We go on a mission to find out why there are so many Mattress Firm stores. How do they end up next door and across the street from each other? Are the mattresses full of money? Reddit users started a conspiracy theory, so we teamed up with WBUR and Reddit's Endless Thread podcast to put these questions to bed.
Produced by Sarah Wyman with Dan Bobkoff, Anna Mazarakis, Amy Pedulla, and Clare Rawlinson, and by Endless Thread's Ben Brock Johnson, Amory Sivertson, and Josh Swartz.
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Transcript
Note: This transcript may contain errors.
DAN BOBKOFF: Turns out people get really excited about mattress conspiracies so this episode contains a little foul language.
DB: Amory.
AMORY SIVERTSON: Dan.
DB: You host a show about Reddit called Endless Thread.
AS: You host a show about brands and culture called Household Name.
DB: And we found a story that touches all those things.
AS: Our story starts — of course — with a Reddit thread. The question being discussed? "What conspiracy theory do you 100% buy into and why?"
DB: There are a bunch of different unfounded conspiracies posted to this thread… like Bill and Hillary Clinton have an open marriage.
AS: Something about Walmart sharing security cameras with the government.
DB: Adam Sandler makes movies as an excuse to go on vacations with friends.
AS: That one's probably true.
DB: But where the thread really gets going. Where it really gets heated. Is when it gets to this comment.
REDDIT READER: Mattress firm is some sort of giant money laundering scheme.
AS: This is from a Redditor who goes by the username CrazyPotatos. It's read here by one of our colleagues.
REDDIT READER: They are fucking everywhere and always empty. I remember seeing 4 Mattress Firms all on each corner of an intersection once, there is no way there is such a demand for mattresses.
AS: This thread has thousands of replies. And people get into it.
DB: Doing back of the envelope math about mattress pricing.
AS: Posting maps of the Mattress Firms in their hometowns. Crazy...
DB: And it's like everyone on this thread is suddenly pitching in, trying to make sense of the years and years' worth of weird experiences they've had while mattress shopping. And the more research they do, the more suspicious they say things start to look.
CAMRON THORPE: The first 5 were within walking distance of each other, and then the last one was a little bit away down the road.
AS: This is one of the Redditors on that thread: username: CrooxicHD.
CT: Hello, I'm Camron Thorpe, I live in a little rural town south of Chicago.
AS: Camron is a junior in high school, and he says he didn't buy into the conspiracy theory at first. But then, one day he and a couple of friends are in nearby Highland, Indiana. And they see one Mattress Firm... then another just down the road…
CT: Like, as soon as the third one came around I'm like, 'Look at that! There's another one!' And then we saw the fourth one, and I'm like, I'm kind of yelling at them. I'm like, 'There's something happening here. Like, what is all this?' And like they kind of join in on the hype, and we're just kind of like freaking out in the car. And we start thinking if maybe, if there's something actually to this conspiracy theory.
So, a couple days later, we went back to Highland and we started at the first Mattress Firm, and we went on a bar crawl of sorts to all of the 5 Mattress Firms within walking distance. And every single store went into, there is no one in it.
DB: By now it's a full-fledged teenage investigation.
CT: Yeah so it was a little suspicious to the people working there, like three 16-year-old kids looking to buy a mattress. But we were just asking questions, like 'how much does a mattress cost?' Because I wanted to get some information about like how these people could possibly stay open.
AS: Huh, and what did you learn?
CT: I learned that mattresses are decently expensive and that not enough people buy them to keep those stores open. There's like no way they could sell enough mattresses to keep all five stores within proximity of each other open.
AS: It's not just Camron and his friends and a bunch of people on Reddit who are interested in this question.
DB: Business Insider wrote about this conspiracy theory, and the story went nuts. Like 800,000 clicks.
AS: Then a YouTuber named Shane Dawson started theorizing to his seventeen million subscribers.
SHANE DAWSON: Think about it this way -- you only buy mattresses once every 7-10 years. So why are there more mattress stores on one street than there are grocery stores or Starbucks...
DB: Then other YouTubers….
