Lumber Liquidators 2013 Annual Report Download - page 26

Increased transportation costs, particularly those relating to the cost of fuel, could harm our results of
operations.
The efficient transportation of our products through our supply chain is a critical component of our
operations. If the cost of fuel or other costs, such as import tariffs, duties and international container rates,
rise, it could result in increases in our cost of sales due to additional transportation charges and in the fees
delivery companies charge us to transport our products to our stores and customers. We may be unable to
increase the price of our products to offset increased transportation charges, which could cause our operating
results to deteriorate.
Damage, destruction or disruption of our Toano or Hampton Roads facilities could significantly impact our
operations and impede our ability to finish and distribute our products.
Our Toano facility serves as our corporate headquarters and, among other things, houses our primary
computer systems, which control our management information and inventory management systems. In
addition, we currently finish approximately 83% of all Bellawood products, as well as small quantities of
certain other products, there. In 2013, Bellawood hardwood flooring accounted for approximately 12% of our
net sales. Further, the Toano facility, along with our facilities in Hampton Roads, serves as our primary
distribution centers. If the Toano facility, the Hampton Roads facilities or our inventory held in those locations
were damaged or destroyed by fire, wood infestation or other causes, our entire finishing and/or distribution
processes would be disrupted, which could cause significant lost production and delays in delivery. This could
impede our ability to stock our stores and deliver products to our customers, and cause our net sales and
operating results to deteriorate.
Business and operation risks exist in connection with our West Coast distribution center and the
construction of our East Coast distribution center.
In 2013, we purchased 110 acres of undeveloped land in Henrico County, Virginia where we are
constructing a 1.0 million square foot distribution center. This is our first real estate purchase and involves
significant investment of capital and resources. If we are unable to manage the construction process and
experience delays and/or cost overruns, our operating results and efficiencies may be impacted negatively.
Further, we entered into a lease for a 500,000 square foot distribution center in Pomona, California.
Historically, our warehouse operations have been consolidated on the East Coast. The cost of operating this
new facility may exceed our expectations and we may not achieve the benefits that we anticipate from this
new facility. Further, we may face challenges relating to the management of inventory in separate warehouse
facilities located on opposite coasts.
The operation of stores in Canada may present increased risks due to our limited experience with that
market.
We opened our first stores in Canada in 2011 and currently operate nine store locations there. As a result
of our limited experience in the Canadian market, these stores may be less successful than we expect.
Additionally, greater investments in advertising and promotional activity may be required to continue to build
brand awareness in that market. Furthermore, we have limited experience with the legal and regulatory
environments and market practices outside of the United States and cannot guarantee that we will be able to
operate profitably in the Canadian market or in a manner and with results similar to our U.S. stores. We may
also incur increased costs in complying with applicable Canadian laws and regulations as they pertain to both
our products and our operations.
The operation of our Representative Office in China may present increased legal and operational risks.
In September 2011, we established a representative office in Shanghai, China to control our product
sourcing in Asia. Our experience with the legal and regulatory practices and requirements in China is limited.
As a result, we may incur costs in complying with applicable Chinese laws and regulations that exceed our
expectations. Further, if we fail to comply with applicable laws and regulations, we could be subject to legal
risk.
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