is they might be open for 12 hours a day. And those weekdays, they might only sell a couple of mattresses.
BOBKOFF: And there's enough profit in those two mattresses to make money on that day?
MAGNUSON: Just enough. Just enough. The economics aren't actually that great for the store in that situation, but it's enough.
BOBKOFF: Apparently not for Mattress Firm because despite the conspiracy theories, the company filed for bankruptcy protection in October.
VANEK SMITH: Oh, did they have going-out-of-business mattress sales (laughter)?
BOBKOFF: Well, they've emerged from bankruptcy. But they did actually close more than 600 stores in the past few weeks, so there are fewer now than there were when we first started reporting this.
VANEK SMITH: And, you know, Dan, I cannot say that I am surprised to hear this, given just the sheer number of Mattress Firm stores that there are out there.
BOBKOFF: Yeah. And the problems for Mattress Firm really started back in 2014. That's when the company decided it basically wanted to corner the mattress market.
VANEK SMITH: (Laughter).
BOBKOFF: Or at least become the biggest one on the block. And so Mattress Firm as a company wanted to be everywhere. It started buying up many of its competitors, like Sleepy's and Sleep Train and Mattress Giant - great branding going on here. And it did this so fast that the company took on a lot of debt. Its debt load went up six times in just a few years.
And it didn't really care where all these new stores are. So in many cases, they'd end up with stores across the street from each other. So the conspiracy theorists on Reddit were not imagining that something was up. There were too many mattress stores out there. And then another thing happens in 2014. That's the year the online mattress business started to boom, which added a lot of competition.
VANEK SMITH: So OK, Dan, it seems a little bit like we're just talking about an industry that evolved online, kind of coupled with a business not being handled that well. They're not a conspiracy at all? This is making me very sad.
BOBKOFF: Well, Stacey, I do have two little tidbits for you (laughter).
VANEK SMITH: Yes, please. Bring them on.
BOBKOFF: All right. Number one, last year, Mattress Firm alleged that two of its own employees were getting kickbacks for signing up locations that were more expensive than necessary.
VANEK SMITH: There are a lot of Mattress Firms in Manhattan, and that is about as expensive as real estate gets.
BOBKOFF: That's right. And then the executives filed a countersuit saying that Mattress Firm knew about this all along. So this is still pending, but this is something we have our eye on.
VANEK SMITH: So someone was getting money from Mattress Firm having maybe more real estate and more expensive real estate than it needed.
BOBKOFF: Exactly. So here's the other thing. In 2016, a company called Steinhoff - it's this huge retail company from South Africa, almost as big as Ikea. And it bought Mattress Firm right as Mattress Firm was loading up on all this debt buying all those competitors. And the first thing that confounded experts in this space is that Steinhoff paid $3.8 billion for Mattress Firm.
VANEK SMITH: That's a lot of money. That's a lot of money.
BOBKOFF: It was a lot. In fact, it was more than double the market price for Mattress Firm at the time.
VANEK SMITH: They were just going to the mattresses?
BOBKOFF: All the money's in the mattress.
VANEK SMITH: (Laughter).
BOBKOFF: Back then, it seemed like Steinhoff had just made a bad deal, and it overpaid because it wanted to get into the U.S. market really badly. But...
VANEK SMITH: But?
BOBKOFF: Steinhoff, it turns out, has actually been under investigation for years now for alleged financial fraud.
VANEK SMITH: There is a conspiracy.
BOBKOFF: We don't know if it's money laundering. There isn't any evidence of that yet. But it does appear that the company hid a lot of debt from its balance sheet.
VANEK SMITH: Under the mattress, so to speak.
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VANEK SMITH: We reached out to Mattress Firm for comment. And the company responded saying that it had been shocked to learn about the alleged misconduct at the Steinhoff organization. It added, quote, "I can tell you with certainty that Mattress Firm is not a money-laundering front. We are, however, obsessed with finding customers the best bed at the best value."
THE INDICATOR is produced by Darius Rafieyan, edited by Paddy Hirsch and is a production of NPR.
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