“Reed’s Clothier” Case Study and Questions
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“Reed’s Clothier” Case Study and Questions
Reed’s Clothier Case Study Analysis Jim Reed, II the owner of Reed’s Clothier, a men’s clothing establishment is facing financial difficulties. Established in 1934, by Jim Reed to cater to the numerous Virginia Military Institute (VMI) graduates, the business struggled for the first several years. By 1976, the business annual sales had grown to $800,000, where Jim Reed decided to retire and hand over the business to his son, Jim Reed II. In 1981, Jim decided to expand retail floor space and acquired an $880,000 long-term mortgage debt. During this time, Jim increased inventories with the belief that higher inventories led to higher sales. In 1994, the business had grown to more than $2 million in sales. The increased inventories, along with the acquired mortgage payments have seriously eroded Reed’s positive cash flow. During the last year, Reed had slowly increased his line of credit at the bank and failed to take advantage of cash discounts offered by suppliers. Now, many of Reed’s accounts are almost 40 days past due, causing suppliers to demand payment. Jim decided to visit his bank in order to further extend his line of credit by an additional $100,000. Harold Holmes of Fist Virginia National Bank has advised Reed that the bank will not extend their line of credit, and that Reed must repay an overdue note of $13,000 within 30 days. Holmes suggested the Reed seek assistance from a consultant in order to establish a better inventory system and reduce inventories through an inventory reduction sale. Further, Holmes suggested that Reed reduce accounts receivables by aggressively collecting its past-due accounts. Jim was resistant to Holmes’ suggestions, believing that if he was aggressive in collecting accounts, customers may become angry