Johnson Health brands taking big steps globally

SNEWS® visited the Johnson Health Tech executive team and Shanghai facilities in early September. We walked the factory floor with Chairman/CEO Peter Lo and talked to him in-depth about the company and its direction.

Peter Lo wears a pressed white shirt, Wall Street-striped tie and a sharp navy suit. Looking the part of a well-heeled CEO of a global company, which he is, doesn't keep him from shedding his jacket, loosening his tie and taking strolls around the factory floor every morning and afternoon.

"This is a happy noise," he says of the din created by welding, tooling and injection-molding equipment in the Johnson Health Tech manufacturing plant in Shanghai, China. He smiles and stops to inspect motors and freshly minted consoles still warm to the touch. "It's too quiet in the office."

Lo knows quiet. And he doesn't like it much. As a young boy, he grew up in a tiny village in Taiwan in an extremely poor family. He knew he wanted more from life for both himself and his family. So his drive took him to school to become a teacher (he taught elementary school for several years), but that still wasn't enough. He worked for the government customs office for two years. That wasn't enough. So off he went to the university to study economics so he could, he said, make more money. He sold electronics in the street, he said, buying parts and assembling the needed gear.

"But that wasn't enough," Lo said, relating his tale to SNEWS® and two German journalists on a recent trip to the Johnson company's Shanghai manufacturing facility. With a young family starting, he began shooting out proposals to every company and source he could find. In the letters, he sold his ability to source what the companies needed for less money than others could.

What's a barbell?

"I can do it," he said he wrote in many letters starting in 1975 to those he pitched. It wasn't until 1976 that his first positive response landed back in his mailbox. It was from Ivanko Barbell in the United States seeking a less expensive source for weight plates and barbells. Could he find the parts the company needed for the price it would pay?

"Yes, I can," Lo said he answered. But then came the scramble.

"I didn't know what a barbell was," he said, laughing heartily over a story he's likely told dozens of times, but still obviously enjoys telling.

In 2006, three decades later, Lo's Taichung, Taiwan-based, Johnson company is expecting USD $400 million in global sales, up nearly 50 percent from 2005 sales of $266.7 million, and up from 2004 sales of $200.68 million. Globally, it has an average annualized growth rate of 35.4 percent, and he notes it is the fifth-largest fitness equipment supplier in the United States and the fastest-growing one.

Of those sales, about 60 percent, or about $250 million, are in North America under the flags of its three U.S.-based Johnson Health Tech North America brands -- Matrix, Vision and Horizon -- under the leadership of Nathan Pyles. It is in North America where 30 percent to 35 percent growth is helping to fuel the company's upward trajectory.

But it was only a decade ago that Lo and the company, where his wife Cindy Lo heads finances, his son Jason Lo is president, and his daughter May Lo is director of sales, became more than just an OEM supplier to the likes of Nautilus, True, Schwinn and Tunturi.

A Vision is born

Pyles, who was overseeing Trek Bike's fitness equipment division, discovered Trek was going to discontinue that segment, which Lo's company was manufacturing. Lo got a call from Pyles, and when the two heads came together, the decision was made to take over Trek's fitness division. But what's in a name? Johnson had become the name just because it sounded like the pronunciation of the Chinese company's name "Quiao Shan," Lo said. However, Johnson didn't have the zip that Pyles knew the North American market needed to be successful.

"When we set up Vision, Nathan said, 'I don't like Johnson,'" Lo related. "When we set up Horizon, Bob (president Bob Whip) said, 'I don't like Johnson.' When we set up Matrix, Ken (then president Ken Lucas) said, 'I don't like Johnson.'

"So I said, 'If you can make money, you can change the name,'" Lo said, smiling broadly again at his story. Johnson did become the name of a commercial equipment brand name in Asia and Europe, with a few also sold in Canada under that name.

First came Vision Fitness as the mid-range retail supplier. In 1999, Horizon Fitness, as the entry-level and sporting goods supplier, was added to the family. In 2001, Matrix Fitness became the commercial supplier of equipment for the company, debuting at the Club Industry show in the fall. Of course, with its own brands rolling out, Johnson has continued to lose the manufacturing contracts for others, although it still makes a few Schwinn pieces. OEM business is now only 5 percent of its total work and going down quickly, May Lo said.

The establishment of a U.S.-based North American sales and marketing division under three brand names lit another fire under company growth. In 1997, its first full year, sales globally were $28 million and have been on the upward track from there. Home equipment continues to dominate sales, accounting for 80 percent globally, with cardiovascular equipment accounting for most of that and treadmills accounting for two-thirds of that.

