Lumber Liquidators 2008 Annual Report Download - page 16

Our Market
The hardwood flooring market represents approximately 10% of the overall U.S. floor coverings market,
which includes carpet and area rugs, hardwood and softwood flooring, ceramic floor and wall tile, resilient sheet
and floor tile and laminate flooring. In its November 2007 Floor Covering Industry report, Catalina Research,
Inc. (or “Catalina”) estimated that the retail value of U.S. hardwood flooring in 2007 was approximately $4.1
billion. In December 2008, Catalina estimated wood flooring sales during the first nine months of 2008 decreased
by 11% from the prior year. Considering our hardwood flooring sales percentage was 64% of our total net sales,
we estimate our 2008 market share at approximately 8%-9%, up from approximately 7% in 2007.
The wood flooring market serving homeowners is highly fragmented and dependent on a number of
complex economic and demographic factors that impact home-related discretionary spending, and these factors
may vary locally, regionally, and nationally. We are impacted by home remodeling activity, employment levels,
housing turnover, real estate prices, new housing starts, consumer confidence, credit availability, and the general
health of consumer discretionary spending. Many of the economic indicators associated with the wood flooring
market and generally associated with consumer discretionary spending were weak in 2007 and weakened further
in 2008, particularly in the quarter ended December 31, 2008. We will continue to monitor demand indicators for
our segment of the flooring market, but we currently do not anticipate significant improvement in the general
wood flooring market in 2009.
Although industry sources report the total demand for flooring declined from 2006 through 2008, we believe
the number of retailers serving the homeowner-based segment of the wood floor market fell throughout that same
period, and our results benefited from increased market share. In addition, we believe we will continue to benefit
from the additional market share, gained primarily through new store openings. Though total consumer demand
for flooring may continue to be adversely impacted by macroeconomic factors, we believe the longer term trends
benefiting hardwood flooring are favorable, including:
•Home Improvement Spending. As influenced in our market by the age of the existing housing stock,
demographic shifts in the population, home ownership levels, and average home size.
•Greater Attractiveness of Hardwood Flooring. Industry innovations have increased product offerings
that appeal to varied consumer preferences. We believe that consumers increasingly prefer hardwood
flooring for its perceived cosmetic and durability advantages, as well as its ability to contribute to a
healthy home because it is relatively easy to clean and traps less dust, dirt and bacteria than some other
types of flooring.
•Evolution of the Hardwood Flooring Market. Manufacturers offer a wider range of wood species and
flooring lines that appeal to a wider range of consumers. Hardwood flooring is increasingly easier and
less costly to install and there is increased consumer acceptance of prefinished hardwood floors.
Our Competition
We are the largest specialty retailer of hardwood flooring in the United States, and compete in a hardwood
flooring market that is highly fragmented. The market includes both national and regional home improvement
chains which specialize in the lower-end, higher-volume flooring market and offer a wide range of home
improvement products other than flooring. We also compete against smaller national specialty flooring chains,
some of which have an Internet presence, and a large number of local and regional independent flooring retailers,
including a large number of privately-owned single-site enterprises. Most of these retailers purchase their
hardwood flooring from domestic manufacturers or distributors, and typically do not stock hardwood flooring,
but order it only when the customer makes a purchase. As a result, we believe it takes these retailers longer than
us to deliver their product to customers, and their prices tend to be higher than ours. We also compete against
companies that sell other types of floor coverings, such as carpet, vinyl sheet and tile, ceramic tile, natural stone
and others.
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