Reed's Clothier Case Study Analysis

Reed's Clothier Case Study Analysis

In 1934, Jim Reed created Reed's Clothier a business that caters to the Virginia Military Institute (VMI) graduates. For the first six years the business struggled to gain profits, it was in 1967 the store started to see profit with annual sales growing to $800,000. With the increasing profit margin Jim Reed decided to retire handing the business to his son Jim Reed II.

Within a 5 year time frame of increasing sale Jim Reed the II expanded the retail floor space. This revamping of the store gave Jim a contemporary looking store and $880,000 long-term mortgage debt. Jim Reed decided to slowly increase inventories with the belief that higher inventories led to higher sales. Reed's Clothier had grown to more than $2 million in sales in 1994. Due to increase of purchases and mortgage payment, including inters and principle, Reeds clothing cash flow seriously eroded. The two factors were causing financial troubles for Jim Reed II.

Once realizing the financial situation Reed went to visit First Virginia Nation back were Mr. Reed and his father have done business since the store opened. Over time Mr. Reed slowly increased his line of credit based off his relationship with FVNB. The company had several accounts that were past due and the company was over extended. Jim Reed II make a decision to visit his bank in order to further extend his line of credit by an additional $100,000. At the Fist Virginia National Bank Reed meet with a banker name Harold Holmes, who informed him that the bank will not extend his line of credit, and that he must repay an past due amount of $13,000 within 30 days.

Harold Holmes advised Jim Reed II to obtain help from a specialist in order to institute quality management inventory technique improved inventory technique and decrease inventories through an inventory reduction sale. Jim Reed II was advised by Harold Holmes, to reduce