I NEED A MATTRESS: There's another Mattress Firm...I need a mattress, there's a stooooore. I need a mattress...there's another store! It's a good day to buy a mattress...
AS: And then, it was our turn.
AS: We're at about 194 Alewife Brook Parkway, and we're going to attempt to talk to someone in the Mattress Firm.
DB: From Business Insider, Stitcher...
AS: And OUR show about Reddit… Endless Thread!
DB: This is Household Name. I'm Dan Bobkoff.
AS: I'm Amory Sivertson.
DB: And today… what. Is. Up. With Mattress Firm?
AS: It's totally a money laundering front.
DB: Our lawyer says you can't say that.
AS: FIIIIINE. Ok, it probably isn't a money laundering front. But we're here to find the truth as best we can.
DB: We're joining forces to find what's really going on with three Mattress Firm theories the internet is obsessed with.
AS: Number one: overmattressification. A technical term for what's with all those stores?
DB: Number two: the sleaze factor. From the vibe of the stores themselves to the prices you pay, something just feels off about Mattress Firm.
AS: And number three: the parent trap. Mattress Firm's new owner might be our best shot at finding evidence of financial fraud. All that crazy stuff—
DB: Allegedly!
AS: Allegedly crazy stuff, coming up.
DB: Stay with us.
ACT I
AS: OK, so theory number 1 -- and my new favorite made-up word -- overmattressificiation.
DB: Or, why are there so many Mattress Firms?
AS: So Dan. Once you started talking about this a few months ago, I started seeing Mattress Firms everywhere.
BBJ: These mattress firms are so close that you could get confused. You could like forget where you parked your car and end up at the other Mattress Firm...
AS: This is my cohost and the senior producer of Endless Thread, Ben Brock Johnson. I needed answers about all these Mattress Firms, so I dragged Ben along to an intersection in Cambridge, Massachusetts where there are two of them… right across the street from each other.
BBJ: So the Mattress Firm we're about to go into is in between a TJ Maxx and HomeGoods and an Xfinity store. And also I see a McDonald's down there.
AS: Yeah, so let's just go in and see if someone will talk to us.
BBJ: Are you gonna pretend like we're buying a mattress?
AS: I mean, we can... I think the microphones might give us away a little bit.
AS: So we waited until the salesguy looked a litttttle distracted, and went in.
AS: I've never been in a Mattress Firm, have you?
B: No...
AS: The salesguy wouldn't answer anything on the record. Which… I wasn't totally surprised. But it definitely made me more curious. We've been reporting this story for a couple of months, and we haven't been able to get a single Mattress Firm employee to talk to us on the record. Even people who used to work there have been skittish. And it just makes you wonder, you know, if there's nothing fishy going on here, why is it so hard to get an explanation? Even one given anonymously. There has to be a reason why there are so many Mattress Firms.
SETH BASHAM: There are plenty of conspiracy theories particularly surrounding Mattress Firm. I think generally speaking, it's a fair and honest retail business.
DB: Alright Amory, before you get too carried away, I found an actual, reasonable explanation from a guy named Seth Basham. He's an analyst at an investment firm called Wedbush, where he spends a lot of time talking to people in the mattress industry.
SB: So their stated premise strategy is called relative market share...
DB: And he's starting to explain something important here: all those Mattress Firms you've been seeing everywhere? They're all part of a totally legit business strategy.
AS: I'm listening...
SB: They've been growing through acquisition for close to 10 years, rolling up a lot of regional chains in the process.
DB: It's really a pretty basic plan. Mattress Firm is trying to make sure it's your #1 choice when you're buying a mattress… by being your only choice. So, for years, they aggressively bought up anything they could. Sometimes that meant buying the competitor across the street.
AS: So that's how they ended up owning all those other mattress chains.
DB: Well, not all of them. But a lot of them. They've bought Sleep Train, Mattress Barn, Mattress Pro, Sleepy's. And every time they buy one of these stores, instead of shutting it down, they just paint over the Sleepy's sign or whatever it says and slap on a Mattress Firm logo, swap out the inventory, and voila. They've got locations everywhere. You leave your house looking for a mattress, and odds are you'll run into a Mattress Firm just around the corner.
