"the Tesla of the mattress industry" has gone bankrupt

Recently, Sleep Number, the global leader in the sleep technology sector and known as the "Tesla of the mattress industry," has filed for bankruptcy protection in court.

Sleep Number is well - known in the mattress industry for the high technological content of its products. In fact, the concept of "smart mattresses" was first popularized by this company. As early as 2014, when its competitors were still following the old path of competing in terms of materials and comfort, Sleep Number established a strategy centered on digitalization. It installed highly sensitive sensors in its mattresses that could collect users' breathing and heart - rate data, and became an instant hit at the CES Electronics Show.

In the following more than a decade, Sleep Number's smart mattresses became extremely popular in the United States. Until it filed for bankruptcy, Sleep Number still held about 7% of the total share of the U.S. mattress market and a staggering 21.1% share in the adjustable mattress segment, firmly remaining at the forefront of the high - end smart mattress market.

After smart mattresses became popular in China around 2021, many startups used the slogan of becoming the "Chinese Sleep Number," hoping to replicate its success in China. Unexpectedly, just a few years later, this pioneer of smart mattresses couldn't hold on.

Selling a Mattress for Tens of Thousands of Dollars

If you had to use one word to describe Sleep Number's mattresses, it would definitely be "expensive." The cheapest product from Sleep Number costs over $1,100, the basic - model mattress is priced at over $3,500, and the high - end models cost over ten thousand dollars.

The reason Sleep Number can sell a mattress for such a high price is that it's not just selling an ordinary mattress, but a technological product.

Going back to 2014, Sleep Number launched a sleep monitoring system called "SleepIQ" at the International Consumer Electronics Show (CES). Specifically, Sleep Number installed extremely sensitive pressure sensors on its mattresses, which could detect the user's heartbeat, breathing, and the sub - sonic mechanical vibrations caused by slight body movements. Then, Sleep Number used AI algorithms to analyze this data, accurately assessing the user's falling - asleep time, various sleep stages (light sleep, deep sleep, REM sleep), and the number of awakenings. It could also track heart - rate variability (HRV, which can be used to evaluate cardiovascular health) over the long term. All data calculations are completed in the background without the user's awareness, and users can obtain a comprehensive daily sleep report in the SleepIQ App after waking up.

The advantages of this technology are obvious: users don't need to wear any devices, don't have to worry about charging, and there is no additional mental burden. This is what "the first smart mattress for young people" should be like. Once "SleepIQ" was launched, it became very popular in the United States and has since been Sleep Number's core product selling point.

Of course, Sleep Number's technology doesn't stop there.

Sleep Number started with air mattresses when it was founded in the 1980s, and over the decades, it has perfected this technology. An air mattress means that there are no springs inside the mattress, and the elasticity is provided by inflated air chambers. To ensure that the air chambers perfectly meet the user's needs, Sleep Number uses a pressure - sensing network to monitor the fluid pressure inside the air chambers in real - time. When the user's sleeping position changes or the weight on the bed surface increases, a silent micro - air pump at the bottom of the mattress will automatically inflate or deflate slightly to continuously maintain the optimal hardness support set by the user.

In addition, Sleep Number has also introduced an active thermal management system into its mattresses. It uses internally embedded heat - flow conduits to actively draw away the heat emitted by the human body to achieve physical cooling, solving the problem of waking up in the middle of the night due to heat accumulation in the sleep environment.

Does it seem that a mattress like this isn't that expensive when sold for tens of thousands of dollars? Anyway, Americans went crazy for it. At its peak in 2021, Sleep Number's revenue reached $2.18 billion, and its share in the U.S. mattress market was 8%. Moreover, all of Sleep Number's product lines are smart mattresses. In the household smart mattress segment, its market share reached over 30% at its highest, and some statistics suggest it could reach 50% (the definition of smart mattresses may vary widely).

Due to the hot sales of its products, Sleep Number has accumulated the world's largest real - world sleep database - with over 4.8 billion sleep records and 38 billion hours of sleep data in total. The data disclosed in its 2024 financial report states that it has "improved the sleep lives of nearly 16 million people" and has "millions of users globally."

Moreover, Sleep Number's sleep data has not remained at the level of a "consumer - grade toy" but has extended to the clinical field. In 2020, Sleep Number partnered with the Mayo Clinic, a top - tier medical institution in the United States, to use authorized real - user sleep data to develop an AI prediction model for heart risks. In 2022, Sleep Number collaborated with the American Cancer Society to study the impact of sleep on cancer prevention and recovery.

From hardware, data, algorithms to clinical research, Sleep Number has built a unique business and technology closed - loop around sleep. In fact, since 2017, Sleep Number has no longer positioned itself as a mattress company but as a "sleep technology" company.

The Product Sales Collapsed

2021 was a watershed in Sleep Number's development.

