The store was profitable enough to pay a decent profit to the owners. A few good management decisions had been taken about 3 - 4 years ago to get it there. A small business, friendly service, part of the community, run by great guys.
Now one employee at the store began selling stuff online from the basement. They were very successful. They expanded - to a warehouse in Lakewood -, hired guys - working "virtually" (not in Lakewood) - to manage the Amazon accounts (buyers basically), and took investors - (or people they believed had access to investors) - money to fund purchases.
A lot, if not most of products were giving amazing returns. However, a lot sat in inventory and wouldn't move. Some sold for cost, or even a bit less. Also, no star product would last a decent cycle. A certain anonymous vendor came onto the listings of a great line and basically wiped away the micro-industry. The competition on Amazon is so fierce it's scary. So the profits were being used to run operations, while the warehouse became overloaded and inventory was ignored - especially on the financial statements.
Everyone involved was promised "commissions", basically a waterfall from the "profits". It was my job to calculate what the profits per Amazon account was. However, investors were promised a 10% ROE, plus a percentage of the profits (obviously the owners had no idea how to differentiate between a "loan" and an "investment"). The account manager got decent wages (paid by Sterling), and 10% of the profits. Yet inventory was never accounted for. So a buyer could spend $200K on various goods, and turn over $100K of it for $150K. Now the $50K profit got divvied up, but the $100K that didn't sell (and in my opinion, never will) sat. The right place for this would be a $100K write-off, but the only books it would go on were Sterling's. The buyers and investors were doing great! The buyers got paid quarterly, the investors got great Excel sheets, and Sterling was running out of money.
Eventually, such an operation will run out of cash. Also, since I left, the owners went on a "Business Shopping Spree", buying up different businesses they felt they can turn around. They began a affiliate trucking business which was very successful. In order to pay-where-they-needed, they used money from wherever-there-was that day. Investors who understood they were investing in account X, managed by Mr. X, focusing on product X, which was a sound idea, found their money being "inter-company-loaned" to whoever needed money that day. There was no Controller or CFO, the owners just "Churned Water".
Now I have no idea how the CC thing began. It was definitely not something that would of crossed the owners minds during my stint there. I guess the situation got really desperate. Again, they were, and are, great honest Erliche guys. They gave Tzedakah, kept people on payroll because they were scared to take way Parnassah from a Yid, and kept their work-space to the highest Tznius standards. They took Mamesh nothing, even when one made Chasuna. They legitimately believed they knew what they were doing, and wouldn't listen to whoever said otherwise. This was, in my opinion, their only fault.
Thank you for sharing this. This is the first coherent post since the story broke that sheds light on what happened.
I do have some questions if you don’t mind. I live in CH and have passed by Sterling almost every day for the last 20 years. I remember when they were selling a lot of actual electronics like cameras, video cameras, cell phones, watches etc and they sold many appliances to the CH community as well.
I would say that for the last ten years or so, with the exception of Tishrei and Erev Pesach, the store never looked busy to me. In fact, the store was sub-leasing space to an Esrogim dealer during the busiest season of the year. (Did the owners of Sterling have ownership in that esrogim business?) Why would a profitable business need to lease their space for extra income?
Now, at any given time the store (at least appears to) have on hand quite a bit of inventory. I also assume that what is on the shelves is only a small fraction of the inventory with the rest being kept in the basement or in a warehouse. Even on the retail side of the business, were they making enough profit to offset the cost of this inventory? For every Shabbos urn or microwave they sold, didn’t they have 100 sitting in a warehouse?
I also noticed that they were heavily peddling prepaid sim cards, which is not something you normally see a thriving business doing. Prepaid sim cards are typically your corner bodega side-business. For the last five years or so, the store looked like a giant mess. The store itself had like five aisles. One of which was basically just picture frames. Other aisles had overpriced ancient cordless phones, alarm clocks, old cables and other garbage that nobody buys anymore. They seemed to slowly transition into housewares, but it still looked like a giant tornado had swept through the store whenever I did happen to set foot in there.
I never understood how a business like that can be profitable. I always assumed that the store was just a front for a profitable online business. My point is not to C”V speak ill of the store or the owners. I just want to understand how a business like this operates, and why anyone on the outside would believe the owners to be worthy of a large investment.