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Floored: Lessons Learned

2/20/2018

More than 18 months after “60 Minutes” shocked the flooring industry with a report alleging Lumber Liquidators was selling Chinese-made laminate flooring containing dangerously high levels of formaldehyde, industry and association members and executives have had time to digest the collateral damage and take the necessary steps to ensure their own compliance.


The consensus is that Lumber Liquidators, the giant retailer that lost a tremendous amount of business and was pounded by Wall Street for its actions, cast a pall over the entire industry (both hardwood and laminate flooring) by its misdeeds. However, the good news is that steps were taken — by Lumber Liquidators, flooring retailers, distributors and manufacturers — to ensure products and processes were complaint with California Air Resources Board, known as CARB or CARB 2, which in 2009 established the world’s toughest standard for limiting formaldehyde emissions from composite wood products such as laminate flooring.


[While the standards are legally enforceable only in California, the U.S. government is finalizing regulations that will largely duplicate CARB on a national level; therefore, suppliers are doing their compliance audit ahead of time. In addition, manufacturers want to adhere to the Lacey Act, which in 2008 was amended to include plants and plant products such as timber and paper. This landmark legislation represents the world’s first ban on trade in illegally sourced wood products.]


Here’s a look back at some of the mistakes made, false assumptions, and impacts — both negative and positive — stemming from the Lumber Liquidators’ “60 Minutes” episode from March 1, 2015.


Mistakes made


For Bill Dearing, president of the North American Laminate Flooring Association, what struck him the most was the lack of due diligence on the part of Lumber Liquidators.


“Note this is not a statement that anything necessarily was done illegally, but certainly product claims that should not have happened did indeed happen,” Dearing said. “Such potential incidents are lessened greatly with the proper implementation of an authorized standards-setting organization.”


Dearing said NALFA’s members, largely U.S.-based manufacturers, are monitored for every product element. For example, a listed NALFA product must be CARB 2 compliant, which means the product should be thoroughly vetted through secondary and independent sources.


According to Dearing, the key teaching moment here is the practice of diligent verification, which was lacking in this instance.


“It’s not guesswork but rather a clear path for the industry to use,” he said. “This is the most important lesson that should prompt all of us to review our systems immediately.”


Dan Natkin, senior director of residential products for Mannington Mills, said the Lumber Liquidators episode was a “hard lesson learned” but he wouldn’t characterize it as a debacle.


“What happened could happen to any company who imports without an import quality control department and without expertise in very complex laws such as the Lacey Act and CARB regulations,” Natkin said. “What we learned as an industry, ultimately, is that you need to check, double check and triple check to make sure you truly know where your wood and laminate is coming from and to verify, not trust, that it is meeting all applicable state and federal laws. This may include your own internal verification systems (lab, QC department, etc.) as well as third-party verification systems that you contract with — not your supplier.”


Beyond ‘60 Minutes’


Within 24 hours of the “60 Minutes” report, flooring retailers were besieged by calls from their customers regarding the “health” of their floors. The dealers, in turn, sought assurance from their distributors and suppliers that they were all in compliance and could back it up with the correct paperwork.


“We learned in our business to be more cautious and inquisitive with whom we do business with to make sure our relationship with our vendor partners is not only healthy and beneficial but also trustworthy in doing the right things and compliance with the laws under our jurisdiction,” said Carlton Billingsley, owner of Floors and Moore, a Benton, Ark.-based retailer. “Our business is better because of this episode as we have learned takeaways that we have implemented in our business to be better.”


Billingsley said his customers — be they women or commercial contractors — also became more astute consumers; some now require documentation of compliance while others are seeking a deeper trusting relationship that perhaps did not exist in the past.


In the wake of the report, the International Wood Products Association worked with its trade professionals to be more proactive in implementing best practices. In 2016, IWPA introduced the Wood Trade Compliance Training and Due Diligence Tools course, which is designed to help companies understand the critical thinking that is necessary to put into effect the broad mandates of the Lacey Act and other laws and regulations affecting the wood trade, including CARB.


Cindy Squires, attorney and executive director of IWPA, said the industry has long been committed to complying with California’s formaldehyde emissions limits and other laws such as the Lacey Act. Squires said that in the past the Lacey Act compliance training was often handled by environmental groups or government agencies and only focused on explaining the penalties for non-compliance.


“This approach did not take into account the dynamics of individual business decisions related to forest products purchasing and manufacturing and the internal procedures that needed to be considered by a business beyond simply buying certified product,” Squires said. “Our membership is mostly comprised of small, family-owned businesses that operate in a global marketplace where the supply chain is complex and every participant throughout that chain has an important role to play. Steps to ensure that our customers’ expectations are met must be tailored to each company’s specific circumstances and risks.”


False assumptions


Many executives believe it was falsely assumed that Lumber Liquidators “knowingly” imported illegally harvested wood in violation of the Lacey Act. However, some charge they knew exactly what they were doing. Nick Freadreacea, president and owner of The Flooring Gallery in Louisville, Ky., said of Lumber Liquidators: “rather than running an ethical business, they were actually cutting corners to give them an unfair advantage in the marketplace.” The impact, he added, is that consumers are skeptical about the flooring industry as a whole and Lumber Liquidators “virtually killed the laminate category.”


Still other manufacturing executives believe consumers are smart enough to recognize that one bad apple does not represent the entire laminate category. Roger Farabee, senior vice president of laminate and hardwood for Mohawk Laminate & Hardwood, North America, said the “60 Minutes” report and subsequent national dialogue that ensued “actually helped responsible, domestic manufacturers who produce safe products and who champion the Made in the USA story.”


Farabee said that even before the report exposed the use of formaldehyde in some imported products, there had already been a steady increase in the number of consumers seeking products manufactured domestically.


“Consumers trust products produced by American manufacturers under U.S. regulations and they also have substantial pride in supporting brands that support American jobs,” Farabee said.


Mannington does not sell to Lumber Liquidators; it serves retailers who view Lumber Liquidators as its competition. Still, Natkin gives the large retailer credit for shaping up its chain of custody.


“They appear to have developed the most robust verification system in the industry,” Natkin said. “And some believe their agreement with the Department of Justice will become the template for all importers in the future.”


Lumber Liquidators collaborated with the DOJ to develop an environmental compliance plan that is designed to ensure an unbroken and verified chain of custody and documentation of its products from the store all the way to the forest.


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