In December 2012, rooted in his seat for a 13-hour trip across the Pacific Ocean to China, bamboo importer and processor Dave Johns had one question on his mind: Was he about to lose his supplier to his No. 1 customer, the American wood-product retail behemoth Lumber Liquidators?
Log in to view the full article
In December 2012, rooted in his seat for a 13-hour trip across the Pacific Ocean to China, bamboo importer and processor Dave Johns had one question on his mind: Was he about to lose his supplier to his No. 1 customer, the American wood-product retail behemoth Lumber Liquidators?
On his second day in China, the president of Anji Huaxin Bamboo & Wood Products Company told Johns their business arrangement was over.
"I was trying to think on my feet how I could patch things up," Johns told Hardwood Floors. "Everything in the relationship that I'd built up… for 10 years had just fallen apart."
Lawsuit Alleges A Conspiracy
While Lumber Liquidators had been increasing its purchases of Chinese-sourced bamboo product from Johns' Washington-based NW Bamboo Trim since 2007, it had also been actively meddling with Johns' supplier, he claims in a lawsuit filed in February.
His lawsuit is the third filed against Lumber Liquidators Holdings Inc. in four months.
Lumber Liquidators is currently being investigated by the Department of Justice, Department of Homeland Security's U.S. Immigration and Customs Enforcement (ICE), U.S. Customs and Border Protection and U.S. Fish and Wildlife for possible Lacey Act violations, according to USFW spokesperson Gavin Shire.
The DOJ, ICE and USFW raided Lumber Liquidators' Toano, Va. headquarters and another location in Richmond on Sept. 26 to search for wood products sourced illegally from far eastern Russian forests.
The complaint filed by Johns' attorney in the Richmond Circuit Court alleges Lumber Liquidators' staff threatened and intimidated Johns' supplier in China in order to cast Johns aside and sell to them directly. Johns is asking for $350,000 in damages, the total amount allowed in Virginia, his attorney, Hayden Fisher, said.
Lumber Liquidators released a statement through its public relations firm saying it has information that contradicts the allegations made by NW Bamboo Trim and are responding with "an aggressive defense."
The statement reads:
"We seek to establish long-term, collaborative relationships with our supplier partners and highly value all of our supplier relationships. In this case, after several years of working with NW Bamboo, we completed a line review of molding products as part of our broader process across all product lines to continually evaluate and strengthen the structure of our sourcing relationships. As a result, we simply shifted our business to another supplier which provided better value. This lawsuit is riddled with inaccuracies and we deny the claims made by NW Bamboo. We are confident that we did the right thing for our customers and we will defend ourselves vigorously."
Indeed, according to a 10-K form filed by Lumber Liquidators with the Securities and Exchange Commission in February, the company began a process to reduce product costs in 2011 through sourcing initiatives that included direct sourcing and competitive line reviews among current and potential mill partners.
"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," a passage in the 10-K reads.
While acknowledging in the complaint that line reviews took place, one in the U.S. and one in China, Johns alleges they were shams.
Lumber Liquidators told Johns he was the number two bidder, but did not select NW Bamboo Trim even after it lowered its bid $40,000 below the top bidder's, the complaint alleges.
The complaint also says Lumber Liquidators chosen source-Anji Huaxin-never participated in their China line review.
The Start of a Chinese-American Relationship
Johns first started looking to China for suppliers in 1996. He imported mirror and glass until switching his focus to bamboo flooring in 2002, and added molding shortly thereafter.
NW Bamboo Trim started purchasing from Anji Huaxin in 2006, right around the time Lumber Liquidators first approached Johns, according to a timeline in a letter Johns sent to Lumber Liquidators executives in April 2013.
Anji Huaxin gave Johns certain assurances-a line of credit that allowed Johns to sell the product before paying Anji Huaxin back and a verbal agreement that Anji Huaxin would refer any American business that approached them for product to NW Bamboo Trim.
Indeed, the letter mentions Confucius' five principal relationships, and implies that Johns' relationship with Mr. Yang was based on the fifth and strongest of Confucius' relationships, friend and friend.
"Thus, it was shocking to learn from Mr. Yang how Lumber Liquidators approached them and the tactics which were employed to break their bond with us," Johns writes. "Placing Mr. Yang in this predicament, especially under the threat that if he didn't comply, he would lose the entire account, was something that greatly affected him. He was very upset when I met him in December."
Lumber Liquidators Approaches NW Bamboo Trim
A Lumber Liquidators retail store based in Auburn, Wash., approached NW Bamboo Trim in 2006 to purchase his product, according to the timeline provided by Johns in the letter, and Johns contacted Lumber Liquidators sometime thereafter to introduce the idea of NW Bamboo Trim supplying trim to the company.
At the January 2007 Surfaces Trade Show, Lumber Liquidators reached out to Johns, and NW Bamboo Trim sent its first shipment to the company in September of that same year.
To keep up with Lumber Liquidators' needs, the company in November 2008 advised NW Bamboo Trim to construct a large warehouse facility by January 2009, Johns' timeline says. The warehouse, operational by the time Lumber Liquidators requested, allowed NW Bamboo Trim to move enough volume to begin feeding Lumber Liquidators' retail stores throughout the United States.
And in 2010, Lumber Liquidators gave NW Bamboo Trim 100 percent of its bamboo trim business after it upgraded to an even larger warehouse space.
Lumber Liquidators purchased $1 million of product in 2011 and in 2012, the year that ended with Johns losing his supplier, sales reached $2 million, the letter states. The relationship became so consistent that Johns started stockpiling inventory ahead of orders.
Out With The Middleman
The first instance of Lumber Liquidators attempting to cut Johns out came in 2011, according to the complaint.
Before that, a Chinese sourcing company called Sequoia Flooring began visiting and calling Anji Huaxin. They asked the company to break their relationship with NW Bamboo Trim, the complaint says.
Lumber Liquidators purchased Sequoia Flooring on Sept. 28, 2011, for $8.3 million, according to the company's 10-K filing.
Sequoia Flooring employees, now Lumber Liquidators employees, approached Anji Huaxin in March 2012, according to the complaint. They "'threatened' [Anji Huaxin] to stop 'cooperating' with Bamboo as Lumber sought to begin buying from [Anji Huaxin] directly," the complaint says.
Anji Hauxin honored purchase orders from NW Bamboo Trim through the end of the year before raising prices, effectively cutting Johns out.
Containers Of Product On His Property
When Lumber Liquidators ended its relationship with NW Bamboo Trim, Johns was left with hundreds of thousands of dollars in inventory he stockpiled in case Lumber Liquidators needed product fast, the complaint states.
He tried to sell the leftovers, but the companies large enough to deal in the quantity Johns had were either locked into contracts with other suppliers or sourcing direct, he says.
"You can't even sell it as a fire-sale price," Johns says. "It's a lot of volume."
Johns sold his customer list and as much product as a friend of his could purchase, but ultimately NW Bamboo Trim went out of business, the complaint says.
What's left of NW Bamboo Trim's relationship with Lumber Liquidators, about $350,000 in inventory originally earmarked for the retailer, is in six shipping containers on Johns' property.
------------Story was updated March 24 to include Lumber Liquidators' entire statement.