Nautilus 2008 Annual Report Download - page 11

Table of Contents
demand to ensure they have an adequate supply for the anticipated selling season. If consumer demand exceeds store forecasts, many customers
will place additional orders during the season, provided the product can be delivered in a short period of time. Approximately 30% of our retail
business products are shipped in large containers, directly to customer locations, from our third-party manufacturers in Asia. Such shipments
typically involve large, container size orders, and this “drop ship” approach allows us to maintain lower levels of inventory, resulting in lower
storage costs. We distribute our products to other retail customers, who are unable to order in such large quantities or who prefer to order from
us, using various commercial truck lines. Our retail business inventory is stored in the Portland, Oregon distribution center, for deliveries to the
U.S. and Canada, and in third-party warehouse facilities for shipments to customers in international locations.
Approximately half of our commercial strength fitness products are delivered using our own truck fleet. Our commercial cardiovascular fitness
products are primarily delivered using commercial truck lines. With the closure of our Tulsa manufacturing and distribution facilities in early
2009, substantially all of our domestic commercial products will now be stored in Independence, Virginia. Accordingly, we expect an increased
portion of our deliveries to be made using our own fleet in the future. Because of the volume of products expected to be shipped from
Independence, we anticipate there will still be a need to use commercial truck lines to assist with the delivery of our products. We use third party
warehouse providers to support our operations in Europe.
BACKLOG
Historically backlog has not been a significant factor in the Company’s business.
COMPETITION
The markets for all of our products are highly competitive. We believe the principal competitive factors affecting our business are quality,
innovation, pricing and brand recognition. We believe the Company is well positioned to compete in markets in which it can take advantage of
its strong brand names. Our competitors vary by business segment as discussed below.
Direct Business
In the direct business, our Bowflex strength and cardiovascular fitness products compete directly with products offered by a large number of
companies that manufacture, market and distribute home fitness equipment. Our principal competitors in this segment are Fitness Quest and
ICON Health & Fitness
. Other competitors in this segment include weight-loss companies, such as Jenny Craig and NutriSystems, each of
which offers alternative solutions to a fit and healthy lifestyle. We believe we are the largest marketer of strength fitness products in the direct-
to-consumer market.
Retail Business
We sell Nautilus, Schwinn Fitness, and Bowflex products through our retail business. These products compete globally against products sold by
other retail fitness equipment companies such as Johnson Health Tech and ICON Health and Fitness. We believe our strength products compare
favorably to the competition in the retail segment, as do our newer cardiovascular products, such as our Schwinn ellipticals and upright and
recumbent bikes. Treadmills generate the highest sales volumes in the retail market, typically exceeding equipment sold in other product
categories. We are currently working on the development of new treadmills and other cardiovascular products with characteristics that will
improve our ability to compete in this segment.
Commercial Business
In the Commercial business, our Nautilus, Schwinn Fitness, and StairMaster brands compete globally against products of other commercial
fitness equipment companies such as Life Fitness (Brunswick) , Precor (Amer Sports) , Cybex and TechnoGym . We believe our strength
products perform well in the commercial market
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