Lumber Liquidators 2014 Annual Report Download - page 17

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order to connect to our consumers in the most convenient manner possible as well as build relationships with
our satisfied customers. We have an active presence on Facebook, Pinterest, YouTube and two unique Twitter
accounts.
We strive to use our various sales channels to make our customers’ transactions easy and efficient.
Customers can purchase our complete assortment of products in our stores, or through our call center, website,
a smartphone or a tablet. The prices available on our website and from our call center are the same as the
prices in our stores. Once an order is placed, customers may have their purchases delivered or pick them up at
a nearby store location. Our average sale was approximately $1,675 in 2014, and generally represents one or
two rooms of flooring. We define ‘‘average sale’’ as the average invoiced sale per customer, measured on a
monthly basis and excluding transactions of less than $250 (which are generally sample orders, or add-ons or
fill-ins to previous orders) and of more than $30,000 (which are usually contractor orders). Our goal is to
provide our customers with everything needed to complete their flooring project – to remove the existing
floor, install the new floor with complementary moldings and accessories, and finally, maintain the floor for
its lifetime.
We are committed to responding timely to our potential and existing customers. Our call center is staffed
by flooring experts cross-trained in sales, customer service and product support. In addition to receiving
telephone calls, our call center associates chat online with visitors to our website, respond to emails from our
customers and engage in telemarketing activities. Customers can contact our call center to place an order, to
make an inquiry or to order a catalog.
Store to Customer Delivery. Once an order is placed, a customer chooses to either pick up at a nearby
store location or have their purchases delivered. We engage third parties to deliver our products from the store
to an address designated by the customer. The cost of the delivery varies based on weight and distance, and
we pass our actual cost onto the customer with a small markup to cover administration. In 2014, actual
third party delivery charges included in cost of sales were 91% of the delivery revenue included in net sales.
We believe the percentage of customers opting for non-merchandise services will grow as our value
proposition resonates with a greater number of customers who do not consider themselves DIY consumers.
Approximately one in five of our customers opt for delivery services over in-store pickup.
Installation. Approximately one in 10 of our customers opt to utilize the fully-insured and licensed
professional installation services which we make available to measure and install flooring at competitive
prices at each of our stores. As of December 31, 2014, installation services are managed through a national
arrangement with a third-party in 267 of our stores. Under this national arrangement, we receive certain
reimbursements based on volume, which offset other expenses. In the remaining 85 stores, we are testing
structural alternatives to the national arrangement. In these stores, our own associates perform certain
customer-facing, consultative services and coordinate the actual installation services provided by third-party
professional installers. Service revenue for installation transactions we control is included in net sales, with the
corresponding costs in cost of sales. The installation transactions we facilitated increased operating income in
2014, but with gross margins generally less than our average merchandise transaction. We believe our greater
interaction with the customer and greater control over the third party services provided will ultimately result
in higher utilization by the customer.
Market
According to the July 2014 Floor Coverings Industry report and quarterly updates from Catalina, the
hardwood flooring market represents approximately 14% of the overall U.S. floor coverings market, which
includes carpeting and area rugs, solid and engineered hardwood, softwood and bamboo flooring, ceramic
and stone floor and wall tile, resilient sheet and floor tile, and laminate flooring. Using Catalina estimates
as a basis, we believe the 2014 retail value of the U.S. hardwood and laminate flooring markets were
approximately $4.8 billion and $1.9 billion, respectively. These products represented approximately 57% of
our sales mix in 2014 and we believe our combined share of these two markets was approximately 9% in
2014. Overall, we believe improvements in the quality and construction of certain products, ease of
installation and a broad range of retail price points, will drive continued hard surface flooring share gain
versus soft surface flooring.
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