AS: Or four. But… does this actually make any sense as a business strategy? Like, are they making any money from this? Or are they just blowing it all on all these mattress stores?
DB: Yes and no. Look, for a long time this actually worked as a really great advertising strategy. You can think of all these stores in shopping centers and next to off-ramps as kind of like billboards with doors—they amped up brand awareness and just funneled more buyers into stores. Like, even now, everybody knows Mattress Firm because Mattress Firm is everywhere.
AS: But it's gotta cost a lot of money to keep all those stores open, right?
DB: Not as much as you'd think. We'll talk more about this later, but for now all you need to know is you can make a lot of money selling not that many mattresses. And you don't have to pay a lot of people to do it. Here's Seth Basham again.
SB: You don't have to sell too many $4,000 mattresses each week to keep the lights on and pay the staff in the store, and pay a little bit for the advertising and the distribution. So they make money by selling a handful of units per day. And to do that, it only requires oftentimes one or two employees in the store.
DB: After Mattress Firm bought Sleepy's in 2015, it had 3,200 locations across the country. Mattress Firm then controlled over 25 percent of mattress sales. For a moment it seemed like mattress bliss.
AS: So what happened?
DB: Turns out they got in a little over their heads.
SB: Their results have been what might, I might call an unmitigated disaster since they acquired Sleepy's.
AS: They overdid it.
DB: They overdid it. So there's nothing conspiratorial with the number of Mattress Firm stores out there.
AS: Unless...
MARY HANBURY: Well there's a lawsuit that was filed by Mattress Firm last October and they're suing two of their real estate executives that were also fired from the company.
DB: Mary Hanbury says THIS is where we should be looking. She's one of Business Insider's retail reporters.
AS: Ok, this sounds promising...
DB: It all started last October, when Mattress Firm sued the two guys who ran their real estate department.
AS: Their own real estate department? Like, these people worked for Mattress Firm?
DB: Yeah. And they're being accused of defrauding the company out of millions of dollars.
AS: How?
DB: So Mattress Firm was opening up a lot of locations really quickly. That was good for real estate developers and brokers. But according to the suit, it might not have been good for Mattress Firm. Because those two employees they're suing may have been in on a scheme to cash in on some of those real estate deals.
AS: Ah, I'm smelling a subplot of corruption and scandal!
DB: This time, Amory, I think you're onto something. Mattress Firm is claiming that the two real estate executives who worked for them were in cahoots with someone outside the company… a real estate broker for the company Colliers International.
MH: And so they're saying this guy then was kind of giving them bribes to make sure that he stayed the broker, because he knew, like, that they were going to be opening a lot of stores, they had this strategy...
AS: ...and he wanted to be on the receiving end of that paycheck.
DB: You'd think, but it's actually not that simple... Mattress Firm is also accusing another party of being in on this.
MH: It kind of then comes to developers, who then found out, ok well these guys are in charge of where Mattress Firms are going to be opening, we want to be on side with them, too, so then they started… allegedly were giving, bribing them and giving them gifts...
DB: ...and besides being, you know, against the law… that kind of activity would mean Mattress Firm is out millions of dollars.
AS: Right. Because if, in this scenario, you're the real estate broker or developer that's bribing Mattress Firm, you would at least want to get your money's worth.
DB: Yeah, Mattress Firm's suit claims they were steered towards locations where they had to pay more in rent or were forced to sign onto longer leases as a result of this.
MH: They said that it impacted about 800 stores.
DB: That's a lot of stores.
MH: Exactly, and Mattress Firm haven't named the amount that they want for this, but some reporters have said that it could be up to like $40 million - it could have cost them $40 million.
AS: So, I gotta say, this is sounding more and more like a bona-fide conspiracy, Dan…
DB: Oh, we're just getting started…
MH: So then it seems like Mattress Firm is the victim here, but then these real estate executives filed a counter suit against Mattress Firm, saying that Mattress Firm was aware of all these deals.
AS: How the tables have turned!
