Marketplace: Time for Nautilus to shape up

By Courtney Sherwood, Columbian freelance writer

Published:

 

The folks who have run Nautilus for the past few years might as well have declared “mission accomplished” when they explained their decision to abandon the Vancouver company to reporter Aaron Corvin in Friday’s paper.

“A remarkable transformation,” CEO Edward Bramson touted, as he headed for the door. Despite the self-congratulations, the fitness company is a long way from fit.

Edward Bramson took the helm of Nautilus four years ago, after his Sherborne Investments group took control of the Vancouver fitness company’s board. At the time, he outlined plans to transform a business with shares trading at $6.57 and close to 500 employees. Last week, when he and Sherborne unloaded 10 million Nautilus shares they had amassed, it was trading at $2.53 and about 330 employees remained.

A remarkable transformation, indeed.

The company’s market value fell from $153.1 million to $80.6 million in the time that it was controlled by Sherborne Investments. Bramson and Sherborne, as major investors in the company, lost as much as anyone when share values dropped. Their stake was worth $26.2 million when they distributed shares to investors in late May, nearly $40 million less than it would have been had shares remained unchanged in the years since they took over Nautilus.

There’s no reason to think that Bramson torpedoed Nautilus on purpose. Instead, he may have been in over his head.

One of the first things Bramson told executives when he arrived in Vancouver, according to former Nautilus executive and spokesman Ron Arp, was, “I don’t know anything about fitness, and frankly I don’t care.”

Bramson based his business plan on balance sheets, rather than the industry, and the fitness sector is too nuanced to run if you don’t understand the forces at play.

He underestimated the growing competitiveness of direct-to-consumer marketing, and may have put too much energy into that division. He overlooked shortcomings in Nautilus’ efforts to sell fitness equipment to gyms until late in his tenure. And he moved away from store-based selling, when that may have been the wrong move.

Despite claims that he’d turn Nautilus around in eight months, the company consistently lost money for Bramson’s first three years at the helm, and two profitable quarters hardly constitute a turnaround. The second quarter, when bright skies draw fitness buffs outside, is usually tough for the company. Could Bramson and Sherborne Investments have seen the writing on the wall and decided to cut their losses?

Though they lost millions betting on a company that they didn’t understand, there may yet be hope for Nautilus to turn itself around.

Arp, who left when Sherborne took over and no longer owns shares in Nautilus, predicts that the company may need to go private and raise funds to succeed.

But just as its customers sweat and fight for new Nautilus-inspired bodies, there’s a chance that a strict diet and a focused regime could bulk up the business once again.

Courtney Sherwood is The Columbian’s business and features editor. Reach her at 360-735-4561 or courtney.sherwood@columbian.com.