Lumber Liquidators 2013 Annual Report Download - page 16

In conjunction with our Best People initiative, we place an emphasis on identifying, hiring and
empowering top performing employees who share a passion for our business philosophy. Many of our store
managers have previous experience with the home improvement, retail flooring or flooring installation
industries. We provide continuous training for our store associates, from topic-specific modules offered on our
intranet to participation in our Lumber Liquidators University (‘‘LLU’’) program. LLU is an annual training
event for all of our regional and store managers that focuses on enhanced selling techniques, in-depth product
training and strategic discussions with senior executives.
We divide our U.S. stores into three primary geographic regions, each with a vice-president of sales, and
further segregate stores into regions with 10 to 15 stores overseen by a regional manager. At least one store in
each region is designated as a training store, adding to the skills of existing associates, sharing best practices
and developing future store managers. Our hours of operation are generally less than traditional retail and
sales are less weighted to weekends. Combined with a low number of associates supervised per location and
average annual compensation of $80,000 to $90,000, we believe our store manager position is valued in retail
and our turnover is low.
Sales Approach
We seek to appeal to customers who desire a high-quality product at an attractive value. We sell our
products principally to existing homeowners who we believe represent over 90% of our customer count. Most
of our other sales are to contractors, who are primarily small businesses that are either building a limited
number of new homes or have been hired by a residential owner to put in a new floor.
Historically, our customers are in their mid-30’s or older, are well-educated and have income levels above
the average domestic household. We have found that homeowners prefer an assortment with a range of
characteristics, including appearance and durability, ease of installation, renewability of resources, and specific
aspects of engineered, vinyl plank and laminate flooring. Our research indicates that our customers will choose
to replace their flooring primarily after they have lived in the home for a certain number of years, when a life
event occurs such as a change in household members, and prior to or shortly after moving into a new home.
According to Catalina Research, Inc. (‘‘Catalina’’), approximately 28% of buyers of an existing home
undertake some type of flooring replacement project in the first year of ownership.
Our primary focus has been on customers who are passionate about their flooring purchase and who often
define themselves as DIY. In recent years, we believe our value proposition has reached, and resonated with,
both the DIY customer and a customer considered more ‘‘casual.’’ The casual consumer generally has less
knowledge of the range of hard surface flooring products available or the purchase process itself, including the
key questions needed for the best flooring solution. In comparison to the DIY customer, this customer
generally requires a broader range of assistance from our sales associates and traditionally selects additional
services such as delivery and installation.
We compete for the DIY and more casual customers in a highly fragmented marketplace, where we
believe no one retailer has captured more than a 15% share of the market for hardwood flooring. We believe
the majority of the market consists of local one-store flooring retailers, small chains of stores that may
specialize in one or two flooring categories and a limited number of regional chains. While these independent
retailers once numbered over 13,000 and suffered during the downturn in residential home improvement,
Catalina estimates there are still 9,000 specialty floor coverings stores.
We also compete against the national home improvement warehouse chains, including Home Depot and
Lowe’s, which together have over 4,000 store locations. Catalina estimates that Lumber Liquidators, Home
Depot and Lowe’s combined represent approximately one-third of hardwood flooring retail sales. We believe
we have a greater market share in the products we sell, and further believe our product categories represent
less than 2% of sales at an average Home Depot or Lowe’s store.
We are the largest specialty retailer of hardwood flooring in North America, and we capture market share
from competitors ranging from the local store to the national home improvement chain by offering the
strongest, most complete value proposition, aggressively broadening the reach and frequency of our marketing
and advertising, and delivering a complete flooring solution with expertise and continuing service.
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