Keys Fitness Products, LP

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Keys Fitness Products, LP

4009 Distribution Drive, Suite 250
Garland, Texas 75041
U.S.A.
Telephone: (214) 340-8888
Toll Free: (800) 683-1236
Fax: (214) 340-1768
Web site: http://www.keysfitness.com

Private Company
Incorporated: 1988
Employees: 160
Sales: $70 million (2005 est.)
NAIC: 423910 Sporting and Recreation Goods and Supplies Merchant Wholesalers

Keys Fitness Products, LP, is a manufacturer and distributor of home fitness equipment, competing in a $5 billion market with a wide range of exercise machinery and accessories. Based in Garland, Texas, the company maintains a manufacturing facility in Tyler, Texas, and a sales and distribution center at its headquarters. Keys Fitness makes several models of treadmills, stationary bikes, elliptical machines, inversion tables, steppers, and all-purpose home gyms. Roughly 15 percent of the company's sales are derived from fitness accessories such as apparel, mats, Pilates rings, medicine balls, and jump ropes. The company sells its equipment to more than 3,000 stores in the United States and to retailers in 31 countries. Equipment and accessories are sold under a variety of brand names, including "Keys," "Ironman Fitness," "CardioMax," "Power System HealthTrainer," and "Karen Voight." Through a separate division named Keys Backyard, the company sells outdoor spas, saunas, pool tables, and home-living products.

ORIGINS

When Keys Fitness founder Tim Chen started his company, his business plan lacked the detailed approach one would expect from a former financial analyst. "My only real plan was to survive," Chen recalled in a December 2004 interview with Sporting Goods Business. "I got some people together and said, 'If we lose the $30,000, we're out. But if we work hard and make some things happen, we'll all share in the profits.'" Chen's spirit prevailed over the lack of substance in his plan, creating an atmosphere of success that would carry Keys Fitness through many profitable years. "Tim is the driving force," a company executive remarked in a January 2006 interview with US Business Review.

Chen gave up his job as a financial analyst and risked $30,000 in savings to enter a fast-growing market. He founded Keys Fitness in 1988 as an import business to grab a share of the home fitness equipment market, a market that tripled in size during the 1980s. Between 1980 and 1990, sales in the United States alone increased to $1.79 billion, fueled by the demand for all-purpose gyms, treadmills, and cross-country-ski machines, the three most popular items in the country when Chen began his entrepreneurial career. Chen later expanded the scope of his business, but initially he focused exclusively on importing free weights and dumbbells, a line of business that served him well during his first years in business.

By 1989, one year after starting out, Chen eclipsed the $1 million-in-sales mark, generating $1.2 million in revenue as a wholesaler. By 1993, he had reached $15 million in sales and had begun to make a name for himself and his Garland, Texas-based company. One of Chen's skills during Keys Fitness' early years was his ability to supply his company with a steady stream of working capital. Without stock offerings to fill its coffers, Keys Fitness relied on bankers to provide a substantial credit line to fund expansion, and Chen excelled at winning the confidence of bankers. His training as a financial analyst enabled him to understand the perspective of bankers being asked to support a business. Most entrepreneurs offered bankers a tour of their companies' production and warehouse operations, but Chen supplied his bankers with the type of information that fostered their trust in his business activities. He placed twice-monthly telephone calls to his bankers, informing them, as he explained in a July 1994 interview with Inc., of "our supply sources, our pricing strategy, our marketing channels." In response, Chen's bankers raised Keys Fitness' credit line steadily without hesitation during the company's first years in business, giving the fledgling concern the fuel to drive its growth.

Chen recorded satisfying success importing free weights and dumbbells, but his aspirations grew during the mid-1990s, resulting in a far different company than the one that first started operating in the late 1980s. The widening of the company's operating scope occurred after Chen's wife intervened and encouraged her husband to branch out into other areas of the consumer fitness equipment market. Chen heeded her advice, importing 100,000 Aero Motion machines in 1996, which moved Keys Fitness into the treadmill category of the home fitness market. Treadmills were the single most important type of exercise equipment in the market, accounting for an estimated 75 percent of all sales. Chen sold all of the Aero Motions, making $20 on each piece of equipment, netting Keys Fitness $2 million. Flush with success, Chen tried another venture, importing 600,000 abdominal rollers, which, along with elliptical machines, represented the fast-growing segment of the home fitness market in the late 1990s. Chen made $10 on each of the abdominal rollers, netting Keys Fitness $6 million. The abdominal venture occurred in 1997, a year that also included Chen's boldest move in the home fitness market. Keys Fitness concluded its first decade in business without recording any notable miscues; the company started its second decade of business assuming a decidedly more ambitious posture.

KEYS FITNESS BECOMING A
MANUFACTURER IN 1997

Keys Fitness' transforming moment occurred when a new type of exercise equipment stirred excitement through the industry. Elliptical machines, introduced by a company named Precor in 1996, captured the attention of a host of equipment makers, but Chen chose to embark on a new era for his company with the time-tested, market winner in the industry, treadmills. After nine years of operating exclusively as an importer, Chen decided to enter the manufacturing side of the business in 1997, when he introduced his own treadmill. A mid-priced, folding unit, the Keys Fitness treadmill was an immediate success, earning industry awards and attracting a loyal following in the consumer market. The company's treadmill became its signature piece of equipment, representing a milestone in its development. "When we did that," a company executive explained in a January 2006 interview with US Business Review, "I think it significantly shaped the future of our company. It made us a more important player in the marketplace," the executive continued. "The breadth of our product assortment, particularly in the high sales volume categories, made us more relevant and important to our retailing customers."

