Phar-Mor, Inc. Research Paper

2727 Words Feb 14th, 2016 11 Pages
Fraud Case on Phar-Mor, Inc.

Introduction
Phar-Mor, Inc. was one of the top ten deep discount store that grew rapidly in a short period of time during the 1980s. Phar-Mor pricing strategy was to sell products at an even greater discount than other deep discount stores like Wal-Mart. While the practice of selling at such low cost attract customers, Phar-Mor was experiencing losses. The prices were cut so low that profit would not be generated. And this was how the fraud began. To prevent the truth from damaging Phar-Mor’s appearance, the president and other top management employees decided to cook the books by using creative accounting practices that were against the rules of GAAP and GAAS. Other than that, there was also an
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This was a purchasing techniques that he use to order large quantity of the product while securing the best possible terms and lowest possible prices from the suppliers. This allows Phar-Mor’s products to be sold at a deep discount, beating any competitor’s price. In 1984, David Shapira, who was the president of Pittsburgh-based Giant Eagle, funded Phar-Mor expansion with $4 million. Shapira became the CEO of Phar-Mor, and Monus became the president and COO. Thus, Phar-Mor became an affiliation of Giant Eagle. Also, Giant Eagle owns Tamco Distributors Company, which was the company where Monus worked as the president of the company. Within just seven years, Phar-Mor was one of the top discount stores in the United States with sales over $3 billion.

According to FundingUniverse, competition intensified dramatically by the mid-1980s due to the “many mass marketers and independent entrepreneurs joined the deep discount segment.” Phar-Mor had only 15 stores in 1985. And by 1987, there were 70 Phar-Mor stores. It was only one year later that Phar-Mor opened its 100th store. By 1990, Phar-Mor became a leading industry in the deep discount segment by surpassing the 200 store mark. By 1992, there were approximately 310 Phar-Mor stores in 32 states. Competitors like Wal-Mart were also beginning to be wary of Phar-Mor rapid expansion, because they were afraid of Phar-Mor becoming the next Wal-Mart. However, the competitors soon have

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