DB: Yeah. So, if in fact Mattress Firm's leadership was aware of all this, all that they're suing these brokers and developers over, then they could have a bigger problem on their hands. BUT—and this is important—it's hard for us on the outside to really know what's going on. So far, it's just a couple of lawsuits going back and forth.
And, if you believe Mattress Firm's version of events, this is really bad news for the conspiracy theory in general.
MH: Well unfortunately this probably would kill the idea of a conspiracy because it's, you know, it's saying that actually it's not Mattress Firm's fault or perhaps it is Mattress Firm's fault, but it's actually that they were being pushed into all these store openings and aggressive expansion by their very own team.
AS: But what if the countersuit is right? Like if Mattress Firm knew their real estate executives were getting kickbacks from the brokers and developers, isn't it kind of weird that they would allow them to just keep making terrible real estate decisions?
DB: Yeah, that would be weird. And because no one's talking publicly about it yet, we don't have any explanations. We don't know for sure if there's any validity to either lawsuit at this point. But one detail here is pretty interesting no matter how you slice it. Mattress Firm, not the real estate brokers they're suing, brought this to court.
MH: I mean maybe it's like a desperate attempt from them. You know now, we're just finding out that they may be filing for bankruptcy, so is this them realizing, 'oh my gosh we've run this wildly optimistic store expansion plan, who can we blame for it? We've made some bad business decisions and we've now ended up with a fleet of 3,400 stores, which, you know, maybe it wasn't a great idea, like who can we blame for this?'
AS: Okay, so overmattressification. Why are there so many mattress stores? Where have we landed, Dan?
DB: Here's what we know: Mattress Firm expanded really fast. It opened stores and bought up tons of competitors so quickly that it didn't have time to think about a location strategy. Sometimes they just left stores across the street from each other.
AS: It may be that someone on the inside was nefariously steering the company to expensive locations it didn't need.
DB: But we have no evidence these stores are doing anything other than selling mattresses.
AS: Alright then. What's next?
DB: The sleaze factor.
AS: Oooooh that's right. OK, we've got some sleaze coming up for ya, after the break.
ACT II
DB: We're back.
AS: Dan, I have a confession. I've never bought a mattress.
DB: You've never bought a mattress!?
AS: No! I just get hand-me-downs. And frankly, I don't want to ever buy a mattress. The idea of a salesperson trying to upsell me while I'm reclining on a mattress in the store… the experience just seems….not fun.
DB: You don't actually have to do the deal while you're on the mattress… but…
AS: Oh (laughs), that's not part of it? Ok.
DB: But this is one reason why there are so many of these new online, or "direct-to-consumer" mattress companies now. Where you just order your mattress and it shows up in a box at your door.
AS: Lots of those companies sponsor podcasts….
DB: Yeah, including ours from time to time.
AS: The bottom line is, though, buying mattresses in stores… and mattress salespeople… have an iffy reputation.
DB: Which brings us to theory number two: the sleaze factor.
AS: Lots of Redditors described getting a weird vibe from Mattress Firm. One person wrote… and we're having one of our coworkers read the comment here...
REDDIT READER: I stopped into a Mattress Firm a while back and I got impression the salesman just googled "sales tactics" before I walked in because he tried every dumb idea in the book. The "markdown from an inflated price" trick, the time based discount trick, 'This is the last one we have and the next generation won't have this price.' Dude I already know what I want and the price I want to pay for it I just want to look around. He tried talking me into a mattress 1000 dollars over my budget by offering me a deal if I buy today for 500 dollars over budget. As I was leaving he actually said to me. 'Statistics show that if you walk out that door today you won't be back.' Ummm probably not dude... you're right about that one.
AS: Another user, who says they work across the street from a Mattress Firm, pointed out that something else feels kind of eerie. These stores always look totally empty.
REDDIT READER: We never see anyone in there, no matter the time of day or day of the week. The only time I ever see anyone exit the building or enter, is the guy taking his smoke breaks. Either it's a front for something or the world's most boring job.
AS: So, whether there's something going on "undercover" at Mattress Firm or not… something about about these stores just feels off to a lot of people.
DB: Was that a pun, Amory?
