Fleming (FLM)

Fleming was caught in a declining industry with tough competition and tight margins. This grocery store supplier’s clients were predominately independent grocery stores that were closing due to increased competition from chain stores, or were being acquired by the chains and terminating their relationship with Fleming in favor of their own suppliers. The company extended liberal credit terms to these independent stores, exposing FLM to the doomed fate of its customers. Sales to Kmart accounted for 10% of sales, and we questioned this third tier company's ability to grow, thereby limiting Fleming’s growth. Margins in this business are incredibly tight, and we did not see how FLM could compete with the larger grocery stores, not to mention Wal-Mart’s one-stop shops. We warned our clients in July 2000.

Current Example: Whirlpool (WHR)