The frenzied competition to get Americans into bed is flipping the mattress industry into upheaval.

As the nation’s largest mattress retailer reels from declining sales and the threat of bankruptcy amid financial scandal at its parent company, mattress companies are waking up with a hangover.

Meanwhile, bed-in-a-box e-commerce companies – now numbering in the dozens after many sprouted in recent years – are planning brick-and-mortar locations. But they’re facing their own set of existential challenges in this highly competitive environment.

Overexpansion is at the heart of the industry’s troubles. There are now more places to buy a mattress in the U.S. than places to buy a Big Mac.

Consumers could be the ultimate winner as the furious competition for their business generates deals, price transparency and improved customer service. But the downside is a flurry of store vacancies – and the threat of more.

Facing declining sales, No. 1 U.S. mattress retailer Mattress Firm is closing hundreds of stores and scrambling to bolster its digital business. At the same time, the retailer’s parent company, global conglomerate Steinhoff International, is entangled in an accounting scandal involving billions of dollars in balance-sheet errors that has led its stock to plummet to less than a quarter.

The company is now considering bankruptcy, according to Reuters. A company spokesperson was not immediately available to discuss that report Tuesday.

“I don’t see this ending in a liquidation, but with that said, you could see a filing,” said Kyle Owusu, a senior distressed debt analyst at Reorg Research, who tracks Steinhoff’s crisis. “I wouldn’t even rule out a filing of just the Mattress Firm entity in the U.S. to try to implement a restructuring plan.

The fallout of Mattress Firm's sales decline and the industry's heightened competition is leaving a trail of wreckage. Industry leaders say damaging discounts are rising, while expenses — especially commodity costs and marketing — are also increasing.

Online sellers have provoked much of the upheaval, for better or worse. Companies like Casper are offering popular no-haggle pricing, easy ordering, free shipping, months-long trial periods and new technologies like advanced memory foam.

David Wolfe, CEO of online mattress firm Leesa, said online sellers are aggressively bolstering digital marketing spending and discounts. He warned that some sellers are compromising quality for the sake of cutting costs.

“The craziness that was in traditional retail has moved online right now,” Wolfe told USA TODAY.

Scott Thompson, CEO of mattress maker and seller Tempur Sealy International, told investors in late July that Mattress Firm's “irrational promotional activity” was "not sustainable.”

“We are seeing more competition in bedding by several new entries that are focused on growing sales at any cost and are willing to lose significant money,” Thompson said in an emailed response to USA TODAY. “I guess that will last as long as investors are willing to fund losses.”

The market instability comes at an inopportune time for struggling strip malls and mattress suppliers that had celebrated the industry’s recent growth while other retailers were flailing. The number of U.S. stores selling mattresses increased by 32 percent to 15,255 from 2009 to 2017, according to IBISWorld. McDonald’s, by contrast, has 14,079 U.S. stores.

Casper CEO Philip Krim predicted that a wave of store closures is coming for the mattress industry, saying his company will capitalize by opening “hundreds” of its own locations.

“Absolutely there will be a retail shakeout, and what you’re seeing is a lot of those dollars are going online,” Krim said.

Mattress Firm’s expansion

If so, Mattress Firm likely stands to lose the most. Mattress Firm ballooned in size in recent years through a series of acquisitions – Mattress Giant in 2012, Sleep Train in 2014 and Sleepy’s in 2016.

In terms of total U.S. locations, Mattress Firm has more stores than Big Lots, Michaels and Williams-Sonoma combined, according to the National Retail Federation.

Now, the Houston-based Steinhoff division leads the industry with market share of 33.6 percent, more than three times the nearest competitor, according to IBISWorld.

Mattress Firm had 3,304 stores as of March 31, after closing 248 locations over the previous three fiscal quarters.

After acquiring the retailer in September 2016, Steinhoff began rebranding its stores as Mattress Firms. Mattress Firm’s sales fell 10 percent and 6 percent in its last two reported quarters. And its operating loss widened by 66 percent to $133 million in the first half of its 2018 fiscal year.

