- Mattress Firm is frequently criticized as having too many stores in the United States. But there may be more to that story than meets the eye.
- In October, Mattress Firm filed a lawsuit against two former employees, a broker, and a group of developers, accusing them of conspiring to push the company to aggressively expand.
- Mattress Firm alleges that the two former employees received kickbacks and bribes in exchange for business to "financially enrich" themselves at the company's expense.
- All defendants have denied the allegations. The broker named in the suit, Alexander Deitch, filed a countersuit against Mattress Firm this year, arguing that it was the company's aggressive store expansion and desire to remove all competition from the market that led it to open these stores.
- To hear the full story, listen to Business Insider's new podcast, "Household Name."
In January, a Reddit thread accusing Mattress Firm of being a money-laundering operation went viral, sending the internet into a frenzy as people posted screenshots from Google Maps showing the heavy concentration of stores in their area.
With about 3,400 stores, Mattress Firm is by far the largest specialty mattress retailer in the United States. And it's not uncommon to find many of its stores right across the road from each other. Redditors argued that this was far too many, given that Mattress Firm sells a product typically bought every seven to 10 years.
"I remember seeing 4 mattress firms all on each corner of an intersection once, and there is no way there is such a demand for mattresses," one Reddit user wrote.
At the time, Mattress Firm denied any wrongdoing.
"The idea that the proximity of Mattress Firm store locations is related to money laundering or any illegal activity is absolutely false," Ken Murphy, the company's former CEO, told Business Insider in a statement in January. "Our convenient locations in highly trafficked areas keep us top of mind when it's time to buy a mattress."
While these money-laundering allegations may well be unfounded, there is an unexpected twist to the story.
Big expansion plans
In October, Mattress Firm filed a lawsuit against two former in-house real-estate executives, an external broker, and a group of developers, accusing them of conspiring to make Mattress Firm aggressively expand, open stores in expensive locations, and sign leases above market rates.
Mattress Firm alleges in the lawsuit that the two former employees were receiving kickbacks and bribes from the broker and developers in exchange for business to "financially enrich" themselves at the company's expense. It described the arrangement as a "nationwide bribery, kickback, and fraud scheme."
The two former executives, Bruce Levy and Ryan Vinson, were hired by Mattress Firm in 2009 and 2010, respectively, to run the company's store-growth strategy.
The lawsuit says Levy and Vinson encouraged Mattress Firm to hire Alexander Deitch, a broker at Colliers International Atlanta, to become its master broker and be responsible for identifying, evaluating, and brokering new site locations.
They were responsible for recommending which stores to open, which leases to sign, what the terms of those leases should be, which construction budgets to approve, which store leases to renew, and which stores to close, the court filings say. About 1,500 stores were opened during this time, and hundreds more had their leases renewed.
A representative for Colliers declined to comment to Business Insider.
The lawsuit alleges that Deitch gave bribes such as expensive watches, cash, and trips around the world to Levy and Vinson to maintain his relationship as their broker. It says Levy allowed Deitch to profit from the expansion by secretly owning stores leased to Mattress Firm, charging developers "phony" fees that drove up rental prices.
Developers were also in on the scheme, Mattress Firm says. It alleges that those who provided kickbacks and bribes such as private-jet and chartered-yacht trips, as well as stays in expensive hotels, were given long lease terms and received market rents.
Levy and Vinson were fired by Mattress Firm in 2016, the lawsuit says.
Allegations that 'Mattress Firm weaponized its real estate department to crush opponents'
All the defendants have denied the allegations, and Deitch filed a countersuit in March.
Deitch's countersuit alleges that Mattress Firm's management team, including Murphy and its current CEO, Steve Stagner, not only knew about these deals but encouraged them. The suit claims that this was all part of the company's plan to dominate the market and wipe out all competition, and that Mattress Firm's strategy was to have one store per 80,000 people to garner 40% of the market.
The countersuit alleges that "Mattress Firm weaponized its real estate department to crush opponents" and that its "aggressive roll-up was reckless, resulting in massive clustering of stores."
Moreover, Deitch alleges that bribery and gift-giving were part of the company's culture.
"From the top down, it was engrained in Mattress Firm culture that its executives and employees could (and should) receive gifts and trips," the court filing says.
Deitch's suit also points to the practices of Mattress Firm's parent company, Steinhoff, a South African retail conglomerate that bought Mattress Firm at a premium for $3.8 billion in 2016.
Toward the end of last year, Steinhoff's stock price tanked by as much as 62% in one day, wiping out $15 billion of its market value after it postponed publishing its full-year accounts, citing "accounting irregularities." Two top executives and its chairman have resigned, and it is the focus of multiple investigations.
"The collapse of Steinhoff's value put tremendous pressure on Mattress Firm to seek other avenues than productivity to shore-up its revenues," the countersuit says.
Steinhoff would not comment on its relationship to Mattress Firm or why it bought the company at a premium.
"As a result of the ongoing investigation, the group has taken a decision not to comment on any past transactions or relationships until we have the results of the forensic investigation," a representative for the company said in a statement emailed to Business Insider.
To hear more about the conspiracy theories about Mattress Firm's stores, listen to "Household Name," a new podcast from Business Insider. Subscribe for free on Apple Podcasts, Stitcher, or your favorite podcast app.
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