Nautilus 2012 Annual Report Download - page 9

Table of Contents
MERCHANDISE SOURCING
All of our products are produced by third-party manufacturers, most of whom are the sole source for particular products and substantially all of
whom are located in Asia. Lead times for inventory purchases from our Asian suppliers, from order placement to receipt of goods, generally
range from approximately two to three months, of which transit time represents three-to-four weeks. The length of our lead times requires us to
place advance manufacturing orders based on management forecasts of future demand for our products. We attempt to compensate for our long
replenishment lead times by maintaining adequate levels of inventory at our warehousing facilities.
We monitor our suppliers' ability to meet our product needs and we participate in quality assurance activities to reinforce adherence to our
quality standards. Our third-party manufacturing contracts are generally of annual or shorter duration, or manufactured products are sourced on
the basis of individual purchase orders. Our manufacturing relationships are non-exclusive, and we are permitted to procure our products from
other sources at our discretion. None of our manufacturing contracts include production volume or purchase commitments on the part of either
party. Our third-party manufacturers are responsible for the sourcing of raw materials.
LOGISTICS
Our warehousing and distribution facilities are located in Portland, Oregon and Winnipeg, Manitoba. In our Direct business, we strive to
maintain inventory levels that will allow us to ship our products shortly after receiving a customer's order. We use common carriers for
substantially all of our merchandise shipments to Direct customers.
In our Retail business, we manage our inventory levels to accommodate anticipated seasonal changes in demand. Generally, we maintain higher
inventory levels at the end of the third and fourth quarters to satisfy relatively higher consumer demand in the fourth and first quarters of each
year. Many of our Retail customers place orders well in advance of peak periods of consumer demand to ensure an adequate supply for the
anticipated selling season. We use various commercial truck lines for our merchandise shipments to Retail customers.
In 2012 approximately 40% of our Retail inventory replenishment orders were shipped by our contract manufacturers in Asia directly to our
Retail customer locations, typically in container loads. The use of such direct shipments allows us to maintain lower levels of inventory in our
warehouses, resulting in lower storage, handling, freight, insurance and other costs.
COMPETITION
The markets for all of our products are highly competitive. We believe the principal competitive factors affecting our business are quality, brand
recognition, innovation and pricing. We believe we are well-positioned to compete in markets in which we can take advantage of our strong
brand names.
Our products compete directly with those offered by a large number of companies that market consumer fitness equipment and fitness programs.
As the use of Internet websites for product sales by traditional retailers has increased, our competitors have become increasingly similar across
our Direct and Retail sales channels. Our principal competitors include: Fitness Quest , marketer of Total Fitness
®
-branded products; ICON
Health & Fitness, marketer of ProForm
®
- and NordicTrack
®
-branded products; Johnson Health Tech, marketer of Horizon
®
-branded products;
Beach Body, marketer of the P90X
®
fitness program; and American Telecast, marketer of Total Gym
®
-branded products. Among our other
competitors are marketers of computer- based physical activity products, such as the Nintendo Wii
®
and Microsoft Xbox
®
Kinect
®
, and weight
management companies, such as Weight Watchers, each of which offers alternative solutions for a fit and healthy lifestyle.
EMPLOYEES
As of February 28, 2013, we had approximately 310 employees, substantially all of whom were full-time. None of our employees are subject to
collective bargaining agreements. We have not experienced a material interruption of our operations due to labor disputes.
INTELLECTUAL PROPERTY
Trademarks, patents and other forms of intellectual property are vital to the success of our business and are an essential factor in maintaining our
competitive position in the health and fitness industry.
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