Nautilus 2015 Annual Report Download - page 7
Download and view the complete annual report
Please find page 7 of the 2015 Nautilus annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.months, consumers tend to be involved in outdoor activities, including outdoor exercise, which impacts sales of indoor fitness equipment. This seasonality can
have a significant effect on our inventory levels, working capital needs and resource utilization.
MERCHANDISE SOURCING
All of our products are produced by third-party manufacturers, and, in 2015 , all of our manufacturing partners were primarily located in Asia. Although multiple
factories bid on and are able to produce most of our products, we typically select one factory to produce any given product. 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 and producing parts and finished products to our specifications.
LOGISTICS
Our warehousing and distribution facilities are located in Oregon and Ohio. In addition to Company-operated distribution centers, we utilize third-party
warehouses and logistics providers to fulfill orders. 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.
In 2015 approximately 51% of our Retail customers' 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. We use various commercial truck lines for our merchandise shipments to Retail customers.
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, and that our focus on
innovative product design, quality, and performance distinguishes our products from the competition.
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 , ICON Health & Fitness, Johnson Health Tech, Beach Body, American Telecast, Life Fitness, and Precor. We
also compete with 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 24, 2016, we had approximately 470 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.
4