Jessup mattress firm files Chap. 11

Dormia to put focus on its wholesale line

June 20, 2008|By Laura McCandlish | Laura McCandlish,SUN REPORTER

Jessup-based mattress manufacturer Dormia Inc. said yesterday that its retail operation filed for bankruptcy protection, conceding that its push to sell directly to consumers has foundered.

Bankruptcy reorganization will allow the company to refocus on its wholesale business, Classic Sleep Products, which has experienced a more than 15 percent increase in mattress sales this year compared with last year, chief executive Michael Zippelli said.

"That's always been our core business," said Zippelli, who purchased the Jessup plant with a partner in 2000. "But the $1,000 to $3,000 mattress range that the Dormia stores sold is down dramatically. Our business has really been creamed at the store level."

The housing slump and credit crunch have hit the entire retail mattress industry hard, and costs for the petrochemical-based foam that Dormia uses in its products in place of coils or springs have soared with oil prices above $130 a barrel. Mattress sales are predicted to fall 3 percent this year, after declines in the fourth quarter of 2007 and first quarter of 2008, according to the International Sleep Products Association, the industry's trade group.

Even foam bed leader Tempur-Pedic isn't immune to the downturn. Tempur-Pedic said its net sales were down 7 percent during the first quarter, and Select Comfort, which makes the Sleep Number adjustable beds, saw its sales slide 22 percent during that period. Beltsville-based JoAnne Bed & Back Stores filed for Chapter 11 bankruptcy protection in April and was acquired by The Healthy Back Store.

It's a stark reversal from early 2007, when Zippelli promoted plans to expand Dormia's plant and network of stores. Main Street Resources, a Westport, Conn.-based private equity firm, helped finance that planned expansion. It is owed close to $120,000, the largest unsecured claim of Dormia's creditors, according to the bankruptcy petition.

In the filing, Dormia claimed less than $50,000 in assets and between $1 million and $10 million in liabilities for the retail business.

Dormia should focus on marketing its mattresses to competing retail stores that carry a variety of brands, said Wallace W. "Jerry" Epperson Jr., a furniture industry analyst based in Richmond, Va. "They need to strengthen their distribution to go back to those independent stores they may have lost," Epperson said. "They never reached a critical mass in the number of stores they had out there."

Dormia has 20 of its own stores in nine states including Florida, Ohio and North Carolina. It said the retail locations would remain open during the Chapter 11 proceedings. The CIT Group in New York has provided financing for continuing operations. A promotion company will likely be hired to run a going-out-of-business sale, Zippelli said.

Three stores, in New Jersey and New York, were previously shut down.

Zippelli said sales at some stores, including locations in Tampa and Cincinnati, remain strong. Some of those stores may be sold off or franchised to Dormia employees.

In the Chapter 11 process, Dormia will try to retain as many Jessup employees as possible. It has close to 60 workers in the mattress plant plus 20 to 25 at the administrative level. Some accounting staffers have been let go, he said. Another 50 employees staff the Dormia stores, which are generally housed inside malls.

Mattress retailers such as New York-based Sleepy's and Connecticut-based Bob's Discount Furniture remain strong distributors of Dormia-made beds, Zippelli said. About 75 percent of those beds are made at the Jessup plant, while the rest, primarily the lower-end ones that start at $599, are imported from China, he said.

"The low-end business is strong," Zippelli said. "We still have $4,500 mattresses, but there's a shift going on to more what's selling now."

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