Nautilus 2009 Annual Report Download - page 10

Table of Contents
MANUFACTURING AND DISTRIBUTION
Manufacturing
All our products are produced by third party manufacturers, substantially all of which are located in Asia. We monitor our suppliers’ ability to
meet our product needs and participate in quality assurance activities to reduce the risk of marketing substandard products. Other than our
contract with Land America Health & Fitness Co., LTD. (“Land America”), which expires in December 2010, our third-party manufacturing
contracts are terminable by either party on relatively short notice.
Distribution
Our warehousing and distribution facilities are located in Portland, Oregon and Winnipeg, Manitoba. In our direct business, we strive to maintain
inventory levels which will allow us to ship our products shortly after receiving a customer’s order. Because our direct business products are
manufactured in Asia, we have long merchandise replenishment lead times, for which we compensate by maintaining adequate levels of safety
stock.
We manage our retail inventory levels to accommodate seasonal changes in anticipated demand. We generally maintain higher inventory levels
at the ends of the third and fourth quarters, to satisfy 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 they have an adequate supply for the anticipated selling season. If
consumer demand exceeds store forecasts, many of our retail customers will place additional orders during the season, provided the product can
be delivered in a short period of time. Approximately one-third of our retail inventory replenishment orders are shipped by our contract
manufacturers directly to customer locations, typically in large containers. The use of these “drop ships” allows us to maintain lower levels of
inventory, resulting in lower storage, handling, insurance and other carrying costs. We also distribute our products to retail customers using
various commercial truck lines. We use FedEx Corp. for the delivery of substantially all of our direct business products in the U.S. and Canada.
BACKLOG
Historically, backlog has not been a significant factor in our 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 we are well-positioned to compete in markets in which we can take advantage of our
strong brand names. Our competitors vary by business segment, as discussed below.
Direct
In our direct business, our products compete directly with those offered by a large number of companies that market 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.
Retail
In our retail business, our products compete with those of other retail fitness equipment companies, such as Johnson Health Tech and ICON
Health & Fitness.
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