Nautilus 2004 Annual Report Download - page 13

Table of Contents
Market Research
Our market research indicated that while we possess distinct competitive advantages, we have not fully capitalized on the many
opportunities available to us in the $11.4 billion exercise and nutrition markets that we compete in. During 2003, we performed in-depth
analysis of our business model and believe that we have significant opportunities to optimize our sales channel mix for our brands. We are a
leader in selling strength products through the direct marketing channel, but our research showed that approximately 80% of our target
consumer market buys fitness products through the retail channel. As a result, we continued moving into the retail market in 2004 by providing
equipment through retailers.
Focus on Innovation
We continue to leverage our advanced research and development capabilities and our strong brand names to expand our existing product
lines and launch new innovative products. Innovation is an important part of our strategy as we continue to emphasize the expansion and
diversification of our product development capabilities in health and fitness products. We develop new products either from internally
generated ideas or by acquiring or licensing patented technology from outside inventors and then enhancing the technology.
Our research and development competencies have been enhanced through the acquisition of Schwinn Fitness and StairMaster. With the
purchase of these companies, we gained a state-of-the-art test facility and prototype facility, along with a staff of designers and engineers. Our
additional research and development resources have allowed us to become fully integrated in the product development process, allowing us to
take a new product concept from the beginning of feasibility studies straight through to production and continuing product review. This
integration allows us a greater degree of control over the new product process, which should allow us to generate a higher quality product,
increase our speed to market, and control our costs.
Research and development expense was $6.8 million, $5.7 million, and $4.5 million for 2004, 2003, and 2002, respectively.
Leverage Sales Channels
We are repositioning our products to better meet consumer demand and shopping patterns. This means offering more of the products
consumers want (e.g. cardiovascular fitness equipment) in the places consumers want to buy our products (e.g. retail outlets). We are moving
more of our products to the retail channel and are differentiating our products to specifically fit the needs of the consumer shopping in each
sales channel. For example, we will sell different models of Bowflex in retail as compared to the direct sales channel. This strategy will allow
us and our partners to have differentiated products under the same brand, enabling each channel to provide the products its consumers demand.
Streamline Company Operations
Another foundational element of our strategy is our effort to reorganize from a channel focus to a consumer focus. We are driving to
operate as one company and not several separate channel-based businesses. Included in this focus change is a drive to leverage our expertise,
experience and diversity of thought from across our organization to realize synergies, efficiencies and cost savings. In 2005 we will continue to
adopt best practices across our locations and experience the benefits of one research and development team, one sales methodology, and
common warehousing and distribution facilities for all our products in the most effective locations. We are establishing a performance-driven
culture based on teamwork that clearly ties employee compensation to both company and individual performance. We are seeking to develop a
high-energy collaborative culture with a clear focus on the metrics that drive performance and create shareholder value. Into 2005 we will seek
common technology platforms, including our websites, to further capitalize on the power of one team, one Company.
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