Lumber Liquidators 2014 Annual Report Download - page 11

Our Direct Sourcing Model
Supplier Relationships. We believe sourcing directly from mills enables us to offer a broad assortment
of high-quality, proprietary products to our customers at a consistently lower cost than our competitors.
We seek to establish strong relationships with mills around the world where the significance of our scale,
breadth of assortment and liquidity allow for both higher quality and lower cost. We believe our collaborative
relationship enhances the mills’ productivity, yield and financial flexibility, such that we access lower net costs
than our competitors. We are able to set demanding specifications for product quality and our own quality
control and assurance teams are on-site at certain mills, coordinating inspection and assurance procedures. We
believe the advantages a mill gains by working with us attracts interest from around the world. As a result, we
have diversified our purchases across approximately 130 domestic and international mills.
We seek long-term, core relationships with mills committed to our demanding product specifications,
sustainable supply and regulatory compliance. As a result, our top 20 suppliers accounted for approximately
62% of our supply purchases in 2014 and our largest mill partner represented approximately 7%. Outside of
the core group, we seek mill diversification and utilize sourcing initiatives which challenge the structure of
each relationship, ultimately producing the best combination of quality and value at the lowest cost.
We are committed to uncompromising integrity across our operations, and quality is a key component of
our value proposition. With over 310 million square feet of flooring sold through over 620,000 customer
transactions in 2014, the scale of our purchasing and diversity of products require sustainable forestry. We
invest significant time and resources to safeguard quality and comply with regulatory requirements. We
discontinue sourcing from suppliers that are unable to meet our standards. We seek long-term relationships
with mills that can provide sustainable and growing supplies of high-quality product.
In the first quarter of 2015, we expect to begin operating a 1,500 square foot lab within our new
East Coast distribution facility. The lab will feature two temperature and humidity controlled conditioning
rooms and two emission chambers correlated to a California Air Resources Board (‘‘CARB’’)-approved
Third Party Certifier. This equipment mirrors the capabilities of CARB and other state-of-the-art emission
testing facilities. We believe no other flooring retailer has comparable facilities. This new lab will complement
and augment the capabilities of the facilities we operate in Toano, Virginia and in Shanghai, China, as well as
those utilized by our suppliers.
Our Products. We offer an extensive assortment of wood flooring under 18 proprietary brand names, led
by our flagship, Bellawood. We have invested significant resources developing these national brand names, as
well as the Lumber Liquidators name. We expect to continue to invest resources in our advertising and
marketing as a percentage of net sales that we believe is greater than our competitors. We believe Lumber
Liquidators is now recognized across the U.S. as a destination for high-quality hardwood flooring at low
prices, while our Bellawood brand is known as a premium flooring brand within the industry.
Our hardwood flooring products are available in various widths and lengths and generally differentiated
in terms of quality and price based on the species, wood grade and durability of finish. Prefinished floors are
the dominant choice for residential customers over unfinished wood planks that have a finish applied after
installation, and as a result, represent more than 95% of the flooring we sell. We also offer a broad assortment
of flooring enhancements and installation accessories, including moldings, noise-reducing underlay and tools,
that complement our assortment of floor offerings. In total, we offer more than 400 different flooring product
stock-keeping units; however, no single flooring product represented more than 2% of our sales mix. By major
product category, our sales mix was as follows:
2014 2013 2012
percentage of net sales
Solid and Engineered Hardwood ................ 43% 44% 48%
Laminate, Bamboo, Cork and Vinyl Plank ......... 38% 38% 36%
Moldings and Accessories .................... 19% 18% 16%
Total ................................. 100% 100% 100%
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