Lumber Liquidators 2013 Annual Report Download - page 22

Some of our competitors are larger organizations, have existed longer, are more diversified in the
products they offer and have a more established market presence with substantially greater financial,
marketing, personnel and other resources than we have. In addition, our competitors may forecast market
developments more accurately than we do, develop products that are superior to ours or produce similar
products at a lower cost, or adapt more quickly to new technologies or evolving customer requirements than
we do. Intense competitive pressures from one or more of our competitors could cause price declines,
decrease demand for our products and decrease our market share.
Hardwood flooring may become less popular as compared to other types of floor coverings in the future.
For example, our products are made using various hardwood species, including rare exotic hardwood species,
and concern over the environmental impact of tree harvesting could shift consumer preference towards
synthetic or inorganic flooring. In addition, hardwood flooring competes against carpet, vinyl sheet, vinyl tile,
ceramic tile, natural stone and other types of floor coverings. If consumer preferences shift toward types of
floor coverings other than hardwood flooring, we may experience decreased demand for our products.
All of these competitive factors may harm us and reduce our net sales and operating results.
Risks Related to Our Suppliers, Products and Product Sourcing
Our ability to obtain products from abroad and the operations of many of our international suppliers are
subject to risks that are beyond our control and that could harm our operations.
We rely on a select group of international suppliers to provide us with flooring products that meet our
specifications. In 2013, approximately 50% of our product was sourced from Asia, approximately 7% was
sourced from South America and approximately 3% was sourced from other locations outside of North
America. As a result, we are subject to risks associated with obtaining products from abroad, including:
• political unrest, terrorism and economic instability resulting in the disruption of trade from foreign
countries where our products originate;
• currency exchange fluctuations;
• the imposition of new laws and regulations, including those relating to environmental matters and
climate change issues; labor conditions; quality and safety standards; trade restrictions; and
restrictions on funds transfers;
• the imposition of new or different duties (including antidumping and countervailing duties), tariffs,
taxes and/or other charges on exports or imports, including as a result of errors in the classification
of products upon entry;
• disruptions or delays in production, shipments, delivery or processing through ports of entry; and
• changes in local economic conditions in countries where our suppliers are located.
These and other factors beyond our control could disrupt the ability of our suppliers to ship certain
products to us cost-effectively or at all, which could harm our operations.
Our ability to offer hardwood flooring, particularly products made of more exotic species, depends on the
continued availability of sufficient suitable hardwood.
Our business strategy depends on offering a wide assortment of hardwood flooring to our customers. We
sell flooring made from species ranging from domestic maple, oak and pine to imported cherry, koa,
mahogany and teak. Some of these species are scarce, and we cannot be assured of their continued
availability. Our ability to obtain an adequate volume and quality of hard-to-find species depends on our
suppliers’ ability to furnish those species, which, in turn, could be affected by many things including events
such as forest fires, insect infestation, tree diseases, prolonged drought and other adverse weather and climate
conditions. Government regulations relating to forest management practices also affect our suppliers’ ability to
harvest or export timber, and changes to regulations and forest management policies, or the implementation of
new laws or regulations, could impede their ability to do so. If our suppliers cannot deliver sufficient
hardwood and we cannot find replacement suppliers, our net sales and operating results may be negatively
impacted.
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