AS: … yes … I've got to get 'em in somewhere, Dan!
DB: (laughs) We wanted to hear more about what Mattress Firm is actually like from somebody on the inside.
AS: Turns out, that's easier said than done. After our first failed Mattress Firm scouting attempt... my cohost Ben and I headed across the street to try our luck at another Mattress Firm...
AS: So we just came from 194 Alewife Brook Parkway, we've crossed the street. This is 229 Alewife Brook Parkway. And here's Mattress Firm number 2...
AS: The salesguy in this Mattress Firm... knew we were coming! His colleague across the street had called to give him a heads up about us. And he...didn't want to talk either.
BBJ: The plot thickens!
AS: I like how I was like, that guy's not gonna call over!
BBJ: I know, I said that too!
AS: Mattress Firm guy across Mattress Firm guy over here!
AS: We should also say that Mattress Firm corporate hasn't responded to our requests for comment either.
DB: By the way, did you know they call their main office the "bedquarters"?
AS: Oh no… I actually really like that...Ok, no word from the Bedquarters, but Ben and I were on the case. And we happened upon the sasquatch of mattress shopping:
AS: We have a real live customer in there...which you don't usually see in a Mattress Firm...
AS: Turns out, this guy was stopping by the Mattress Firm to pick up a waterproof mattress pad protector. And—get this—he was the only customer we saw go in or out of either Mattress Firm in the half an hour or so that we were there. Soooo… this very anecdotal evidence supports an idea we heard a lot about on the Reddit thread… if you're a Mattress Firm employee, you're probably not getting a lot of visitors.
Another Redditor said they managed a mattress store for 5 years. They wrote:
REDDIT READER: One December, I went three weeks without a single person walking into my building. The reason the stores are profitable is the insane markup on the merchandise, a mattress set that cost the company $200 would retail for $2000.
DB: That's actually not that weird from a business perspective.
AS: Really?
DB: Like, you know, you buy things in stores—groceries, clothes, gadgets—all those things get marked up. So a store selling a t-shirt that cost $5 to make might actually charge you $10 so they make a little profit. Or, if they're a fancy clothes brand, maybe it's $25.
AS: Seems normal enough.
DB: Well, it works the same way for mattresses… I talked to Michael Magnuson about this. He runs a website called GoodBed.com, which is like a guide for mattress buyers.
MICHAEL MAGNUSON: They buy a product for, let's say $500, and on average they sell that product for $1,000.
AS: Ok, but it seems like there's a big difference between spending 20 extra dollars on a shirt and a thousand dollars on a mattress, no?
DB: Yeah, Magnuson says it's not actually that different. But there are three reasons why customers like you get all upset about mattress prices when they don't care about markups on other products.
So number one is you might not know that margins exist for other products, because mattresses are famous this.
Number two, you're much less likely to notice or even care about a price margin on a product that isn't that expensive.
MM: So the absolute dollars of the margin seem lower, or less of a focus.
DB: And number 3, you're gonna like, Amory. Magnuson calls mattresses a grudge purchase. Because no one gets excited about blowing a couple grand on a mattress.
MM: 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, I just... all these...' you don't get like that great instagram moment (laughs) from buying the perfect mattress, so it's kind of a grudge purchase. People know they can't blow it off, they know they gotta spend a lot of money on it, but they don't want to. It's not fun.
DB: You don't invite your friends over and say 'hey, check out my mattress!' It's a little weird.
MM: I think it would be... I think that might come off as a little weird, yeah (laughs). So as a result, you know, you're focused on every dollar. With grudge purchases, you're focused on every dollar. It's sort of like insurance. You're like really focused on 'how much money is the company selling this to me making because I don't like to spend any dollar on this.'
AS: So how much *is* Mattress Firm making off of us?
DB: Weeeellll… it varies. And it varies because salespeople want to talk you into spending as much of your money on mattresses as humanly possible. And they work on commission. So, the higher the selling price, the more they get paid.
And that translates into some business practices that don't feel that great when you're in the mattress store. Like, that thing you might have heard about how you're supposed to replace your mattress every 5-7 years?
