Lumber Liquidators 2011 Annual Report Download - page 14

Bamboo and Cork. Our proprietary bamboo products, harvested from the fast growing bamboo plant, are offered as a
prefinished, natural or stained, solid or engineered floor. Our proprietary cork flooring is produced by harvesting the outer
bark of the cork oak tree, and it is durable, acoustical and acts as an insulator. Our bamboo and cork flooring products carry
wear warranties ranging from 10 to 30 years.
Finishing
In 2011, we finished approximately 79% of our Bellawood products at our finishing facility in Toano, Virginia, and we
obtained the balance from qualified finishing suppliers in North America and South America. Bellawood products have one
of the highest scuff resistant finishes in the industry as measured by the Taber Abrasion Test, an abrasion testing method
designed to measure the abrasion resistance of protective floor finishes. We also finish small quantities of certain of our other
products at our Toano facility. We continually invest in improving our process controls and product quality, and we believe
that our existing finishing infrastructure at our Toano facility can support our planned growth over at least the next three
years with limited capital expenditures to increase capacity.
Our Suppliers
We work directly with a select group of vendors and mills with whom we have cultivated relationships that provide for
a consistent supply of high-quality product at the lowest prices. As part of ensuring the high-quality nature of our brands, we
have developed demanding product standards. As we have grown, we believe our supplier relationships have strengthened,
which we believe helps to ensure our access to a broad selection of products. Many suppliers have expanded to support our
business. We select suppliers based on a variety of factors, including their ability to supply products that meet industry
grading standards and our specifications.
We currently purchase products from approximately 120 domestic and international vendors, which are primarily mills
or trading companies. Trading companies contract with mills, located primarily in China, to produce quality products to our
specifications, work on our behalf to control quality at the mill locations and handle certain other matters. In 2011, one of the
trading companies, Sequoia Floorings Inc. (“Sequoia”), provided services on approximately one-third of our merchandise
purchases, primarily in Asia. In September 2011, we entered into an agreement to acquire certain assets of Sequoia relating
to Sequoia’s quality control and assurance, product development, claims management and logistics operations in China. Our
top 10 suppliers, including Sequoia, accounted for approximately 70% of our supply purchases in 2011. We believe that we
are the largest customer for most of our suppliers, which we believe enables us to obtain better prices in some circumstances.
We believe that alternative and competitive suppliers are available for most of our products. In 2011, approximately 42% of
our product was sourced from Asia, 50% from North America, 7% from South America and 1% from other locations,
including Europe and Australia. The majority of our foreign purchases are negotiated and paid for in U.S. dollars.
Distribution and Order Fulfillment
We operate a central distribution center located in Hampton, Virginia, supplemented by our facilities in Toano, Virginia.
In addition, we operate a facility in Toronto, Canada, with both a store front and a small warehouse serving that metropolitan
market. In 2011, approximately 77% of our purchases were received by central distribution and 23% were received directly
at a store location, shipped from either a vendor-mill or our leased consolidation center in China. The China consolidation
center allows Chinese mills to ship bulk quantities of products to the consolidation center in Shanghai, where our product
allocation department determines an appropriate mix of a number of products to be packed in a single container and shipped
directly to a store location.
We ship our products to our stores over the road by truck or over rail using an intermodal service. We generally expect
each store to receive a truckload of product at least once per week. Further, we now work closely with certain suppliers to
ship selected key product, including moldings and accessories, directly to our stores.
We continue to evaluate logistics alternatives to best service our store base. We believe that our existing facilities will
continue to play an integral role in our strategy, and expect future expansion of alternatives, if any, to be leased locations,
with related expense no earlier than mid-2012.
Our Market
According to Catalina Research, Inc. (“Catalina”), 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 and stone
floor and wall tile, resilient sheet and floor tile, and laminate flooring. Due to improvements in the quality and construction
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