Before that, Sleep Number maintained a very high performance growth rate. Its 2021 financial report showed that in the five years leading up to 2021, Sleep Number's annual compound growth rate of earnings per share reached 41%. From 2019 to 2021, its annual sales revenue increased by 15% on average, and it maintained an ultra - high gross profit margin of over 60%. Such money - making ability left all the world's mattress brands far behind.

At that time, Sleep Number was already listed on the NASDAQ, and its stock price increased by 8 times in a year. Investors regarded it as a consumer technology company rather than an ordinary mattress company.

Therefore, Sleep Number's management made extremely optimistic predictions about the company's future. Sleep Number's CEO wrote in the 2021 financial report: "We are at the beginning of a historical turning point where smart mattresses are replacing traditional mattresses." In other words, Sleep Number's high - growth phase had just begun, and there were many good days ahead.

With such expectations, Sleep Number did two major things in the following years.

First was the aggressive stock buy - back. From 2020 to 2022, Sleep Number spent over $640 million in total on stock buy - backs. Especially in 2021, the stock buy - back expenditure reached $364 million, which was $131 million more than the company's free cash flow that year.

The other thing was the large - scale store expansion. Sleep Number's sales model is through direct - sales showrooms. At the end of 2020, the number of stores was 602, which increased to 648 in 2021 and continued to grow to 670 in 2022.

To support both the stock buy - back and the expansion, Sleep Number raised a large amount of debt financing in the low - interest - rate environment at the beginning of the pandemic. Its credit balance climbed from $244 million at the end of 2020 to $460 million in 2022.

However, although more stores were opened, Sleep Number's sales started to decline from 2022. In 2022, Sleep Number's sales revenue was $2.114 billion, a 3.2% year - on - year decrease. This was just the beginning, and in the following years, the decline in Sleep Number's sales became more and more significant. By 2025, its sales revenue was only $1.558 billion, nearly 30% less than at its peak.

The increase in the number of stores but the decrease in sales made Sleep Number's stores turn from profitable to loss - making overnight. Since all the stores were directly - operated, these losses quickly drained Sleep Number's cash flow. Coupled with the fact that Sleep Number had already spent a large amount of cash on stock buy - backs, it had no financial room to deal with the sudden losses.

To make matters worse, the Federal Reserve's rapid interest - rate hikes raised the interest rate from close to 0 to over 5%, leaving Sleep Number, which was in the process of taking on a large amount of debt, in a difficult situation.

By the end of 2025, Sleep Number had only a pitiful $1.69 million in cash on its books, while the revolving credit drawdown was as high as $588 million. Due to the high interest expenses (the net interest expense in 2025 was approaching $50 million) and the continuous consumption of free cash flow (the free cash flow in 2025 was - $17.7 million), the company's total debt soared to over $1.3 billion, resulting in a negative shareholder equity of $521 million, and the company was in a seriously insolvent state.

The Smart Mattress Encountered "Consumption Downgrading"

Why did Sleep Number's sales suddenly collapse after 2021?

The biggest reason is that the middle - class in the United States also experienced "consumption downgrading" after the pandemic. As a large - ticket and durable consumer good, mattresses are easily affected by consumers' cost - cutting measures. Data shows that the total shipments in the U.S. mattress market declined significantly after 2021, dropping from a peak of about 26.3 million sets in 2021 to about 19.2 million sets in 2024.

Additionally, Sleep Number's high sales in 2021 were, to some extent, a "pandemic dividend." Due to the pandemic, consumers used the budget originally intended for travel and other consumption to buy a good mattress. Since a mattress usually lasts for seven or eight years, it means that the purchase demand for many years in the future has actually been pre - exhausted.

Of course, the smart mattress market itself has also become more and more competitive. Traditional mattress brands have been vigorously developing in the direction of intelligence, and new startups are also emerging. For example, Eight Sleep, which was highly praised by Elon Musk himself on social media as "really great," is very popular and has already taken away the title of "the Tesla of the mattress industry" in media reports.

In summary, Sleep Number made a serious misjudgment of the market trend and carried out overly bold expansion at the worst possible time, causing the company's financial situation to deteriorate to an irreparable level in just two or three years.

Since 2024, Sleep Number has tried to cut costs to save itself, closing hundreds of stores and laying off a large number of employees. However, the speed of cost - cutting was far from being able to keep up with the collapse of the revenue side and the erosion of cash flow by high interest expenses. Eventually, it had to file for bankruptcy protection in court.

Sleep Number's technology and brand still have value. According to the bankruptcy filing documents, Sleep Country, a Canadian home - furnishings chain retailer, has offered to acquire most of Sleep Number's assets for $415 million in cash. However, this amount is not even enough to repay the $672.5 million in priority secured debt. Many unsecured creditors, including a large number of suppliers, are facing the situation of getting nothing, and Sleep Number's shareholder equity will be wiped out. Sleep Number's market value on the NASDAQ has long "gone to zero," and its current stock price is only $0.17, with a total market value of $4 million.

This article is from the WeChat official account "China Venture Capital", author: Tao Huidong, published by 36Kr with authorization.