Lumber Liquidators 2014 Annual Report Download - page 22

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.
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, tariffs or our standards, 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.
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, despite our
continued investment in quality control, 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, we require
our suppliers to adhere to our quality standards. While we do monitor our suppliers’ adherence to such
standards, there is no guarantee that we will identify every instance of non-compliance, if any. Moreover, the
failure of our suppliers to adhere to applicable legal requirements and 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.
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
14