Lumber Liquidators 2008 Annual Report Download - page 24

Failure to maintain relevant product endorsement agreements and product placement arrangements could
harm our reputation and cause our sales to deteriorate.
We have established relationships with well-known and respected home improvement celebrities to
evaluate, promote and help establish with consumers the high-quality nature of our products. If these individuals
were to stop promoting our products, if we were unable to renew our endorsement contracts with them or if we
could not find other endorsers of a similar caliber, our sales and reputation could be harmed. Similarly, any
actions that persons endorsing our products may take, whether or not associated with our products, which harm
their or our reputations could also harm our brand image with consumers and our reputation, and cause our sales
to deteriorate. We also have a number of product placement arrangements with home improvement-related
television shows. We rely on these arrangements to increase awareness of our brands, and to enable potential
customers to see both what our flooring will look like after installation and the relative ease with which it can be
installed. Any failure to continue these arrangements could cause our brands to become less well-known and
cause our sales to deteriorate.
Our success depends on the continued effectiveness of our advertising strategy.
We believe that our past success was achieved in part through our successful investment in local and
national advertising. We typically locate our stores in industrial or commercial areas that have lower rents than
traditional retail locations, but that are generally set some distance from population centers and downtown urban
areas. To support this real estate strategy, we have used extensive advertising to encourage customers to drive to
our stores. We may need to increase our advertising expense to support our business strategy in the future. In
addition, we are transitioning our toll-free telephone number from 1-800-FLOORING, which we lease under a
contract with indefinite renewal rights, to 1-800-HARDWOOD, the rights to which we own. We may experience
increased costs until the transition is complete or in the event that our existing lease is terminated. If our
advertisements fail to draw customers in the future, or if the cost of advertising or other marketing materials
increases significantly, we could experience declines in our sales and operating results.
We have entered into a number of lease agreements with companies controlled by our controlling stockholder,
which may make it more difficult to modify or terminate those leases.
We have entered into several agreements with related parties in connection with a significant number of
transactions, including leases for our Toano facility, which includes a store location, and 25 of our other store
locations as of December 31, 2008. Tom Sullivan is the sole owner of ANO LLC, with which we have in the past
entered into most such agreements. In addition, Tom is the sole owner of Wood on Wood Road, Inc., and he has
a 50% membership interest in BMT Holdings, LLC, and we lease one store location from each of these entities.
While we believe that these leases we have signed to date are on fair market terms, it may be more difficult for us
to modify or terminate those leases in the future, or we may be prevented from doing so by the actions of Tom,
who is a significant stockholder.
We may not be able to adequately protect our intellectual property, which could harm the value of our brands
and harm our business.
Our intellectual property is material to the conduct of our business. Our ability to implement our business
plan successfully depends in part on our ability to further build brand recognition using our trademarks, service
marks and other proprietary intellectual property, including our name and logo and the names of our brands. If
our efforts to protect our intellectual property are inadequate, or if any third party infringes on or misappropriates
our intellectual property, either in print or on the Internet, the value of our brands may be harmed, which could
adversely affect our business and might prevent our brands from achieving or maintaining market acceptance.
We may also encounter claims from prior users of similar intellectual property in locales where we operate or
intend to operate. This could harm our image, brand or competitive position and cause us to incur significant
penalties and costs.
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