Lumber Liquidators 2012 Annual Report Download - page 13

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 Marketing and Advertising
Reach and Frequency. Our marketing and advertising strategy includes a focus on broadening the reach and frequency
of our message to increase the recognition of our value proposition and ultimately the number of customers served. We
utilize a mix of traditional and new media, direct mail and financing offers to emphasize product credibility, value, brand
awareness, customer education and direct selling. Though our primary focus remains on the more passionate do-it-yourself
(“DIY”) customer, we believe our value proposition is reaching, and resonating with, a more casual consumer.
We increase brand awareness in a variety of ways, including celebrity endorsements and product placement
opportunities. We have long-term relationships with respected, well-known home improvement celebrities Bob Vila and Ty
Pennington. Bob Vila, in particular, has been associated specifically with our Bellawood brand for several years. We work
with Ty Pennington on a proprietary line of flooring branded as the Ty Pennington Collection.
To increase brand awareness, we conduct ad campaigns on both a national and local level using both traditional and new
media. We work with shows such as HGTV’s “Dream Home Sweepstakes,” which use our products and enable potential
customers to see both what our flooring will look like after installation and the relative ease with which it can be installed. In
addition, we use targeted television advertising on cable networks such as Discovery Channel, HGTV, TLC and DIY
Network. We engage in sports marketing by participating in opportunities with, among others, Major League Baseball and
National Basketball Association teams. On the Internet, our advertising efforts include the use of banner advertising,
sponsoring links on well-known search engines, having storefronts with large e-tailers and having a large network of online
affiliate partners. We also utilize local and national radio, primarily for promotional messaging.
Our direct mail strategy focuses on regular contact with our customers and the targeting of prospective purchasers. We
have a healthy and growing database that we utilize to drive our direct mail and overall marketing strategies. We distribute
our catalogs, as well as other direct mailings, to key consumer and commercial segments around specific store locations.
Copies of our catalogs can also be obtained through our stores, our call center and our website. In addition, we utilize direct
mail for call-to-action promotions. We believe these mailings contribute to increases in store traffic and call center volumes
that lead to more sales. We expect to continue expanding our direct mailing efforts to prospective customers in markets
where we have stores.
Financing. We offer our residential customers a financing alternative through a proprietary credit card, the Lumber
Liquidators credit card, underwritten by GE Money Bank at no recourse to us. We generally utilize the credit program for
promotional opportunities, including programs for up to 26 months of deferred interest with payments. Our customers may
also use their Lumber Liquidators credit card to tender installation services provided by our installation service provider, The
Home Service Store, Inc. (“HSS”).
We offer our commercial customers a financing alternative through the Lumber Liquidators Commercial Credit
Program, A Credit Line for Pros. This program is underwritten by BlueTarp Financial, Inc., generally at no recourse to us.
The commercial credit program also provides our professional customers a range of additional services that we believe add
efficiency to their businesses.
Our Market
According to the December 2012 Floor Coverings Industry report from 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, solid and engineered hardwood, softwood and bamboo flooring, ceramic and stone floor and wall tile, resilient
sheet and floor tile, and laminate flooring. Due to improvements in the quality and construction of certain products, ease of
installation and lower average retail price points, hardwood flooring’s share of the overall U.S. floor coverings market
continues to increase, primarily by taking share from soft surface flooring. Using Catalina estimates as a basis, we believe the
2012 retail value of the U.S. hardwood and laminate flooring markets were approximately $3.6 billion and $1.8 billion,
respectively, and our share of the combined market was approximately 10.5% considering these products were approximately
70% of our sales mix in 2012.
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