Posted on 03/02/2015 9:34:30 AM PST by SeekAndFind
Sent: Monday, March 02, 2015 2:43 AM
To: Whitney Tilson
Subject: You on TV
Whitney,
I watched the 60 minutes piece. Congrats.
Having done business in China for literally decades, what I found most amazing in the piece is the LL CEO's statement that they trust their manufacturers. If that is true, then the company is guilty of incredible naivete or incompetence.
I have negotiated with factories in China. What happens is that the American buyers drive a hard bargain.....and with multiple factories, as LL has, the factories know that they are in competition with one another. A negotiation always comes down to pennies. It is pretty common for the Chinese factory to do what they have to do to keep the business.....ie, agree to the best price they can get from the buyer, but agree nevertheless. And then, once they have the business, they try to figure out how to make money on it.
But a reasonably savvy buyer knows that, and has approved samples against which actual production is compared. If the actual production does not match the approved sample, then the production is rejected. We did that with just about every production run. If LL didn't do that, then they deserve whatever flak they catch....not because they are deceitful necessarily, but just because they are incompetent.
Of course, if they knew about it, and were complicit either by looking the other way or somehow condoning it, then that is a different story. Either way, however, the company is guilty. And the State of California goes after the seller, not the supplier. So a company like Home Depot, for example, will have a standard clause in their contracts whereby the vendor indemnifies Home Depot against any action that may arise from a product that they sell, made by the vendor.
But a vertically integrated operation like LL, where they are both the retailer and the supplier, has no place to hide if the California DOJ comes a'callin'.
Even with our best inspections, our best efforts to compare product against the approved samples, from time to time, there would be quality problems. We had our standard purchase agreement which we executed with each factory that supplied us, which allowed us to deduct from future payments to them, whatever quality charge-backs we received from our customers. That is unbelievably punative. Here's why:
Suppose a product was sold to us FOB China for $10. By the time it landed in the US, freight and duty etc included, it cost us $13.20. We would then sell it to the retailer for $20 (which would net us about $18 after advertising deductions etc.) And they would sell it for $40. If the consumer returned the product, the store refunded the consumer the $40 she paid. And charged that $40 back to us. We in turn charged the factory $40 for one defective product they had originally sold to us for $10.
The point is that, knowing they stood to risk a 4:1 expense if the quality was poor, was the best quality control tool we had. The factories ultimately found it was much less expensive to give us the correct quality and make a smaller profit, than to cut corners and risk a 4:1 expense. In other words, they way you get quality control out of China is to make it in their economic interest to do what you want them to do.
Now I didn't learn this in business school. It is common sense. If LL doesn't have common sense, then they deserve to lose. As simple as that.
Anyway, I enjoyed watching you on TV.
Four years later ——
Lumber Liquidators to pay $33 million for misleading investors
“60 minutes” == FAKE NEWS.
See? BS!
Am I inclined to believe this story from CBS? Huge caveat a la NBC and exploding GM trucks, for example, yes, I am so inclined. I've been inside a Lumber Liquidators once, and immediately had the impression "Cheap hsit made in China with a shiny coat of polyurethane and G-d only knows what all other more nasty kinds of noxious chemicals."
- With apologies to those who have done business with LL. It's not a laughing matter and my heart goes out to you - again assuming that this is true, which one is inclined to believe.
“I didn’t say that, YOU SAID THAT!!”
somebody needs to come home
WOW YOU WIN
You answered a post that of mine that is over 4 years old!
UPDATE: I have no idea if LL is even involved, but some relatives very recently (just about 2 months ago) moved into a brand new home. Now they seem to be sick. We suggested they check for some type of reaction to the building materials, etc. Supposedly they are “getting better”, but the 4 year old had hives, and seems everyone has had cough/cold symptoms for several weeks. Maybe just a seasonal thing.
I hope your relatives get their situation straightened out, or maybe it is just a seasonal bug or something. But who knows? The one thing you can count on a builder for is to lean on his subs to cut corners and use cheap hsit.
They’re finished. It’s all over except the last guy turning out the lights.
The fact that the USA imports any wood products is astoundingly stupid and inconceivable.
Why we need an across the board 20% import tariff. Bring it back home!
Maybe 60-minutes could do one where they pile a 1980 Chevy pickup with flooring and containers of Alar, and they T-Bone it and set the whole thing on fire.
As long as they don’t forget the detonating cap.
[Why we need an across the board 20% import tariff. Bring it back home!]
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