BRIAN COOK - DIRECT FOCUS, INC. (DFXI)
CEO Interview - published 06/07/2001

DOCUMENT # MAL208

BRIAN R. COOK has served as Chairman of Direct Focus, Inc.'s Board of
Directors and as President and Chief Executive Officer since 1986. Mr.
Cook received his BA in Business Administration from Western Washington
University. He is a Certified Public Accountant. 

Sector: Marketing services

TWST: Could we begin with a historical sketch of Direct Focus and an
overview of the company as it is now?

Mr. Cook: Direct Focus started 15 years ago when a group of investors
spotted a technology called 'Bowflex.' They put together a deal to
acquire the technology and then hired me to form the company and develop
the technology. We developed the initial product during 1986-1987. We
then signed an exclusive distribution agreement with Schwinn Cycling and
Fitness. That arrangement was in effect until 1993 when they went
through a Chapter 11 bankruptcy. The five years we spent as a producer
of product for Schwinn was good; it gave us time to learn and mature as
a company. The Schwinn bankruptcy in 1993 provided an opportunity for us
to terminate that exclusive distribution arrangement. We then proceeded
to raise $2 million in capital through a public offering on the Toronto
Stock Exchange and used that money to start our direct marketing
business. We started developing our direct marketing systems and
methodologies during 1993 and 1994, and by mid-1995, were on our way to
building a successful direct marketing business. Today, there are three
divisions of our business: our direct marketing division, our consumer
retail fitness division and our commercial fitness division. We are a
marketer of fitness and healthy lifestyle products. On the direct side,
we market the Bowflex line of equipment, which has eight different
models ranging in price from $699 to $1,697. We also directly market our
Nautilus Sleep Systems, which is a variable support adjustable air sleep
system. This product line has four different models ranging from $499 up
to $2,500. Our retail fitness division markets a line of Nautilus
fitness equipment focused on home strength training. This includes free-
weight products, as well as home gym products and is marketed to
specialty fitness and upper end sporting good retailers. The commercial
side of our business is Nautilus' core business ' commercial strength
equipment. This is a market that Nautilus created back in the 1970s and
has pretty much dominated since then.

TWST: Is the Bowflex strictly marketed through infomercials, or is that
also retail?

Mr. Cook: The Bowflex is sold strictly through the direct side of our
business, as is the Nautilus Sleep System. We have a corporate
philosophy that says if you're selling a product direct, keep it
strictly on the direct side of the business.

TWST: Why?

Mr. Cook: We feel that if we're marketing a product directly, we have to
maintain what we call a 'call to action.' When you see our commercials
on television and we ask you to call now, if you know a product is
readily available at retail, you're less apt to 'call now.' For us, it's
really that simple.

TWST: What is your competitive strategy in the health and fitness space?

Mr. Cook: We participate in three very large market segments. First, we
participate in the home fitness market, which is about a $5.5 billion
annual retail sales marketplace in the US. We compete in that market
segment with both our Bowflex product line, as well as our Nautilus
consumer fitness equipment. We also compete in the commercial fitness
market, which is approximately $700 million per year in annual sales in
the US with our Nautilus commercial fitness equipment. And most recently
in the sleep system/bed market, which is a $7.6 billion retail sales
annual market in the US, with our Nautilus Sleep System. We compete at
the middle to high end of these markets and believe in focusing on the
quality (not quantity) segment of these markets.

TWST: How do you define the difference between quality and mass?

Mr. Cook: Quality products to us are not necessarily expensive products.
There are a lot of quality products that are inexpensive. Quality
products are products people can trust, that do the job they're designed
for, and meet and exceed the purchaser's expectations. The Bowflex is a
great example of this. It's a product that consistently has exceeded
customers' expectations, been very durable and probably a product that
you only need to buy one, unless you have a second home where you want
another one.

TWST: So it's good news/bad news, from your point of view?

Mr. Cook: It's great news. While it means we only sell most people one
Bowflex, it means that we have very satisfied customers. That creates
trust and loyalty, so while we may not sell a majority of our customers
a second Bowflex, we may, in fact, sell them a Nautilus Sleep System and
we have found that satisfied customers tell a lot of friends about the
Bowflex and the Nautilus Sleep System.