MM: They used to say at least ten years. Then when I got into this, they started saying 8-10. Now the whole messaging from the industry is 5-7, so they've like (laughs), as an industry, they've kind of gotten together and said, 'you know, really you should be replacing more and more often...'
AS: Oh man, what's next? Every 3 years? Every year???
DB: Yeah and then, there are the devious sales tactics…
MM: Let's take an example of one of these practices. Discounting...
AS: Yeah, it seems like every Mattress Firm store you pass, their windows are smattered with sale signs.
DB: Yep! And that's intentional. Let's say you one day decide to buy a mattress, Amory.
AS: And I somehow work up the courage to do it at an actual mattress store.
DB: Yes. So a salesperson might take a mattress they want to sell for $2,000 and say it was originally priced at $4,000, just to make you feel a little better...
MM: So you walk in any day of the week and we're showing you 50% savings, right? Of course, on holidays we're gonna mark it down even further, so that's when it starts to look like 'Oh my god! this is 70% off!'
AS: Yeah, spending $2,000 on a mattress does feel a little bit better if I convince myself that I'm saving $2,000 at the same time… oh no, Dan... it's working! So what's stopping them from just doing that all the time?
DB: Nothing. Nothing at all. Let's say you visit two stores on your mattress quest to do some price comparison.
AS: Yeah, you know, I'm a good informed shopper!
DB: So one of the stores you go to is a "good" store, and the other one is a "bad" store. In the bad store, they're marking up mattress prices before slapping "sale" labels on them. And in the good store, they're selling mattress at the regular retail price.
MM: The average consumer now walks in, and so more times than not, they look at those two products in those two stores, and they go 'I'll take my chances on the one that's 50% off. I'll go with that one.'
DB: So the bad store sells you your mattress, and it presumably makes lots of other sales too, so the good store ends up going out of business. Even though ultimately they were selling that mattress at the same price!
MM: And that's how the bad actors have really like set the mark for the industry set the standards.
AS: Sad.
DB: Look, my point is, all this stuff may feel shady, but that doesn't mean there's a conspiracy. Lots of salespeople do this, not just people who work at mattress stores. I mean, ever bought a car?
And… I get it. If you know the salesperson you're talking to is inflating the sticker price just to make you feel like you're getting a deal, it's not hard to convince yourself they may be up to more shenanigans.
AS: So for theory number two — for the sleaze factor — here's where we are. We've learned that mattresses are expensive because they have big profit margins, and that salespeople are incentivized to sell them for as much as possible. That combined with the fact that most consumers don't looooove spending their hard-earned dollars on mattresses in the first place makes the whole process just feel kind of gross.
DB: But a grudge purchase isn't the same thing as money laundering. Nothing here looks like money laundering.
AS: Oh but Dan, we've arrived at the most intriguing comment in this Mattress Firm conspiracy thread. MechatronicsManTZ writes:
REDDIT READER: Surprise! Mattress Firm is owned by Steinhoff, which is currently embroiled in a money laundering saga.
AS: (GASP) Is it true?? Say it ain't so! Is it so????
DB: We'll find out… after the break.
ACT III
AS: We're back.
DB: And we've arrived at the big one.
AS: … the California King of conspiracy theories.
DB: Number 3: the parent trap.
ARCHIVAL: It's been a tumultuous week for Steinhoff international. These are the quiet offices of the global furniture retailer in Weinburg, Johannesburg. You would never think these offices are connected to what's turning into a global scandal...
AS: Up until this point, the Reddit comments we've looked at have validated lots of the weird experiences we've all had at Mattress Firm.
DB: Like how there are so many stores, how there are no people in those stores, and how weird the salespeople seem… it all feels strange.
AS: But here, for the first time, we're about to hit a conspiracy theory with some meat on it.
DB: And the people who believe this one happen to be police, regulators and investigators from different countries.
AS: They're all targeting the company that now owns Mattress Firm—a company called Steinhoff International. It's the second-biggest furniture retail company in the world, second only to IKEA.
ARCHIVAL: Just a week ago, Steinhoff was challenging world furniture giants IKEA for dominance. Now, it has all gone to dust.
