No Rest for the Mattress FirmNobody knows the value of a good night’s sleep better than Steve Fendrich, 54. With two college friends, he opened a small mattress store in Houston in 1986, scraping out a living by transporting beds on the top of his car and heating frozen meals on its dashboard for lunch. That store grew into Mattress Firm, the largest specialty mattress retailer in the U.S., with more than 2,400 stores in 36 states after an acquisitions binge (not counting the recent news that it plans to acquire the Sleepy’s chain). It estimates sales of $2.4 billion in 2015 and profits of $50 million. Fendrich’s story:I didn’t know there was such a thing as the mattress business when I graduated from college. I grew up in Sioux Falls, S.D., and got an accounting degree from the University of South Dakota, where I met Harry Roberts and Paul Stork, my future partners in Mattress Firm (mfrm).Harry had a brother-in-law, Jack Smith, who owned the American Bed Co., a chain of mattress stores in Houston.
The three of us went to work for him and learned the business.It was the infancy of bedding specialty retail, and in 1983 I ran an American Bed store in Chicago. In 1985, I became comptroller of the company and moved to Houston. As I dug into the financials, I saw that capital needs were greater than the cash coming in.Paul, Harry, and I decided we could do better. So in March 1986, I left, and Harry and Paul soon followed. American Bed filed for bankruptcy later that year.We were all 25 and passionate about doing things our way. We each put in $5,000, figuring we’d each get our own store eventually. Harry had his $5,000, Paul borrowed from his mother, and I borrowed $5,000 from my grandmother.Back then, mattress stores were often in rundown areas with tile or concrete floors and mattresses encased in plastic. We persuaded a shopping center to give us space and opened on July 4, 1986. We put in carpeting and took the plastic off the floor models so customers could lie down on the actual product.
We sold Sealy, Serta, Spring Air, and Dreamline, and our most expensive bed was a queen for $499.We aimed to offer a higher level of service and a better delivery system. In Houston it took 12 days for delivery from a department store. With us, you could buy the mattress and get it the same day. When needed, I’d put a mattress on top of my car and follow the customer home.We took a high-energy approach to selling a product that people hate to shop for. Each time we made a sale, we were so excited, one of us would call the other two and detail how the sale happened. As we expanded and managed different stores, it became, “This week my store’s going to sell more than yours.” It was fun and competitive.We didn’t pay ourselves for the first 14 to 15 months. The most important thing was to pay our vendors and our people. There was a time in late ’86 when the brakes went out on Paul’s car. He asked if the company could loan him $400 to fix the brakes. Paul lived a ways from the store, so he needed a car to get to work.
I said, “I’ve got an American Express card you can charge it on. Hopefully, in 30 days we can pay it off.” But we couldn’t, and American Express said, “Cut up the card.” I paid the bill off over time, but to this day, I don’t have an AmEx card. It’s in my wife’s name.Back then we lived on the cheap. We couldn’t afford a refrigerator or microwave, and since we had to be in the store from 10 a.m. to 8 p.m., we couldn’t go out for lunch. So we’d pick up Lean Cuisine frozen dinners that we’d leave on the dashboard of the car. By noon, the containers were so hot you couldn’t touch them.In late 1987 we gave ourselves our first paychecks of $300 a week.We always wanted to elevate our offerings, and in 1988, Stearns & Foster came to us, wanting a partnership. That changed our price point to well over $1,000, so it was a defining moment. By the late ’90s close to 40% of our sales were Stearns & Foster, and we became a high-end store. We learned that to sell a lot of $1,000 beds, we had to have $2,000 beds in the stores so people could tell what better beds felt like.
