Jim Reed, II had just left a rather unpleasant meeting with his banker, Harold Holmes of First Virginia National Bank. Jim
had banked with First Virginia for almost 30 years and his father, who had established Reed's Clothier in 1934, had only
banked with First Virginia. Holmes, however, had just informed Jim that the bank would not extend their line of credit any
further. In addition the over due note payable for $130,000 must be paid within 30 days. Jim could riot believe that Holmes
had the temerity to tell him he needed to drastically reduce the store's inventory and to strongly suggest an inventory
reduction sale. Since its founding, Reed has only held the industry's traditional semiannual sales—in January and July.
Although Jim was piqued by this young banker's demand, the note was over 45 days past due, and Jim did not know how
he could! make any more than a token payment on the note within the next 30 days.
Reed's Clothier was founded in 1934 by Jim Reed shortly after he had completed his military tour. He had hoped to make a career of
the military but during the early 1930s the U.S. Army was reduced in size, and there seemed little chance that this trend would change
in the near future. Jim Reed had loved the community near his beloved military school, and he decided to open a men's clothing shop
that would cater to the numerous Virginia Military Institute (VMI) graduates who lived in and around Lexington, Virginia. During the
first six years, the store barely made enough money to provide a living income for Jim and his family. But he could see that sales were
growing each year and that his primary customer base of ex-VMI graduates was growing. Shortly after 1940, he hired his first
additional salesman, Leon Hearn, a 1909 graduate of VMI who had just retired from the army after 30 years of service. After World
War II, the business
continued to grow and by 1976 annual sales had grown to $800,000. Jim decided to retire in 1976 and
turned the company over to his son, Jim Reed II, who had graduated from VMI in 1960 and served eight years in the U.S.
Army, including a tour in Vietnam, where he had been wounded. Since 1968, the younger Reed had worked in his father's
1976, Reed's occupied the first floor of a three-story building in the heart of downtown Lexington. Reed's used the second