TWST: Who is your competition?

Mr. Cook: In a broad sense, all businesses that sell upper end products,
whether it be automobiles, boats, skis, golf or other lifestyle
products. More directly, it would be other retailers that compete in
fitness and the bedding arena, as well as other direct marketers and, of
course, all fitness suppliers to the commercial industry. Once again, we
believe that products that are high quality, well branded and well
marketed will succeed in the marketplace. Keep in mind that there is no
lack of home gym-type equipment available in retail stores, yet our
Bowflex product line, driven by great marketing and a good product,
continues to out-perform the competition.

TWST: What is it that sets Bowflex apart from the rest of the product
lines that are out there?

Mr. Cook: This goes back to our philosophy ' the products must be of
great quality and exceed customer expectations and be driven by
proprietary features the customer will find attractive if they are going
to buy a product in that category. This, combined with good marketing
and strong brand names, we think are the key to our successful formula.

TWST: As we look out over the next two or three years, how would you
describe the strategy that you're going to follow?

Mr. Cook: First, we intend to build on our market leadership in the home
gym category through growth in our Bowflex business. Second, we intend
to continue to leverage the Nautilus name by expanding our commercial
fitness business, by growing our Nautilus consumer retail fitness
business and by further utilizing the Nautilus brand name in our direct
marketing business. The first example of that was the introduction of
the Nautilus Sleep System in 2000. Third, we will continue to take
advantage of our opportunities for growth in the area of e-commerce. As
little as two years ago, e-commerce made up virtually none of our sales.
In the fourth quarter of last year, e-commerce accounted for 25% of all
direct sales. We believe this area has even further potential for
growth. To summarize, our growth strategy is three-fold: we intend to
continue to build and leverage our direct marketing skills; we intend to
build our retail Nautilus consumer fitness business; and we intend to
grow our commercial fitness equipment business.

TWST: To put all that together, what kind of growth are you capable of
generating over the next two or three years?

Mr. Cook: We have publicly stated that we intend to grow at a 25%-30%
rate per year.

TWST: Does e-commerce have an ongoing potential for you?

Mr. Cook: We feel that e-commerce has great potential for us, both on
the direct marketing side, as well as in the commercial and retail sides
of our business. As I've stated before, two years ago, e-commerce
accounted for virtually none of our sales. In the fourth quarter of
2000, e-commerce presented 25% of our direct sales. It's different than
a dot-com strategy. E-commerce, to us, is an extension of our already
highly successful business model.

TWST: As we look at the history of fitness products and other things
sold particularly through the direct marketers, there can be ebb and
flow. What's to prevent Bowflex from following that same historic
pattern?

Mr. Cook: First, let me point out that since beginning the roll-out of
the Bowflex product line, we're on our 23rd quarter of consecutive
growth, both in sales and earnings. We realize that all products have a
life cycle, and our strategy is to continue to add additional products
to our direct marketing business such as we did when we added the
Nautilus Sleep System last year. Philosophically, we intend in the near
term to add one new product every couple of years, maybe more frequently
a few years in the future. Another key strategic issue is controlling
the life cycle of the product. We do that by controlling distribution
and marketing. As I stated earlier, when a product is sold through our
direct division, that today is the only way you can by it: direct. When
you look back at similar products (such as Nordic Track or Soloflex), I
believe you'll see that those products had lives of about 10-15 years
because they, too, controlled distribution and how they marketed the
product. And third, each year since we've introduced the Bowflex and the
Nautilus Sleep System, we've made changes to the product line ' either
enhancements, new accessories or the introduction of new product models.
We think it is important to keep a product line fresh.

TWST: Looks like you're solidly profitable now. Is there room for
improvement in what appears to be very healthy margins?

Mr. Cook: We're very happy with our margins today and our overall
financial performance. I think if you ask analysts, they might tell you
they're looking for more of the same.

TWST: Do you have the internal capability to develop new products, or do
those come from outside?

Mr. Cook: Both. First, let's address capabilities. On the commercial
side, our consumer retail side and on our direct side, we have internal
design and engineering teams. Ideas for new products are generated from
within and, additionally, because of the visibility our direct products
have on television, as well as the visibility of Nautilus products in
the commercial marketplace, we have many, many new product ideas
presented to us each month. Whether a product is solely developed
internally or whether we engage outside services depends on the product
and the capabilities needed. We certainly use outside services in the
design and development area whenever we think it appropriate.

