Nautilus has seen its fortunes reversed

CEO Bruce Cazenave whipping Vancouver maker of fitness equipment into shape

By Courtney Sherwood, Columbian freelance writer

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Vancouver-based Nautilus has been through more ups and downs over the past decade than the fitness fans who use its TreadClimber exercise machine. But Bruce Cazenave -- Nautilus' fourth CEO since 2003 -- believes the era of cost-cutting and layoffs is finally over.

He took the reins two years ago, after turnaround firm Sherborne Investors had slashed some 900 jobs, sold off several product lines and cut spending on research in order to conserve cash. Under Cazenave's watch, Nautilus has returned to profitability, moved to a smaller headquarters building and picked up the pace of product development.

Cazenave, 57, sat down with The Columbian to discuss his time at Nautilus, and where he thinks the company is headed next. This interview is edited for space and clarity.

You were picked to take over Nautilus before Sherborne Investors exited the company. Why did Sherborne choose you?

I had no relationship with anybody at Nautilus or the Sherborne group. I was in Chicago, speaking with a private equity firm about buying another company when I got a call from a search team: "Would you be interested in Nautilus?" So I spent about three months getting to know the company, its board of directors and Sherborne. And then I joined the company on Memorial Day, two years ago.

Are you here to complete the turn-around and then move on? Or do you have longer-term plans at Nautilus?

If you looked at my background, you'd say, "He spends four years turning a company around, getting it on a good trajectory, and then he moves on." That's not my plan here. More than any other place that I've been, I'm really enjoying this opportunity -- the people, the company, the location. The stars are aligned. I'm here, as I tell everyone who will listen to me, until I retire or the board decides to get rid of me.

Sherborne Investors did not profit from its investment in Nautilus. It bought a 25-percent stake in the company when shares were over $12, and exited when shares were selling for $2.51. Since you've come on board, the stock has climbed to over $8 a share. Did Sherborne give up on Nautilus too soon?

I can't comment on that. They had other factors at play, in terms of why they moved on. They bought another company, a very large company in the U.K., and I know they wanted to focus their attention there.

When finances were tight, Nautilus cut back significantly on research and development -- from $6.6 million a year in 2008, down to a low of $2.9 million a year in 2010. Now it's climbing again, up to $4.2 million in 2012. Is that going to keep growing? How important is research and development to Nautilus going forward?

Back in '08, '09 and '10, a lot of product development and concepts were choked off, because there wasn't free-flowing capital at the company.

During those distressed times, the company was more interested in holding back on new ideas unless they were certain it was bases-loaded home run, which as you know, doesn't happen. What we've been doing in the last two years, besides adding resources, we've been saying, singles, doubles, triples are good. Not everything has to be bases-loaded home runs. You're starting to see the pace and cadence of product releases accelerate.

Are you introducing different types of products?

The key word is "and," not "instead of." During tough economic times, we realized there were product opportunities below $500 that we weren't addressing. Previously, most of our direct-to-consumer products were more than $1,000.

You will still see more products coming from us that are more than $1,000, but we thought we needed to complement that with lower-priced products. Things like the CoreBody Reformer, the Bowflex UpperCut.

Then we can attract customers who may not want to take out a loan, which many people have to do when your product is over $1,000.

Before you joined Nautilus, the company almost bought a Chinese manufacturer, Land America, and then backed out of that deal. Was that a good move? You still do a lot of manufacturing in Asia.

It was definitely a good move not to buy a factory in China. China's costs continue to go up. There are labor issues there. The currency is definitely appreciating, which works against us as we import. The other thing about China, itself, is that once you buy a factory, you put your roots down in one part of the country. With third-party manufacturing, you can move to other parts of the country, where labor costs aren't going up as much.

As costs go up in China, we are asking what other places could be the next emerging market where we could make our product -- including possibly the U.S. Though manufacturing in the U.S. would be a number of years away. We still have a lot going on in China.

You sell products to consumers through two channels: retail outlets and direct-to-consumer. Direct marketing used to mean long infomercials, which is how a lot of people became familiar with Nautilus' Bowflex line. Has the Internet changed how you reach consumers?

Infomercials -- the traditional 28-minute commercial -- are becoming a smaller part of our business. We still have long-form commercials, but the biggest thing is what is happening on the Web.

Our Web presence has been stepped up dramatically. We have a whole social media team that is looking at blogs. We recently introduced the Bowflex Insider (www.bowflexinsider.com), which is themed, "Eat, Move, Live, Play." We are trying to extend information to people: How you get a healthy state of mind, recipes, all that kind of stuff.

What else should people know about Nautilus?

We have about 340 employees who have been through a lot. Many were here when things were going gangbusters in '05, '06, and were here through tough times after that. They've really embraced the things we are trying to accomplish.

When I've worked at other companies that have been through as much as Nautilus, employees have been demoralized. At this company, it was: Let's get it together. We have to plan. Watch the scoreboard. That adrenaline has really been fueling the company, and the pace of progress we've seen.