Lumber Liquidators 2013 Annual Report Download - page 23

Our dependence on certain suppliers makes us vulnerable to the extent we rely on them.
We rely on a concentrated number of suppliers for a significant portion of our supply needs. We
generally do not have long-term contracts with our suppliers, and we typically obtain our hardwood supplies
on an order-by-order basis, writing orders for future deliveries from 90 to 180 days before delivery. In the
future, our suppliers may be unable to supply us, or supply us on acceptable terms, due to various factors,
which could include political instability in the supplier’s country, a supplier’s financial instability, inability or
refusal to comply with applicable laws, trade restrictions or tariffs, duties, insufficient transport capacity and
other factors beyond our control. If we can no longer obtain merchandise from our larger suppliers, or they
refuse to continue to supply us on commercially reasonable terms or at all, and we cannot find replacement
suppliers, we could experience deterioration in our net sales and operating results.
If we fail to identify and develop relationships with a sufficient number of qualified suppliers, our ability to
obtain products that meet our high quality standards could be harmed.
We purchase flooring directly from mills located around the world. We believe that these direct supplier
relationships are relatively unique in our industry. In order to retain the competitive advantage that we believe
results from these relationships, we need to continue to identify, develop and maintain relationships with
qualified suppliers that can satisfy our high standards for quality and our requirements for hardwood in a
timely and efficient manner. The need to develop new relationships will be particularly important as we seek
to expand our operations and enhance our product offerings in the future. Any inability to do so could reduce
our competitiveness, slow our plans for further expansion and cause our net sales and operating results to
deteriorate. Moreover, the failure of our existing suppliers to adhere to the quality standards that we set for
our products could lead to litigation and recalls, which could damage our reputation and our brands, increase
our costs, and otherwise hurt our business.
If our suppliers do not use ethical business practices, comply with applicable laws and regulations and
ensure that their products meet our quality standards, our reputation could be harmed due to negative
publicity and we could be subject to legal risk.
While our suppliers agree to operate in compliance with applicable laws and regulations, including those
relating to environmental and labor practices, we do not control our suppliers. Accordingly, we cannot
guarantee that they comply with such laws and regulations or operate in a legal, ethical and responsible
manner. Violation of environmental, labor or other laws by our suppliers or their failure to operate in a legal,
ethical and responsible manner, could reduce demand for our products if, as a result of such violation or
failure, we were to attract negative publicity. Further, such conduct could expose us to legal risks as a result
of our purchase of product from non-compliant suppliers.
Increased hardwood costs could harm our results of operations.
The cost of the various species of hardwood that are used in our products is important to our profitability.
Hardwood lumber costs fluctuate as a result of a number of factors including changes in domestic and
international supply and demand, labor costs, competition, market speculation, product availability,
environmental restrictions, government regulation and trade policies, duties, weather conditions, processing
and freight costs, and delivery delays and disruptions. We generally do not have long-term supply contracts or
guaranteed purchase amounts. As a result, we may not be able to anticipate or react to changing hardwood
costs by adjusting our purchasing practices, and we may not always be able to increase the selling prices of
our products in response to increases in supply costs. If we cannot address changing hardwood costs
appropriately, it could cause our operating results to deteriorate.
Product liability claims could adversely affect our net sales, profitability and reputation.
We face an inherent risk of exposure to product liability claims in the event that the use of our products
is alleged to have resulted in economic loss, personal injury or property damage. In the event that any of our
products proves to be defective, we may be required to recall or redesign such products. Further, in such
instances, we may be subject to legal action. We maintain insurance against some forms of product liability
claims, but such coverage may not be adequate for liabilities actually incurred. A successful claim brought
against us in excess of available insurance coverage, or any claim or product recall that results in significant
adverse publicity against us, may have a material adverse effect on our net sales and operating results.
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