TWST: So, there is no shortage of good ideas?

Mr. Cook: I don't think there's ever been a shortage of good ideas, just
a limit on which ones to develop.

TWST: As those ideas come across, whom are you competing with for them?

Mr. Cook: Again, in a broad sense, if it's a fitness product, we're
competing with every other fitness company in the United States. In many
cases, a product that will appeal to us may not appeal to other fitness
companies. We like products that are good at what they do; but that may
also mean they're a little unique, either in appearance or function. If
you've seen the Bowflex, you recognize it has a unique appearance
compared to other home gyms. However, it's these unique proprietary
features that enable us to be successful. Many ideas are presented to us
that are presented to a variety of other direct marketers. Again, what
differentiates us from most direct marketers is that we like products
that sell for over $500. Most other direct marketers are not comfortable
at those price points.

TWST: Given the rapid growth you've seen and look for, what kind of
corporate culture have you tried to build?

Mr. Cook: Straightforward, very focused. On the direct side, we're very
data-driven and marketing-driven. Therefore, we've developed extensive
infrastructures in our MIS area, as well as our marketing and call
center areas. In all of our businesses, we try to listen to our
customers and provide them with the products and services they need. A
constant challenge for any growing company is keeping up with the growth
in your human capital. In other words, getting the good people in place
before you need them.

TWST: Have you been able to meet that challenge so far?

Mr. Cook: So far, we've been able to meet and stay ahead of them.

TWST: Do you the financial resources you need?

Mr. Cook: If you look at our balance sheet today, for a company our
size, I think we have adequate financial resources. We have a very
strong balance sheet with a little over $90 million in cash with no
debt. We think we have the financial resources we need to continue to
expand all three sides of our businesses.

TWST: How do you feel about the value the market is currently putting on
the company?

Mr. Cook: We'd always like to see it higher, but we let the marketplace
take care of the marketplace and we concentrate on running our
businesses.

TWST: Do you think the market understands what you're doing?

Mr. Cook: I think the market understands what we're doing better and
better each and every year. On the direct marketing side of our company,
we have a very data-driven model. What I mean by that is that we collect
and utilize a vast amount of data on our markets, our customers and
products. It is this data that tells us how to create and how to place
television commercials, what mailings to send customers and how to reach
customers through telephone and e-mail to maximize sales per advertising
dollar spent. Until you follow our company for a while, it's hard for
most to understand our data-driven direct business model.

TWST: If you were sitting down with some potential longer-term
investors, what two or three reasons would you give them to take a look
at the company today?

Mr. Cook: I'd say look at our past performance. We're on our 23rd
quarter of consecutive growth. I believe we've proven our leadership in
direct marketing and with the acquisition of Nautilus in 1999, I believe
we're showing that we can create businesses outside of the direct model.
Going forward, we have both the powerful Bowflex and Nautilus brand
names, we continue to look for opportunities to further expand our
business and with access to $90 million in cash on our balance sheet, we
feel good about our resources and capabilities.

TWST: What's the risk? What can go wrong?

Mr. Cook: There are a lot of risks in business, many of them beyond your
control. We would certainly like to see a stronger economy, although we
can say that, at this time, we have not seen our overall growth impaired
by the economic slowdown.

TWST: Are there any things that keep you awake at night?

Mr. Cook: Nothing keeps me awake at night because I sleep on the best
bed in the world ' the Nautilus Sleep System.

TWST: Thank you.

BRIAN R. COOK
 CEO
 Direct Focus, Inc.
 1400 NE 136th Avenue
 Vancouver, WA 98684
 (360) 694-7722
 (360) 694-7755 - FAX
 www.directfocusinc.com

Each Executive who is the featured subject of a TWST Interview is
offered the opportunity to include an Investors Brief or other highlight
material to be provided and sponsored by and for the company. This
Interview with Brian R. Cook, CEO of Direct Focus, Inc., is accompanied
by an Investors Brief containing corporate information.

Copyright 2001 The Wall Street Transcript Corporation
All Rights Reserved


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