Lumber Liquidators - SWOT Analysis
One strength of Lumber Liquidators is their discount pricing, a weakness is a lack of innovation, an opportunity is the ability to further diversify their supply chain, and a threat is the uncertainty surrounding the Chinese tariffs. A complete SWOT analysis of the company is provided below.
- Lumber Liquidators has a broad product line which can bring in customers who need diverse flooring options. Their products include hardwood, laminate, engineered wood, bamboo, cork, vinyl, ceramic tiles, and porcelain tiles.
- The company has a lean business model, has no frills retail locations, and minimizes overhead which allows them to discount their flooring and offer great prices.
- Lumber Liquidators has created system redundancies and implemented business continuity plans that pay dividends when there is a business disruption, such as the security incident reported in August of this year. The company was able to deal with the issue while ensuring that customers were not impacted as the day-to-day business operations continued.
- In May 2019, it was announced that Lumber Liquidators had settled with the Securities and Exchange Commission to pay $33 million in fines for not being truthful about formaldehyde in their laminate products. This was after the company had already paid over $36 million to customers who had bought the laminate between 2009 and 2015. The lingering impact of this mistep will continue to affect the company's bottom line.
- As of mid-2019, about 50% of Lumber Liquidators stock is imported from China. The tariff uncertainty is contributing to higher costs and an inability to predict future costs.
- Floor Covering News published an article that focused on innovators in the flooring space, and even though close to twenty companies were mentioned, Lumber Liquidators was not one of them. This may indicate that the company is falling behind in innovation. However, there is some innovation happening as they recently introduced the Aquaseal flooring line. The line offers laminate, hardwood veneer, and bamboo that can withstand water on the floors for 24 hours or more without any damage.
- One opportunity the company has is to source less of its product from China. Doing this will lessen the impact of tariffs, and also provide the company the opportunity to continue to move on from the bad publicity received when it was disclosed in 2015 that they were sourcing laminate that was releasing formaldehyde, and then lying about it. Third party testing done in 2019 found that there were no traces of phthalates found in Lumber Liquidators vinyl flooring, which provides them with unbiased proof that they are moving in the right direction in removing potentially harmful chemicals.
- Lumber Liquidators can look for ways to continue to grow its installation business, which is not impacted by tariffs.
- In late 2018, the company opened a retail location with expanded services including a design center, larger selection and inventory, and integrated technology. If this new format proves popular with customers, the company can expand the new store format to other locations to increase customer interactions and sales.
- Tariffs of 25% on the product Lumber Liquidators imports from China are hitting the company hard and impacting sales. On a positive note, the tariffs are causing the company to diversify their supply chain, which should help reduce the impact of tariffs now and in the future.
- Many consumers are willing to spend more on premium flooring, and Lumber Liquidators discount model is not a good fit for this. For example, in 2018, Floor & Decor, a more high-end flooring store, did more business than Lumber Liquidators, even though it only has about a quarter of the store locations.