New store format – Management is testing a new store format that allows for more selling space. In addition, Lumber Liquidators plans to remodel some of its stores.
Real estate strategy – Depressed economic conditions in some areas give Lumber Liquidators Holdings Inc (NYSE:LL) opportunities to enter favorable terms on leases.
Advertising initiatives – Due to its small size and increased demand due to the housing recovery, Lumber Liquidators plans to sacrifice some margin and invest heavily in advertising.
Small market share – Lumber Liquidators only owns a 10.5% market share in the specialty flooring market. CEO Robert Lynch believes the U.S. market can support 600 stores, doubling its current store count.
Many small competitors – Lumber Liquidators small market share means that others have 89.5% of the market. Competitors include many smaller, private businesses in the specialty flooring market.
Two powerful competitors – Lumber Liquidators’ $66 million in cash on its balance sheet pales in comparison to Home Depot and Lowe’s Companies, Inc. (NYSE:LOW) with cash balances of $2.4 billion and $666 million, respectively. Home Depot could easily buy out Lumber Liquidators. Both The Home Depot, Inc. (NYSE:HD) and Lowe’s can easily start a subsidiary company to compete with Lumber Liquidators.
In summary, Lumber Liquidators’ small size and small market share ownership mean lots of room for expansion. Its investment in people, products, advertising, and the supply chain should pay off handsomely. Its various hardwood products with different price points should attract customers of all walks of life.
Lumber Liquidators Holdings Inc (NYSE:LL) can gain lots of expertise from its specialization in hardwood flooring. Lowe’s Companies, Inc. (NYSE:LOW) and Home Depot’s diverse product offerings leave out the ability to specialize. Lumber Liquidators represents an interesting growth and housing recovery play.
The article A Strategic Look at This Flooring Retailer originally appeared on Fool.com and is written by William Bias.
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