COMPANY PERSPECTIVES

Keys Fitness is an internationally respected provider of gym-quality home fitness equipment, based in Dallas, Texas.

Widely recognized as an industry leader, the company offers a complete range of award-winning exercise equipment, strength-training products and related cardio accessories that help shape millions of lives.

With products ranging from state-of-the-art home gyms and elliptical trainers to treadmills and stationary bikes, Keys Fitness offers total fitness solutions to retailers and consumers alike.

Chen built Keys Fitness' manufacturing business around the treadmill, leveraging the company's initial success to enter new product categories. Manufacturing operations were established in Tyler, Texas, 90 miles east of Garland, where the company began producing treadmills and a variety of equipment, including aerobic steppers, elliptical machines, home gyms, and stationary bicycles. The company's growing roster of products was housed at a sales and distribution center in Garland.

Chen made the transformation from an importer into a manufacturer without ceding control over his company. Keys Fitness remained a private company, relying on profits and Chen's well-established relationship with bankers to pay for the establishment of manufacturing operations. The foray into manufacturing also forced the company to develop a more sophisticated marketing program, as executives in Garland worked towards building brand recognition in the home fitness market. Keys Fitness succeeded in creating a place for itself among the manufacturing ranks, establishing strong ties to retailers throughout the country and building a strong presence overseas. Chen spent five years expanding his product line before taking the next evolutionary step in his business' development. The move into the manufacturing side of the home fitness industry was followed in the early 21st century by another bold move, one that substantially elevated Keys Fitness' stature within the industry.

ACQUISITION OF IRONMAN
BRAND: 2002

Keys Fitness enjoyed robust growth during the late 1990s, fueling Chen's confidence to pursue expansion more aggressively. As announced in the August 2002 issue of Sporting Goods Business, Keys Fitness reached an agreement with the World Triathlon Corporation to secure the exclusive licensing rights for the Ironman name. Chen acquired the rights to enable his company to begin manufacturing a line of fitness equipment bearing the Ironman label, which debuted in 2003, adding a lucrative new facet to Keys Fitness' operations. The Ironman line, styled in a distinctive silver, black, and red design scheme, became a major focus of Keys Fitness' strategy. Chen, after introducing the Ironman brand in 2003, announced he hoped to derive half of Keys Fitness' total sales from the new line by 2006.

By the end of 2004, the company had expanded the Ironman line substantially, offering four treadmills, six elliptical machines, four recumbent bicycles, and three home gyms, with each model variant bearing the Iron-man brand. Keys Fitness, which also began manufacturing inversion tables in 2004, had approximately 400 products in the home fitness category by the end of the year, including various accessories such as mats, Pilates rings, medicine balls, and jump ropes that accounted for 15 percent of its revenue volume. The output was sufficient to require 100 employees at the company's manufacturing facility in Tyler. Another 60 employees were stationed at the company's headquarters in Garland, a group assigned to sales, marketing, and design duties. The designers, in particular, were busy in 2004, given the daunting task of revamping the entire Keys Fitness line. The project, perhaps inspired by the sleek new line of Ironman equipment, was completed by the end of the year. Keys Fitness' senior vice-president, Dave Williams, praised the work completed by the company's design staff in a December 2004 interview with Sporting Goods Business. "We've blended art and science," he said. "The perception of our line had been that our equipment was built like tanks, but in many cases, [the equipment] looked like tanks, too. Now, a few cosmetic twists and turns later, and our machines look as good as they work."

KEY DATES

1988:: Tim Chen founds Keys Fitness to import free weights and dumbbells.
1997:: The company manufactures its first piece of equipment, a treadmill.
2002:: Chen acquires the exclusive licensing rights to the Ironman brand, resulting in the introduction of a line of Ironman exercise equipment the following year.
2004:: Keys Fitness redesigns its entire line for aesthetic purposes.
2005:: Keys Fitness acquires Image Spas and renames the business Keys Backyard, L.P.

As Chen neared his 20th anniversary in business, he showed no signs of backing away from further expansion. The foray into manufacturing was his first bold move, shaping Keys Fitness into an entirely different type of company. The development of an Ironman line reflected Chen's desire for growth as well, giving the company the chance to develop its marketing muscle. For his third major move toward expansion, Chen made what arguably represented his most daring bid to elevate Keys Fitness' stature. In January 2005, he concluded a deal with Logan, Utah-based ICON Health & Fitness, Inc., a $900 million-in-sales competitor in the home fitness segment. Chen acquired ICON's Image Spas business unit, a maker of outdoors spas and home living products. The first significant example of diversification in Keys Fitness' history, the acquisition provided a new source of revenue for the company and offered entry into a sizeable market that it could exploit in the future. Image Spas was renamed Keys Backyard, L.P. and organized as a separate division of Keys Fitness. The division offered a line of spas, saunas, pool tables, and outdoor flooring. The merchandise was offered via telephone orders and at selected units of The Home Depot retail chain. If the addition of Keys Backyard offered any indication of Chen's desire for growth, Keys Fitness appeared destined for further expansion in the years ahead, as the one-time importer blossomed into a manufacturer of a diverse range of equipment.

Jeffrey L. Covell