Nautilus 2003 Annual Report Download - page 30

Table of Contents
In the fourth quarter of 2003, Bowflex unit sales through our direct and retail channels combined were 53,000 units compared to 49,000 and
42,000 for the third and second quarters of 2003, respectively. One of the reasons we were able to achieve this sequential growth in Bowflex
units is because of the synergy between the direct and retail channels. Additionally, we believe the sales momentum for our Bowflex brand is
due to the fact that it is widely regarded by consumers as one of the most innovative products in the consumer strength fitness industry. To
capitalize on this reputation, we will have Bowflex products in multiple sales channels that will be differentiated to fit the needs of consumers
shopping those channels. For example, we will not sell in large retail outlets the same Bowflex product we sell in specialty retail or in the direct
sales channel. This strategy will allow us and our retail partners to have differentiated products under the same brand name so we minimize
competition amongst ourselves and our partners, while at the same time delivering the products our consumers want in the sales channel in
which they want to shop.
Besides the Bowflex, our commercial/retail segment product portfolio consists of a wide array of both strength and cardiovascular fitness
products sold through the commercial and retail channels under brand names that include Nautilus, Schwinn, StairMaster, and Trimline. In
2003, our commercial/retail segment accounted for 50.5% of our net sales, up from 32.8% in 2002, as we continued to execute our strategy of
expanding our presence, product lines, and brands across all our sales channels, especially within the commercial/retail segment. This increase
in commercial/retail segment sales as a percentage of our total net sales can also be attributed to the decline in direct segment sales during 2003
compared to 2002. During 2003, our commercial/retail business segment sales increased 5.6%, excluding the introduction of the Bowflex
product line to the retail sales channel.
In our commercial business we launched a new StairMaster commercial treadmill in the latter half of 2003. We also introduced a number of
new products at the October Club Industry Commercial Fitness Equipment Show in Chicago. One of the products presented was our new
StairMaster commercial elliptical machine. We also introduced the new Nautilus Nitro Plus commercial strength equipment line. We began
production on this new strength line at the end of the fourth quarter of 2003 and we expect to begin selling this product in the first quarter of
2004. Later in 2004, we plan to launch the first variable stride elliptical commercial cardio machine and a commercial version of the popular
TreadClimber cardio product.
We continue to become more competitive in our commercial sales channel because of our ability to offer a complete line of cardiovascular
equipment, which represents about 70% of the dollars spent in the commercial industry. In the past this has been an underrepresented area of
our product offering. However, with the addition of our new commercial elliptical and commercial treadmills, we are now beginning to address
this underserved market opportunity. We are now able to sell complete packages of cardiovascular and strength products together.
We have been undergoing a sales channel and brand shift from primarily the direct channel to a more diversified and balanced penetration in
retail, commercial and direct channels. We have also created a better balance between cardiovascular and strength products. In the past, we
have been primarily focused on selling strength products through our direct channel, but a thorough marketing research study undertaken in
2003 showed that 80% of our target consumer market buys fitness products through the retail channel and 60% of the dollars are spent on
cardiovascular products. We expect our sales through the commercial/retail channel to continue to grow as a percentage of consolidated sales
as we continue to focus our marketing efforts and product offerings toward our target consumer.
We believe our business will show increased seasonality going forward as we anticipate sales through the commercial/retail channels will
continue to grow as a percentage of total sales. In our direct marketing
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