Mattresses & Money Laundering

Puja Valera

Associate Editor

Loyola University Chicago School of Law, JD 2023

Mattresses and money laundering – two very different topics that have been intertwined in mystery and conspiracy. On Medium, a journalist reported that a reddit user first introduced the concept that Mattress Firm, the largest mattress retailer in the world, is actually a front for money laundering. This conspiracy has gone viral with people questioning the number of stores, the distance between stores, and who is actually buying these mattresses.

What is money laundering?

Money laundering is the illegal process of making large amounts of money generated by a criminal activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source. In theory, the money from the criminal activity is considered to be “dirty” and the process actually “launders” it. For criminal organizations, money laundering allows them to use their ill-gotten gains effectively by introducing the money through legitimate financial systems.

Money laundering generally involves three steps. The first step is placement which is putting the dirty money into the legitimate financial system. Then the money is “layered” which means the source of the money is concealed through a series of transactions and bookkeeping tricks. Finally, the money is integrated meaning the now-laundered money is withdrawn from the legitimate account and can be freely used.

Surprisingly, money laundering was not illegal until 1986. Before then, only a few financial security laws had been implemented. For example, the Bank Secrecy Act of 1970 required banks to report cash transactions over $10,000, properly identify persons conducting the transactions, and maintain a paper trail by keeping appropriate records of financial transactions. The Money Laundering Control Act enacted regulations that financial actors are required to follow in order detect and prevent any suspicious activity. Additionally, the Money Laundering Suppression Act of 1994 required banking agencies to review and enhance training to better identify suspicious activity as well as to develop anti-money laundering procedures and protocols. Other legislation has further regulated  money including, the USA Patriot Act. This Act further developed anti-money laundering laws by expanding their application to all financial institutions, instead of solely banks.

Why do people think Mattress Firm is laundering money?

So, what exactly has caused this mattress conspiracy theory? The number of stores and their locations. Considered the largest specialty mattress retailer in the United States, Mattress Firm has an estimated 3,272 stores across the nation and, according to data start-up Thinkum, almost half of those stores are within a one-mile radius of each other. For example, in Schererville, Indiana, there were five branches of Mattress Firm within a mile of each other. Reddit users were baffled at the need for that many stores since people don’t buy mattresses that often – a product that is typically bought every 7 to 10 years. At the height of the viral conspiracy theory, then-CEO Ken Murphy denied money laundering claims calling it “absolutely false”. He explained to Business Insider that “Our convenient locations in highly-trafficked areas keep us top of mind when it’s time to buy a mattress.”

Furthering the conspiracy theory, in the past couple years, Mattress Firm has been on an acquisition spree and has acquired rivals such as Sleepy’s and Sleep Train. As one redditor has commented “multiple stores = more places to shuffle money.” Mattress Firm also filed a lawsuit against former in-house real estate executives, an external broker, and a group of developers, accusing them of bribery, kickbacks and fraud. Mattress Firm itself was then bought by the South African retailer Steinhoff for $3.8 billion. The price of the deal bewildered analysts as the retail mattress industry was being threatened due to popular start-ups such as Casper. Steinhoff has had its fair share of problems with a sixty-two percent drop in its stock price and “accounting irregularities” that resulted in the resignations of two executives and the chairman. Steinhoff also faces a money laundering probe from the South African government and conspiracy theorists have taken this as evidence and run wild.

Why it is not actually money laundering?

Mattress Firm’s gross and operating margins, and revenue and sales are in-line with its competitors indicating that it is indeed a legitimate business. Its gross margin was thirty-seven percent in 2016, its operating margin was six percent after spending twenty-four percent on marketing and sales. One rival mattress retailer, Select Comfort, had a comparable operating margin statistic of six percent which stemmed from a gross margin of sixty-two percent with high marketing and sales expenses. Tempur Sealy, another competitor, also reported analogous numbers. Mattress Firm also acquired less revenue per store than Select Comfort, and if it was money laundering, the stores would be surpassing the competition. Mattresses are also very lucrative because of their large markup, so stores only need to sell a few to make a profit. The number of mattress stores in one location likely resulted from the rapid expansion and any stores that cannibalize sales will be closed. Though the location and number of stores, the legal problems, and the suspicious acquisitions all point in the direction of a money laundering conspiracy, Mattress Firm’s profit margins and other business metrics show that it is decidedly not.

What is Mattress Firm up to now?

Unfortunately, in 2018, Mattress Firm filed for Chapter 11 bankruptcy and closed 700 stores. With the rise of direct-to-consumer companies like Casper, especially since Casper has sold $100 million worth of mattresses primarily by limiting consumer choice, Mattress Firm was finding it harder to compete. The COVID-19 pandemic also caused them to temporarily close their stores and lose sales. However, the company has said it is not pursuing a liquidation sale and, instead, is restructuring the business in order to provide greater value to their customers, open new stores in new markets, and improve their product offering.

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