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State of the Treadmill Industry 2011

State of the Treadmill Industry
October 2011

2010 was another good year for treadmills. Treadmills continued to be the best selling kind of fitness equipment, with roughly 50 million being sold in 2010, about twice the number of elliptical trainers. Wholesale sales of fitness equipment grew 4.1% to $4.3 billion in 2010. This was greater than the 3.5% growth rate of the entire sporting goods industry, which consists of all fitness and sporting goods equipment, sports apparel, licensed merchandise, and athletic footwear. This was the largest one year growth swing in the sporting goods industry in nearly 20 years, outpacing the gross domestic product for the first time since 2007. All this is according to the Sporting Goods Manufacturers Association's State of the Industry Report (2011), which also says that the modern fitness movement is now forty years old.

New Technology

In May 2011, the first treadmills and ellipticals with integrated tablet consoles and built-in Android browser were introduced at the annual Google I/O developers conference. These tablet consoles allow users to check email, play games, shop online, and otherwise use the Internet while exercising. This "iFit Live" uses Google Maps API Premier to provide the maps and data to simulate running at actual places around the world, complete with automated changes in incline. iFit technology is currently available only on NordicTrack, ProForm, and Freemotion equipment. The manufacturer of these brands, ICON Health & Fitness, has discontinued its treadmills with built-in televisions, so it looks like computers are actually taking over!

CYBEX International also introduced its new treadmill features at the FIBO Trade Show in Germany in April 2011. The most radical new feature is a suspension system that makes the tread belt firmer in the front and back and less firm in the middle. The theory is that this provides a "toe-off" that matches the biomechanics of running and therefore impacts the runner less than other designs. CYBEX reported an increase in sales of cardiovascular products of 4% in 2010, compared to a decrease of 13% in 2009. However, in June 2011 the NASDAQ stock exchange notified CYBEX that its shareholder equity had fallen below the $10 million minimum and that their shares were in danger of being delisted.

New Problems

The past year in treadmills has been marked by patent litigation. ICON Health & Fitness now holds nineteen patents for its iFit technology and it looks like it will vigorously defend them. ICON sued Pacemaker LLC for infringement of its patents for use of wireless locating technology in its home and light commercial treadmills. ICON also sued Yowza Fitness, LLC in April 2011 for infringing its patent relating to "reorienting treadmill with lift assistance." ICON also sued Interactive Fitness Holdings LLC, the manufacturer of Expresso commercial stationary bikes, for infringing ICON's patents for a "method and apparatus for remote interactive exercise and health equipment," as well as their patent for a "system and method for selective adjustment of exercise apparatus." ICON also sued Fitness Equipment Services for infringement of its patents for folding treadmills and YF Holdings (YouFit) for other trademark infringement. However, another patent infringement action brought by ICON was dismissed in December, 2010. In that suit ICON claimed that Octane Fitness, LLC violated its patents on linkage used in elliptical machines.

ICON was also on the receiving end of this unpleasantness, as it was sued for patent infringement by Ab Coaster Holdings, Inc., which alleged that ICON's "Ab Glider" equipment violate the patent rights it established for its "AbCoaster" product. ICON was also sued by Beachbody, the maker so the popular P90X workout program, for making false and disparaging statements about P90X in comparisons with ICON’s own rip:60 program. However, the case was dismissed because the patent covered wagering machines and ICON’s equipment did not provide for actual wagering. ICON was also sued by Fitness Gaming Corp., which alleged that ICON was improperly using its technology that enables games of chance on exercise equipment. However, the case was dismissed because the patent covered wagering machines and ICON's equipment did not provide for actual wagering.

In September 2011, SmartFitness, Inc., of Texas, sued twenty-six treadmill manufacturers for violating its 2003 patent for “a method of exercise prescription and evaluation” that covers “novel, unique, and non-obvious systems and methods for using exercise devices with processes having protocol generating algorithms.” The defendants include InternetFitness.com, Inc. (Smooth Fitness), FreeMotion Fitness, Inc., Horizon Fitness, Inc. Precor Incorporated, Vision Fitness, Nautilus, Inc. BH North America Corp. (Bladez), Cybex International, Inc., ICON Health & Fitness, Inc., LifeFitness International Sales, Inc., Body Works Fitness Equipment, Inc., Star Trac Strength, Inc., PaceMaster, LLC, Fitness Equipment Services, LLC (Sole Fitness), Life Span Fitness, True Fitness Technology, Inc.

