Reed Clothier Case

753 Words4 Pages
Reed Clothier Case Cecilia D. Thompson FIN/370 April 30, 2011 Darron Williams Reed Clothier Case Reed’s Clothier was founded in 1934 by Jim Reed an Army veteran. Jim Reed wanted to build a clothing store that was easily assessable to the Virginia Military Institute. In the early years of the business the business struggled, but still managed to increase sales yearly due to the ex VMI graduates. In 1976 Jim Reed retired and passed the business down to his son Jim Reed II. Jim Reed II also was a VMI graduate and a Vietnam War veteran. Jim Reed decided that he wanted to expand the business in order to hold more inventory as well as office and warehouse space. Jim also decided that he needed to add a retail shop which was located on the second floor of a three-story building. Over several years Jim was able to increase the store’s inventory and sales starting growing steady. Jim believed that the sales grew yearly due to the increase in inventory. Inventory at Reed Clothier tripled but sales were doubled due to the increase of inventory at the store. This in turn caused Reed Clothier to increase their extended credit with creditors and the bank that held Reed Clothier notes. Reed Clothier had great sales but were unable to make a profit due to the tremendous inventory being held by the store. Since Reed Clothier were unable to see any profit gained by the sales being generated at the store; the store was heavily in debt. The store would be unable to make payments toward the mortgage and the notes being held by the bank. Jim Reed had a great relationship with the bank financer who was a former VMI graduate, thus enabling Jim the ability to ask for extended lines of credit. The lines of credit were always granted to Reed Clothier without any substantial financial statements being presented to the bank. Since Reed Clothier is now in substantial debt with their
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