Nautilus 2008 Annual Report Download - page 8

Table of Contents
We also use broadcast media, along with internet advertising and search-engine placement, to lead consumers to our website, as we believe
consumers who visit our website are more inclined to purchase our products. We believe this approach successfully balances our goals of
finalizing sales and capturing consumer information to generate future sales leads. We enhance the success of our direct business efforts, by
strategically designing our web pages and carefully analyzing web page visits, conversion rates, average sales prices and inquiry counts.
On a selected basis, we contract with large telemarketing companies to receive and process information requests generated by our television
advertising. The telemarketing agents for these companies collect names, addresses and other basic information from callers, but do not directly
sell our products.
Approximately 65% of our U.S. customers take advantage of a financing program offered by HSBC Bank Nevada, N.A. (“HSBC”) to purchase
our products using the private label Bowflex revolving credit card. Consequently, our direct channel business is susceptible to changes in the
domestic credit markets and the risk that HSBC, or another lender, is unwilling to extend affordable credit to our customers. During 2008, we
amended our agreement with HSBC to extend the program for five years, as it would have otherwise ended in December 2008. In March 2009,
HSBC announced it would no longer participate in consumer lending in the U.S. through its HFC and Beneficial brand names. We have been
notified by HSBC that the announced restructuring of their operations would not affect the existing Bowflex revolving credit card arrangement
between HSBC and Nautilus.
In the past, we offered a second-tier financing program which allowed customers with lower credit scores to obtain financing. The second-tier
program was terminated in the third quarter of 2008 due to the tightening credit market. It is estimated that the termination of the second tier
financing program has resulted in subsequent direct business sales volumes that are approximately 5% lower.
Retail Business
In our retail business , we market and sell a comprehensive line of consumer fitness equipment under the Nautilus, Schwinn Fitness, StairMaster
and Bowflex brands. Our products are marketed through a network of more than 5,000 retail locations, consisting of sporting goods stores,
department stores, governmental agencies, and, to a lesser extent, smaller specialty retailers and independent bike dealers. In 2008, we
implemented a retail sales program which placed greater emphasis on higher volume retail customers, specifically targeting larger sporting goods
and department stores.
Retail business sales have historically been led by the Company’s strength products, including the Bowflex rod-
based home gym and SelectTech
dumbbells. However, we believe the fitness equipment market for cardio products is much larger and provides greater opportunity for growth.
As a result we have focused our retail business product development efforts on the introduction of new cardio products, including a line of
Schwinn branded indoor bikes and ellipticals. We plan to continue to invest in the development of cardio products for the retail business,
anticipating that such investments will help us achieve growth in market share.
We have implemented sales programs which provide discounts to our customers for ordering container sized shipments and/or placing orders
early enough in the season to allow for efficient manufacturing by our Asian vendors. These sales programs are designed to reduce our shipping
and handling costs, with much of the savings being passed on to our customers. Many of our retail customers are also eligible for other types of
sales incentives, including volume discounts and various forms of rebates or allowances, which are primarily intended to increase product
availability, offset transportation costs and encourage marketing of our brands.
Commercial Business
In our commercial business , we market and sell our Nautilus, Schwinn Fitness, and StairMaster commercial fitness equipment through an
internal sales force and network of distributors in the U.S. and abroad. Our primary customers include health clubs, governmental agencies,
hotels, corporate fitness centers, colleges, universities, assisted living facilities and other organizations, each of which typically requires unique
strength and cardio products designed for higher usage.
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