Old Problems

In March 2011, Lighthouse Ventures LLC, of Longmont, Colorado acquired the cardiovascular equipment line known as ST Fitness from Star Trac USA.. Star Trac, is a commercial fitness equipment manufacturer owned by Unisen, Inc. Star Trac transferred ownership of its accounts receivable, inventory, and consumer and light commercial lines to its primary vendor/creditor, Lighthouse, which then began doing business as LH Fitness. Lighthouse is controlled by the Taiwanese manufacturers of Star Trac's equipment, and now sells treadmills, elliptical, exercise bikes, and weight training equipment to specialty fitness stores in the U.S. and online. Lighthouse closed its doors in September 2011.

Star Trac started the ST Fitness line of treadmills and elliptical in 2008, when it purchased the Lamar and Ignite brands of LAMAR Health, Fitness & Sports. LAMAR, which ceased manufacturing in 2007, was founded by Kevin Lamar, who is the former president of Nautilus, Inc., and also was a lineman for the NFL’s Buffalo Bills . When Star Trac acquired these brands, Lamar become the manager of Star Trac's consumer division.

To understand the significance of the ST Fitness/Lighthouse deal, it helps to have some background. Star Trac achieved sales of about $175 million in 2009, but struggled financially thereafter. It appears that Star Trac's consumer line was profitable, but that, by shedding the payables related to its consumer line, it was able to improve its balance sheet and achieve the financial flexibility it needs to grow. In the face of mounting financial pressure during 2010, Unisen sold a controlling interest in Star Trac to Michael Bruno. Bruno is the founder and owner of Land America Health and Fitness Co., a fitness equipment manufacturer in mainland China. Earlier in 2010, Land America bought the StairMaster and Schwinn fitness equipment brands from Nautilus through Land America's affiliate, Fit Dragon International Ltd.

Land America had been manufacturing equipment for Star Trac for years before its acquired Star Trac, so it appears it no longer needed its Taiwanese manufacturing and was thus able to compromise its payables without damaging its vendor relationships. The switch from Taiwan to China may also involve political considerations. In any case, Bruno, through his Land America and Star Trac operations, appears to be bucking the trend toward the healthier consumer market by concentrating on the commercial fitness market instead.

In Star Trac court proceedings, Lighthouse also acquired the Ironman line of consumer treadmills and ellipticals, which StarTrac had acquired from Keys Fitness in the Keys Fitness bankruptcy in 2008. Ironman was sold through Costco, Play It Again Sports, and other retail outlets, but its future distribution in unclear. Ironman parts inventory was bought by treadmilldoctor.

Other Company News

Inc. magazine listed Fitness Plus, of Wentzville, Missouri, as the #363 on its annual list of the 500 fastest growing private companies. Fitness Plus provides parts and service for a wide variety of styles and brands of equipment, especially treadmills.

Nautilus, Inc., the manufacturer of Nautilus strength equipment and Bowflex cardio and strength equipment, continued its move toward cardio equipment, the largest segment of the fitness market. After Nautilus discontinued its commercial fitness business in 2010, its focus is now clearly on consumer cardio. Direct channel sales of the company's cardio equipment in the fourth quarter of 2010 increased 17% over the fourth quarter of 2009, primarily due to increased sales of the Bowflex TreadClimber line. This offset the continued declines of their strength products, such as Bowflex home gyms, which fell 32% in the fourth quarter of 2010 from the previous fourth quarter. The company believed that future increases in sales of cardio products would more than offset declines in the sales of home gyms.

Retail sales of Nautilus cardio products in the fourth quarter of 2010 increased 10% over 2009, due primarily to increased sales of Schwinn stationary bikes. As in direct sales, fourth quarter retail sales of strength equipment declined 14% from 2009, due largely to a decline in sales of home gyms.

Amer Sports Ltd., the Finnish parent of Precor treadmills, reported that worldwide sales of fitness equipment were flat in 2010, with a decline in sales in the Americas. Though commercial sales represented 89% of their total fitness equipment sales, Amer Sports reported that "sales of premium consumer equipment for home use continued to be sluggish." Precor treadmills now sells its equipment in Dick's Sporting Goods stores, suggesting a move down market to reverse declining sales of this premium brand.

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