“Obviously the risk is that as everything starts to go online, you just have too much real estate out there,” Reorg's Owusu said.

Recently appointed Mattress Firm CEO Steve Stagner, responding to USA TODAY before Tuesday's report of potential bankruptcy, acknowledged the store closures are because it has too many stores in some locations following acquisitions.

“This is not about store closures," Stagner said. "It is about optimizing, re-positioning and leveraging our retail footprint and brand presence, and it extends to our digital strategy, too.”

Digital rise

Most consumers still want to buy a mattress in person, IBISWorld retail analyst Meghan Guattery said.

“They want to walk into a mattress store, kick off their shoes and get a feel for what they’re going to be spending every night on,” she said.

Bed-in-a-box retailers recognize this. The startups have gained momentum by offering limited options, easy online ordering, savvy marketing and free returns after several months of use.

But multiple major online mattress retailers have already launched brick-and-mortar locations or deals with other retailers to sell their mattresses in person, realizing it’s their best bet to grow.

Casper already has about 20 stores, including one in New York City across from a Mattress Firm location.

“If you had an opportunity to go into both, you would clearly see where the industry was and where the industry is going ...” Casper CEO Krim said. “We still see a ton of opportunity to expand our footprint.”

Leesa CEO Wolfe said his company also plans to add more stores beyond the two locations it currently operates. The company’s mattresses are also available to try out at Williams-Sonoma’s West Elm stores.

Wolfe predicted that online sellers would grow market share from about 10 percent today to as much as 25 percent within three years, representing a shift of about $2 billion in sales.

That’s in part because customers are desperate for alternatives, he said. Traditional mattress stores offer an “uncomfortable environment” in which pricing and product information are confusing, and women in particular often feel intimidated by male salesmen watching them try out beds, Wolfe said.

“The retail experience has to change," he said. "And I think that’s going to be handled by the new brands more likely than old brands.”

Mattress suppliers feel the pain

The feverish competition in the industry is dragging down mattress makers, as well.

In 2017, Mattress Firm ditched a supply agreement with Tempur Sealy and signed a five-year deal with competitor Serta Simmons.

Tempur Sealy’s sales through the first six months of 2018 tumbled 4.6 percent to $1.32 billion, hurt in part by the loss of the Mattress Firm contract.

Tempur Sealy, which still gets about 9 out of 10 of its dollars from sales to mattress sellers, is now seeking to open new stores to sell more of its products directly to customers. It has already opened about two dozen new Tempur-Pedic stores in the U.S. for a total of about 36 locations currently. The plan is to have 40 to 50 by the end of the year.

Serta Simmons has not fared as well as it hoped since winning the Mattress Firm contract. Mattress Firm’s struggles recently prompted S&P Global Ratings to lower Serta’s credit rating from B to B-. Serta Simmons media representatives could not be reached for comment.

“We believe the mattress industry will continue to experience pricing pressure from foreign imports and online manufacturers,” S&P Global Ratings said in a report.

Scandal raises questions

For Mattress Firm, the future is clouded by a financial scandal at Steinhoff, which has more than 40 brands throughout the world in areas such as household goods, clothing and automotive dealerships.

Steinhoff acknowledged in a public filing that it faces accusations of “accounting irregularities.” The disclosure prompted a financial crisis that raised questions about the company’s solvency.

Steinhoff’s errors included overstating how much cash it had and improperly accounting for inter-company loans that damaged the company’s financial position, Reorg Research’s Owusu said.

Amid many other adjustments, Steinhoff was forced to write down the value of the Mattress Firm unit on its balance sheet by about $1.9 billion. That included about $300 million in “onerous lease provisions” tied to “stores that are loss-making, dilapidated or have above-market rentals,” according to a filing.

Steinhoff and Mattress Firm declined to comment. PricewaterhouseCoopers auditors are currently conducting a forensic investigation of the company’s finances, so it’s difficult to assess exactly how the fallout could affect Mattress Firm’s operations.

While Steinhoff recently negotiated an agreement with certain creditors in hopes of getting a few years of breathing room to restructure its operations, Owusu reiterated that bankruptcy remains a possibility.

Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.