We had failures along the way. For example, in 1990 we decided to sell living room furniture. But the merchandizing and fashion part of it was beyond our expertise. We later closed the furniture store and got back to what we do best.We started to get offers for the business. In 1999 we had more than 250 stores and were doing $300 million in annual sales. The three of us were in our thirties with young families when Malachi Financial made an offer. We thought long and hard and took it.I became a consultant, then CEO of Sleep Country USA, which was later sold to Simmons Bedding. In 2008, Simmons promoted me to president and COO. Two years later we restructured the company and sold it.I was out of a job, and the first person I called was Steve Stagner, Mattress Firm’s new CEO. Steve wanted to accelerate growth and made me chief strategy officer. He wanted Paul and Harry back too, so now Paul runs our Mattress Pro chain, and Harry and his brother own close to 40 stores as franchisees. In 2011 we took Mattress Firm public.
I’m happy to be the founder and not at the helm. I work on mergers and acquisitions. I had a wonderful partnership with Paul and Harry. We created a lot of jobs. We’ve got great people taking care of our baby now, and I feel good about that.A version of this article appears in the December 15, 2015 issue of Fortune.She watched as executives took turns with the red sharpie. Each leader picked up the marker and signed a map of the company’s stores across the United States. As the red strokes filled the page, Kindel Elam felt a special sense of pride. As Mattress Firm’s general counsel, she was instrumental in closing nearly twenty acquisitions, including nine deals in fiscal year 2014 that helped the company enter several new markets. Mattress Firm was active in all but twelve states. Elam, who negotiated several acquisitions for Mattress Firm as an associate at Fulbright & Jaworski, became the specialty bedding retailer’s first in-house attorney in 2012. She accepted the position in part because of her faith in the company’s leaders.
Mattress Firm—which celebrated its thirtieth anniversary on July 4, 2016—has aspirations to move into all fifty states. “Our senior team is ambitious,” Elam says. “Some lawyers are hesitant to jump from firm life to an in-house position because lawyers are seen as a hindrance. Our leaders don’t bristle when I say no, or here’s a different way, because they know that change is necessary for growth.” Although Mattress Firm has grown organically, much of the company’s expansion has come through acquisition. In fact, Elam’s 2014 was just a prologue to her current work. In 2014, Mattress Firm acquired Sleep Train in a deal reported to be worth $425 million. The acquisition of the company’s top competitor along the West Coast gave Mattress Firm stores in three additional states. The deal netted Mattress Firm 314 stores and helped Elam grow her department: a commercial transaction lawyer and a real estate attorney stayed on, along with two paralegals. The following year, Elam hired a corporate attorney and two additional real estate lawyers while moving one paralegal to Mattress firm’s training department.
Today, Mattress Firm—a company with more than $3.6 billion in pro forma net sales and more than 10,000 employees—is backed by a small but mighty legal team of seven. In late 2015, Mattress Firm shared its plans to acquire another competitor. This time, Elam and her colleagues had submitted a winning bid to purchase Sleepy’s at auction for $780 million. As a major player in the northeastern United States, Sleepy’s would again extend Mattress Firm’s geographical footprint. The growing mattress retailer was still digesting its recent acquisitions, but Sleepy’s represented a “can’t miss” opportunity. “We would eventually enter the Northeast one way or another, and the acquisition dramatically sped up the process at a reduced cost,” Elam says. With the papers signed, Mattress Firm turned seven more states red, taking its total to forty-eight. The whole company now has more than 3,500 stores and eighty distribution centers. The sheer size of the combined operation will allow Mattress Firm to reap the benefits associated with national advertising campaigns, combined cost savings, and border-to-border distribution.
Additionally, the series of acquisitions will allow Mattress Firm to continue to deliver on its cultural mandate to serve local communities. Mattress Firm works with several organizations to raise money and awareness for foster children nationwide through in-store fund-raisers and donation drives. With the logistics of the Sleepy’s deal complete, Elam has turned her attention to the unique challenges inherent in any acquisition. “When you acquire a competitor, you acquire sales associates who have grown accustomed to doing things a certain way,” Elam says. “And they, like our own associates, are used to going up against you with everything they’ve got.” To find success, she advocates for Mattress Firm’s culture but remains open to importing best practices. Soon after each acquisition, teams convert store signs and layouts to the standard Mattress Firm brand. Simultaneously, they shut down stores and bring in the company’s “best and brightest” to lead cultural events and train acquired employees on POS systems and other processes.