Lumber Liquidators 2013 Annual Report Download - page 15

We expect the West Coast facility to be fully operational in the first quarter of 2014, providing customers
shopping in our stores west of Texas even greater flexibility in the timing of their flooring projects. The new
facility in Henrico County, Virginia is expected to be fully operational late in the fourth quarter of 2014 and
will consolidate the operations currently in 750,000 leased square feet across four separate buildings in the
Hampton Roads area of Virginia. While immediately providing greater efficiency, this new facility will also
provide significant flexibility for store base expansion.
Our Unique Store Model
Our stores are approximately 6,000 to 7,000 square feet, which includes a showroom format designed to
emphasize our products and a small warehouse. We adapt a range of existing buildings to our format, from
free-standing to strip center to small shopping center. Flooring generally is a considered, well-researched
purchase, and we believe our value proposition makes us a destination location. Therefore, we are able to seek
locations with generally lower rent than those retail concepts requiring high traffic or impulse purchases. We
enter into short leases, generally for a base term of five years, with renewal options to maximize our real
estate flexibility. We believe that our store design and locations reinforce our customers’ belief that they get a
good deal when they buy from us.
Through 2011, we targeted locations that placed high significance on visibility to passing traffic and easy
access from major highways. Thereafter, we have sought locations with certain retail synergies, including
home improvement. Through 2012, we employed various showroom designs with a target of 1,000 to 1,200
square feet and allocated the remaining space to warehousing. In January 2013, we began using the initial
design of an expanded store showroom to enhance the shopping experience for our customers. We refer to this
showroom, coupled with an improved store warehouse design, as our ‘‘store of the future.’’ The store of the
future retains our targeted location size but expands the average showroom to a structured design of
approximately 1,600 square feet. Each of our 30 new stores opened in 2013 utilized the store of the future
design. In addition, through December 31, 2013, we had remodeled 22 existing stores to the new format,
including six stores relocated within the primary trade area. We expect all of our new stores and all of our
existing stores that we remodel or relocate to will be in this format.
Our store showrooms have wall racks holding one-foot by two-foot display boards of our flooring
products, presented within color palate and in a good-better-best format, and larger sample squares serving as
the showroom floor. The showroom also displays an expanded selection of flooring enhancements and
accessories to install, complement and maintain a customer’s new floor.
A typical store staff consists of a manager and two to three associates, with a compensation structure that
generally weights sales-driven commission bonuses over relatively low base salaries. The store manager is
responsible both for store operations and for overseeing our customers’ shopping experience. A store’s
warehouse is stocked with a combination of that store’s most popular products and high-volume items, as well
as customer-specific inventory waiting to be picked up or delivered. In-store merchandise inventory levels are
impacted by sales volume, distance from a distribution center, sales mix and warehouse size. At December 31,
2013, in-store inventory ranged as high as $900,000 per store, but averaged approximately $400,000 per store.
By generally requiring a 50% deposit when an order is placed for product not taken home that day, we reduce
store-level working capital requirements.
Our People as Flooring Experts
A flooring purchase is generally a large-ticket, discretionary purchase that most residential homeowners
purchase infrequently. Few home improvements, however, have as much consequence to the ambience of a
room as the flooring. A flooring purchase is often well-researched, but can be highlighted by emotion. A large
segment of residential homeowners are in need of a trusted expert, whether as a guide through a range of
flooring alternatives and services or as a resource to a do-it-yourself (‘‘DIY’’) customer. We train and position
our store management and associates to establish these individual customer relationships, which often last
beyond the current purchase to subsequent purchases for additional rooms in the existing house or even to
remodeling of a new home.
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