Homeowners across the country will easily recall the horror they felt when television program 60 Minutes told them the flooring they installed in their homes could be giving their families cancer. For the following months, China became synonymous with cheap laminate flooring containing toxic levels of formaldehyde, and Lumber Liquidators was the vendor unlucky enough to be holding the shipping pallets.
What was unknown at the time, however, was that the story was born out of a lawsuit filed against the home materials supplier by stock market short sellers.
Unlike a traditional stock trader who profits when the companies they have invested in do well, a short seller bets against a stock. As a stock dips further and further, a short seller makes more and more money.
Short sellers shorted Lumber Liquidators before taking their story to 60 Minutes. Since the story aired, 70% of the company’s stock value has evaporated.
However, the company seems to be on the mend lately and the decision of the Consumer Product Safety Commission not to recall Lumber Liquidators flooring was met with a strong response from Wall Street. Internally, the company also sees the decision and subsequent gains as validation for how they handled the situation when the story broke.
“This affirms what we did,” says CEO John Presley. “We stopped selling the product, and we tested the product and the tests came back as we expected. We’re very pleased with how it turned out.”
Even though the road ahead looks considerably smoother, the company is continuing its efforts to clean up the mess left by the devastating television segment. More than 600,000 customers purchased the flooring in question and Lumber Liquidators is continuing to offer testing on the product to whoever wants it.
None of this is to say that Lumber Liquidators flooring is completely free of formaldehyde. Rather, the question is whether the levels of the chemical can be considered toxic. Of 17,000 homes tested, 1,300 showed elevated levels of formaldehyde in the air. However, because formaldehyde can come from so many other sources including carpet and cigarette smoke, it’s impossible to lay the blame solely on the laminate flooring.
Lumber Liquidators will continue its recovery and the lack of recall action on behalf of the CPSC is a giant step toward that recovery. Enhanced scrutiny of the company, however, is sure to continue for quite some time.