Laminate Flooring People shopping

Part 1

Explain the reasons small businesses fail and how small business owners can avoid the major pitfalls of running a business.

Part 2

Since there is so much writing due this week, please post a COURSE RELATED meme (keep it clean!) related to the reading topics from the course. Course related content may include stakeholders, ethics, globalization, sustainability, technology, etc.

Part 3

“Lumber Liquidators’ Laminate Flooring People shopping for new flooring for their homes usually focus on appearance and price, not safety. But this changed abruptly in 2015 when the CBS News program, 60 Minutes, aired  a  segment  alleging  that  wood  laminate  flooring  sold  by  Lumber  Liquidators  contained dangerous levels of formaldehyde, leading to a wave of consumer concern about the safety of products they walked on every day.”

“Lumber Liquidators was a leading retailer of hardwood flooring, selling to both home-owners and contractors in around 350 stores in the United States and Canada. It carried a range  of  products,  including  solid  hardwood;  laminate  flooring;  and  bamboo,  cork,  and  vinyl planks. Under the slogan “Hardwood Floors for Less!” the company pursued a low-cost strategy, telling its customers on its website that it negotiated “directly with the mills, eliminating  the  middleman  and  passing  the  savings  on  to  customers.”  This  strategy  had  proven successful, and the company had grown steadily since its founding in 1996, earning revenues of over a billion dollars in 2013. Its share price had risen dramatically from $13 in 2011 to $119 in 2013.

Formaldehyde  was  a  strong-smelling  chemical  used  in  some  building  materials  and  household products because of its properties as a preservative, fungicide, germicide, and disinfectant. In laminate flooring (a cheaper alternative to solid wood), formaldehyde was sometimes used in glues that adhered composites that were then topped with a thin layer of real wood. These products could release formaldehyde into the air, in a process called off-gassing.  At  relatively  low  levels,  airborne  formaldehyde  could  cause  short-term  eye,  throat,  and  skin  irritation.  The  chemical’s  long-term  effects  were  not  fully  understood.  Some studies showed that formaldehyde caused cancer in rats, and in 1987 the Environ-mental  Protection  Agency  (EPA)  classified  it  as  a  human  carcinogen  (cancer-causing  agent) under conditions of high or prolonged exposure.

In  2015,  regulation  of  formaldehyde  in  consumer  products  was,  however,  spotty.  The  EPA had drafted national emission standards, but had not finalized them. The Consumer Product Safety Commission had no rules for formaldehyde. Congress had passed a Form-aldehyde  Standards  Act,  but  it  had  not  yet  gone  into  effect.  One  state—California—had  adopted its own standards; in 2008 the California Air Resources Board, known as CARB, had  established  limits  for  formaldehyde  emissions  for  composite  wood  products  sold  in  that state, known as the CARB 2 standards.

In the 60 Minutes segment, which first aired on March 1, 2015, the executive director  of  the  activist  organization  Global  Community  Monitor  told  CBS  that  his  group,  working with an environmental attorney, had purchased 150 boxes of laminate flooring from  stores  in  California  and  sent  them  to  independent  labs  for  testing.  Products  purchased at Home Depot and Lowe’s—other home improvement stores—met the CARB 2  standards,  but  every  sample  of  Lumber  Liquidators’  products,  which  were  made  in  China, failed. In some cases, their formaldehyde levels were six to seven times over the standard.

“You’re in a chamber so you’re living with it,” the activist said on the 60 Minutes episode, speaking of consumers with the products installed in their homes. “You’re sleeping in  there.  And  you’re  constantly  exposed.  That’s  the  threat.  The  constant  exposure  to  a  potent carcinogen over a long period of time.”

60 Minutes followed up by sending investigators to several mills in China that manufactured laminate wood flooring for Lumber Liquidators, posing as buyers and using hidden cameras.  In  one  scene,  a  Chinese  manager  said  that  flooring  made  with  formaldehyde  was 10 to 15 percent cheaper and admitted that his mill fraudulently labeled the product. Here was the exchange, as the investigator pointed to laminate flooring the manager had described as a “bestseller for Lumber Liquidators:

Investigator: “Is this CARB 2?”

Manager: “No, no, no. . . . I have to be honest with you. It’s not CARB 2.”

Investigator: “Can I get CARB 2?”

Manager: “Yes, you can. It’s just the price issue. We can make CARB 2 but it would be very expensive”

Interviewed on the 60 Minutes segment, company founder Tom Sullivan stated, “Our goal  is  to  sell  a  good  product  at  a  good  price.  We  get  the  price  by  low  overhead,  huge  volume, and being very efficient at what we do. And we’re never going to sell something unsafe.”  In  response  to  footage  showing  the  apparently  fraudulently  labeled  product,  Sullivan said, “I will guarantee we’ll be in that mill tomorrow and test it. And that is not anything we can condone in any way, to save a cent.

In  the  wake  of  the  60  Minutes  episode,  Lumber  Liquidators  voluntarily  offered  free  indoor  air  quality  screening  to  customers  who  had  purchased  Chinese-made  laminate  flooring,  suspended  all  sales  of  laminate  products  made  in  China,  and  hired  an  outside  organization headed by former FBI director Louis Freeh to review the company’s compliance programs. For their part, advocacy organizations and attorneys pursued several class action product liability lawsuits against Lumber Liquidators, accusing them of endangering  consumers  and  breaking  California  law.  The  government  also  took  action;  the  Consumer  Product  Safety  Commission  launched  an  investigation  of  Lumber  Liquidators  in  collaboration  with  several  other  federal  agencies.  “We  are  committed  to  move  as  fast  as  possible to get answers for consumers,” said the CPSC director, “especially for the parents of young children.”

Sources: “Lumber Liquidators Faces U.S. Safety Inquiry,” The New York Times, March 25, 2015; “Lumber Liquidators Under Investigation by Consumer Agency,” Bloomberg Business, March 25, 2015; “Lumber Liquidators Provides Update on Laminate Flooring Sourced from China,” press release, May 7, 2015; and National Cancer Institute, “Formaldehyde and Cancer Risk,” www.cancer.gov. Lumber Liquidators’ website is at www.lumberliquidators.com. The 60 Minutes segment is available at www.cbsnews.com/news/lumber-liquidators-linked-to-health-and-safety-violations” would be very expensive.”

Questions

  1. If you were a manager at Lumber Liquidators, what if anything would you do now, beyond what the company has already done?
  2. Do you think the government acted appropriately to protect consumers? What more can or should it have done?
  3. Do you believe that lawsuits filed by consumer activists will help solve the problem of unsafe flooring?