DB: The short version of the story is that Steinhoff is the subject of a massive criminal investigation. Which -- we should be clear -- is not a money laundering investigation as that Redditor, MechatronicsManTZ, suggested.
AS: But the long version of the Steinhoff story… is so much more interesting!
JAMES-BRENT STYNE: Well, it's been a spectacular collapse. It's literally been the biggest crash in South African corporate history.
DB: I called up Business Insider's South Africa office and they connected me to James-Brent Styne. He's written a whole book about Steinhoff's dealings in South Africa, which is where the company is based.
AS: They've been there since 1996, when the company's founder, Bruno Steinhoff, moved there from West Germany.
DB: But the guy we really care about—the name you want to remember—is Markus Jooste. He...used to be...Steinhoff's CEO.
AS: Ooooh… I see what you did there. (laughs)
JS: Mr. Jooste was quite, considered as well, quite an arrogant guy. Very short chap, by the way, in South Africa, we like to call it kortmann ige syndrom (laughs), it means... it's like a jack russell, you're short but you think you're the biggest dog in the kennel.
DB: And he was not shy about throwing his weight around. Until everything went haywire—and don't worry, we're getting there—Steinhoff was one of the biggest companies on the Johannesburg Stock Exchange. They employed 50,000 people in South Africa.
AS: And it almost goes without saying, guys like Jooste were making a lot of cash.
JS: These guys, they all live in one little town called Stellenbosch, they live on these super luxurious wine estates where they make wine and they drive Bugattis and they drive Maybachs and there are just stories of affairs and big yachts and all sorts of stuff. They're just... I mean, they are the elite in the country.
DB: And no one in South Africa blinked an eye.
AS: Until December 5th, 2017. When —totally out of the blue— Markus Jooste resigned.
DB: Turns out, Steinhoff may have been hiding a lot of financial irregularities. . Regulators and investigators are accusing the company of years of financial fraud. Stuff like hiding debt from its balance sheets.
JS: (laughs) This company has got away with quite a lot in terms of… I don't think that a lot of attention was paid to what Steinhoff was up to. Not in South Africa, in any case.
AS: Until the day Jooste resigned. And that… triggered the biggest collapse in South Africa's corporate history.
NEWS: Questions have been asked about why its auditors didn't pick up on the holes in its books.
AS: While authorities investigate the company, Steinhoff itself has hired auditors to look into the apparent fraud within at the company and track down who did it. There are also questions about the taxes it did or didn't pay. We still don't know the full extent of what happened.
DB: Steinhoff's value tanked on the stock exchange— losing almost all its value. Shareholders lost millions of rand.
JS: And two days later, an American shortselling group called Viceroy dropped an incredible report about some very interesting dealings at the Steinhoff group, which cast a lot of shade, and by the way, the Mattress Firm deal was included in that report, and that just led to a slide that we've never seen before.
AS: Here's where things get really interesting for our story. Before all this came to light, back In August of 2016, Steinhoff did something that -- on its face -- can only be described as incredibly stupid.
DB: Or it at least raises a lot of questions. They bought Mattress Firm for 2.4 billion dollars — more than twice what the company was worth. And that's really unusual.
JS: Well certainly the amounts, the amount paid. I mean, that's just off the bat crazy. I mean, that's just nuts.
DB: It's what we in the business world traditionally call... a huge mistake.
JS: A lot of people did say 'this company is overvalued, why pay so much for Mattress Firm, what's going on here?' But you know, it still took about a year and a half until I suppose the meltdown of this entire group before people really sat up and said 'Ok, well what happened here?'
AS: So, Dan, why? Why would Steinhoff do that? Is there a rational explanation here anywhere?
DB: I mean, if you want to give them the benefit of the doubt, you could try something like Steinhoff REALLY wanted to get into the US market and was willing to pay a lot to do it. Or maybe, for some reason, they genuinely believed that's what Mattress Firm was worth.
But it still seems strange.
Keep in mind, when this is happening, Mattress Firm has all this new competition it didn't have a few years ago. From online companies like Casper, and Leesa, and Tuft and Needle. Why would Steinhoff pay SO much money for just one chain?
