VANCOUVER, Wash. In 1984, an Ethiopian engineering student created a revolutionary model for a home gym, using unvarnished rods instead of weights to create resistance.
For years, investors refused to back the Bowflex, saying it looked like an octopus or a spider not like an exercise machine. Instead, the Bowflex went on to become the fastest-selling piece of exercise equipment in the United States with sales pole-vaulting from $10 million in 1995 to $585 million in 2002, nearly doubling each year.
But it's that very success that nearly killed the company.
The Bowflex became so popular it inspired a legion of imitators including one that took matters into its own hands, just as the 17-year patent for the Bowflex was due to expire.
As the company's stock went into a tailspin, the makers of Bowflex realized they had to reinvent themselves.
A year and a half ago, Rod Rice was sipping his morning coffee at his desk in an office overlooking this Portland, Ore., suburb when he came across a Sears ad for a product called the "Crossbow by Weider" and almost choked.
"They were stealing our technology and riding the coattails of our trademark," said Rice, chief financial officer of The Nautilus Group, formerly Bowflex Inc., which held the exclusive Bowflex patent until it expired this April.
Even though Bowflex acquired the Nautilus brand in 1999, then purchased Schwinn in 2001 and Stairmaster in 2002, its growth remained anchored in the sale of the best-selling home gym.
"They were basically a one-trick pony," said analyst Eric Wold, managing director of San Francisco-based Merriman Curhan & Ford.
Almost as soon as Sears began selling the home gym made by Icon Health & Fitness of Logan, Utah, customer service representatives in Nautilus' call center began fielding calls about broken Crossbows, whose owners thought it was an extension of the Bowflex line.
"To return it, they were calling us," said Rice, who has been with Bowflex since 1994.
From a high of $30.39 a share in August 2002, Nautilus stock fell to $13.17 in October, the month the Crossbow was released by its competition. By 2003, Nautilus Group's annual sales declined 15 percent, from $585 million to $498 million. Profits shrank even more, dropping 65 percent from $98 million in 2002 to $34 million in 2003.
Nautilus sued the maker of the Crossbow and in July won a preliminary injunction barring Icon from using the Crossbow name. The fitness giants are expected to resume their legal duel in court next April, when Nautilus attorneys will try to prove that the Crossbow design also infringed on the Bowflex patent not just the trademark Bowflex name.
Even if Nautilus succeeds in that fight, it will still never again be the exclusive owner of the Bowflex design since its patent expired four months ago. The field is now wide open.
Nautilus has responded by pouring research into new designs. Even as investors abandoned the stock and analysts declared it dead, Nautilus hired new chief executive Gregg Hammann, a turnaround specialist who is credited with having taken Crest toothpaste from 28 percent to 40 percent market share.
Under his watch, Nautilus has opened a 92,000-square-foot lab in Louisville, Colo., where 45 designers are assisted by a support staff of more than 50.
"When you put all your eggs in one basket, you run into a lot of risk," said Hammann. "We needed to differentiate our portfolio and spread it out over our four brands now Bowflex is less than 50 percent of our sales."
Early in the company's history, Nautilus failed to sell the Bowflex in retail outlets, partly because the machine was too unusual and needed trained sales staff to help pitch it to wary customers.
Instead, the company bypassed retailers by investing heavily in infomercials that resulted in a highly successful direct marketing campaign. Nautilus officials became convinced that selling to malls and stores was not only unnecessary but could even hurt their margins by taking away from the cachet of the product.
"For years, Nautilus was the only game in town, and when you're the only game in town, the consumer has no choice. But when there's a choice, they prefer to try before they buy and play before they pay," said Mike May, spokesman for the Sporting Goods Manufacturers Association.
Icon, founded in 1977 and owner of the NordicTrack and Pro Form brands, had an established relationship with Sears but also uses TV ads, 800 numbers and catalogs to compete with Nautilus.
Now, Nautilus is aggressively pursuing retailers, with plans to sell its Schwinn exercise cycles at Sears, its Bowflex home gyms at the Sports Authority and Stairmaster at bulk retailers such as Costco. The key, said Hammann, is not selling the exact same model in the same channel.
The Bowflex is now available in five different models with five different price tags, from an entry level 60-exercise home gym to the Bowflex Ultimate, covering a range of 90 strength-training exercises. The most exclusive model costs more than $1,000 and still is available only by phone orders.
After nearly disappearing, Nautilus stock is moving up, analysts say.
"I raised it to a 'buy' again," said Wold, who ranks stocks from a "strong buy" to a "strong sell."
The newest Nautilus product the Treadclimber combines the Stairmaster with a treadmill and could even outdo the Bowflex, said Wold.
"The Treadclimber did $19 million in sales last year, and it's on track to do $60 million this year," said Wold.
In contrast, the Bowflex started at $4.8 million in sales in 1994, then grew to $5.2 million in 1995 and $9.2 million in 1996. It was only in 1997 that the Bowflex sales topped $20 million.
"The Treadclimber did that in nine months," Wold said.
As the company expands from its roots, the creator of the Bowflex feels vindicated.
"They said it looked like a spider it looks like an octopus. They told me it's good for a coat hanger. I used to get depressed because that was my dream and I'd go to the ocean and sit there for three or four hours," said inventor Tessema Dosho Shifferaw, now 54, who was 33 when he created the Bowflex for an industrial design class at San Francisco City College.
"I used to see all these costly cars and I'd say, one day, I'll buy them because I'll make lots of money," said Shifferaw. He got 3 percent from the sale of each Bowflex until his patent expired.