Lumber Liquidators 2012 Annual Report Download - page 10

PART I
Item 1. Business.
Overview
Lumber Liquidators Holdings, Inc. and its subsidiaries operated 279 retail stores throughout the United States (“U.S.”),
as well as nine retail stores in Ontario, Canada as of December 31, 2012. We operate as a single business segment, with our
call center, website and customer service network supporting our store operations. We believe we have achieved a reputation
for offering great value, superior service and a broad selection of high-quality hardwood flooring products. We offer an
extensive assortment of exotic and domestic hardwood species, engineered hardwoods, laminates, bamboo and cork direct to
the consumer. We also provide a wide selection of flooring enhancements and accessories, including moldings, noise-
reducing underlay, adhesives and flooring tools. Our customer is primarily the homeowner, or a contractor on behalf of a
homeowner.
Founded in 1994, Lumber Liquidators is the largest specialty retailer of hardwood flooring in North America. Our initial
public offering was in November 2007, and our common stock trades on the New York Stock Exchange under the symbol
“LL”. We are a Delaware corporation with headquarters in Toano, Virginia.
Competitive Strengths
We believe that our sourcing directly from the mill provides the foundation for the strongest value proposition in a
highly-fragmented hardwood flooring market. We strengthen and support that value proposition with a unique store model,
proprietary brands, extensive customer education and sales support resources and a comprehensive marketing and advertising
strategy.
Sourcing Direct from the Mill
Our Suppliers. We believe that our vertically integrated business model enables us to offer a broad assortment of high-
quality products to our customers at a lower cost than our competitors. We work directly with a select group of vendors and
mills with whom we have cultivated strong relationships that provide for a consistent supply of our products. We select
suppliers based on a variety of factors, including their ability to supply products that meet industry grading standards and our
demanding product specifications, which support the high-quality nature of our brands. 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. 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. Further, many suppliers have expanded to support our business.
We currently purchase products from approximately 110 domestic and international vendors, which are primarily mills.
In 2012, our top 10 suppliers accounted for approximately 50% of our supply purchases. We believe that alternative and
competitive suppliers are available for most of our products. In 2012, approximately 43% of our product was sourced from
Asia, 50% from North America, 6% 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.
Sourcing Initiatives. In 2011, we began a process to continually challenge, and ultimately strengthen, the structure of
our sourcing relationships with the best international and domestic mills. Our sourcing initiatives play a key role in
maintaining the best combination of quality and value in our product assortment, while reducing product costs. These
initiatives are segregated into three primary areas, which are being implemented independently over a multi-year time frame,
as follows:
OVolume-based discounts and cost sharing for a range of continuing programs, including marketing, product
samples and new store openings;
OCurrent and potential mill partners’ participation in competitive line reviews of specific merchandise categories to
evaluate breadth of assortment, quality, logistics and product cost; and
ODirect sourcing with international and domestic mills to control product cost and quality, enhance forecasting and
broaden our product assortment.
4