JS: What was this Mattress Firm deal all about? Because it certainly seemed, and seems at the moment more so, seems like a dud. Why was this enormous amount paid for something which seems like there wasn't as much value as, what was paid for?
DB: Mattress Firm wasn't doing great when Steinhoff bought it in 2016. They were coming off of their acquisition binge and were struggling to finance all the storefronts they'd opened across the country.
AS: And right after Steinhoff bought Mattress Firm, things got even worse.
JS: Mr. Jooste, the CEO, had a big falling out with one of the major suppliers of Mattress Firm. I think it's called Sealy. Sealy... something or other.
DB: Tempurpedic.
JS: There we go. There was an incredible fallout with them. And I understand it was him who tried to be very funny or made some strange demands, and Sealy said no, and they pulled out of supplying the Mattress Firm company with their product, and that was an incredible blow to Mattress Firm.
AS: The breakup of Mattress Firm and Tempur Sealy has been bad for both companies. It's hurt both of their sales figures.
JS: Which is something else that's quite bizarre when you look at a company that's trying to establish itself in the states and takes over something like Mattress Firm at a massive premium, and then you go and you tick off the biggest supplier, I mean, it's just utterly bizarre.
AS: Tempur Sealy is even suing Mattress Firm now for selling a mattress it says sounds and looks a lot like the Tempur-Pedic.
DB: Mattress Firm calls it the "Therapedic."
AS: So, ok, we've reached the end of number 3. What's the conclusion?
DB: In all likelihood, there's no Mattress Firm conspiracy. No grand plan. No shady things happening in back rooms. But, I will say, this Steinhoff stuff? It's not nothing. I mean, you have investigators from around the world looking into this company. But there's no indication that Mattress Firm specifically has done anything wrong yet, so I'm going to keep my eye on this, but for now, sorry, Redditors.
AS: That's all you can give us, Dan???
DB: Yeah. But there's this bigger point about Mattress Firm. You might have seen all these stores next to each other now, you know, you're going to these intersections, you see four stores there, but that might not be the way it is forever. The company has said it expects to close 250 stores this year. Many more could be coming after that, and many in the business are speculating that Mattress Firm could file for bankruptcy protection.
If there were any truth to these conspiracy theories, it doesn't seem to be working! They're not making tons of money from this.
AS: OK, so to some extent here, we're kind of… we're crushing some Redditor's conspiratorial dreams, right?
DB: I feel like conspiratorial dreams are always more exciting than reality. But what's really interesting to me is just how much people care! Like you have high schoolers doing investigations. YouTubers are driving around in their cars, taking videos, trying to figure out what's going on. Redditors are posting detailed maps and comments and theories. And there's clearly some fun speculating about a store that's so banal.
AS: Yeah. And let's face it, you don't have to fully prove a conspiracy theory for it to be fun. It's about the journey.
DB: I enjoyed this journey with you Amory.
AS: Me too, Dan.
CREDITS
DB: Check out Endless Thread from WBUR and Reddit. You'll find episodes about a couple who started their married life as husband and wife and are now wife and wife, the story of a lab in Oklahoma that's turning the soil in your backyard into medicine, and an episode about post-it notes mysteriously showing up in a Redditor's apartment. Who wrote them, and how did they get there? Search for Endless Thread on Apple Podcasts, Stitcher or wherever you listen.
This episode was produced by Household Name's Sarah Wyman with Anna Mazarakis, Amy Pedulla, Clare Rawlinson and me. And by Endless Thread's Amory Sivertson, Ben Brock Johnson, and Josh Swartz.
Our editor is Gianna Palmer.
Sound design by Paul Vaitkus and John DeLore, who also wrote our theme music with Casey Holford.
The executive producers of Household Name are Chris Bannon, Laura Mayer, Jenny Radelet and me.
Let us know what you think of the show. You can email us at householdname@businessinsider.com Check out our past episodes, leave a review and rating, and make sure you subscribe. All that helps new listeners find the show.
Household Name is a production of Insider Audio.
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