"Cardio is developed from the U.S. market," Lo explained in a day together at the facility. "Exercise is part of the American people. Everybody does exercise. But in Europe, not everybody does exercise, just some people. Plus, in America, everybody has bigger homes."

Bigger and bigger

Getting bigger isn't just about adding people and buildings, though. Lo knew that efficient operations were key. That's why from the start the company set up "SOP," or Standard Operating Procedures, for every division. In fact, in the sales area, there are photos on the wall showing exactly how an employee's desk should look.

"At every meeting, I say, 'Efficiency comes from discipline, discipline comes from management,'" Lo said.

He's not just talking about management meetings and the strict "MBO," or "Management by Objective," style he oversees, but weekly Monday morning meetings that include nearly every single employee on duty. On the Monday SNEWS® visited, that meant about 4,000 people lined up in prim rows in military-esque stance where employees listen to weekly and monthly reports about progress, see team awards handed out and get a pep talk from executives, in this case from visiting Chairman and CEO Peter Lo.

"Do we have the confidence?" Lo asked.

"YES!" came the unified chant back, loudly.

"Do we have the confidence?" Lo repeated, more emphatically.

"YES!" came the unified chant back again, even louder.

"…To become the best and biggest company?" he asked.

"YES!" came the chant back.

"…To become the best and biggest company?" he repeated.

"YES!" came the answer, loudly.

At the conclusion, the thousands gathered broke and scurried off in all directions to start their shifts. In the last three months, Johnson in Shanghai alone -- a facility that has only been open since 2001 and now covers 30 acres -- has hired 3,000 people, doubling its workforce there from about 3,000 to more than 6,000 on two shifts. In December, a new manufacturing facility not far away will open (it has been delayed because the government wanted to slow down economic growth to keep inflation down, we were told). On 37 acres in a free-trade zone that will save substantial fees, it will employ another 2,000 people when it opens and should reach its capacity of about 7,000 by the middle of 2008. (The Taichung headquarters and manufacturing facility for its commercial equipment covers 10 acres.) The Shanghai-area residents are so eager to work at Johnson, with its good salaries, overtime options and benefits, that they gather at each of the gates by the dozens and sit all day, waiting for the chance to be first in line in case a recruitment notice is posted. SNEWS® noted a tight swarm at one kiosk on the afternoon it was there, as eager potential employees jostled for position, likely because some openings had just been posted.

"The speed of the expansion this year is more than we expected," Peter Lo admitted. But that doesn't mean he'll put on the brakes, even hinting at the possibility of yet another plant in a few years.

In addition, Johnson now operates 105 company stores in Taiwan and more could come in other Asian markets. They are, as May Lo said, good marketing for the brand too. Many more could come down the road in other areas of the world, they said.

On the North American front, Johnson Health Tech North America on Oct. 4 will cut the ribbon on its new headquarters near Madison, Wis. -- a 15-acre, state-of-the-art plant that will house both the Horizon and Matrix brands, research and development and some engineering departments, as well as a think tank and center for new ideas for the entire Johnson family.

Going public and being happy

Only recently, in 2003, did Johnson go public on the Taiwan Stock Exchange, but that wasn't because it needed cash. Rather, Peter Lo said candidly, as he always is when it comes to financial information, it was to gain the public eye.

"We need the people to know, 'Who is Johnson,'" explained Lo. "We went public not to get money," but rather it was a strategic decision.

In fact, 72 percent of the company is still family owned, he pointed out.

Where is this going? Make no mistake about it: Peter Lo said he intends for the company to be the best and the biggest fitness equipment supplier in the world by 2010. The growing market in Asia, including China, is one factor that creates huge momentum, but exponential growth in South America in the commercial realm will help too.

"There is a trend now," said May Lo, "that fitness is in fashion."

Lo, now 65, isn't ready anytime soon to leave his "happy noise" for a quiet retirement. He obviously enjoys inspecting the lines, talking to employees, and fingering equipment as it rolls out. He has navigated the currents and steered the growth of the Johnson company for 30 years, along the way upholding the Chinese ethic of taking care of family, both with earnings and jobs.

"We must keep our company advancing at all times," he said, "or we will fall down. Business only goes in one direction; you cannot go backward. You must always run forward … and run and run and run.

"I will never retire," he pronounces to the din of the factory whir. "This is my happy hard work."

SNEWS® visited the Johnson executive team and the Shanghai facilities, clubs and area stores in early September. We walked the factory floor with Chairman/CEO Peter Lo and the rest of the executive team, saw the Monday morning company meeting live, talked to him in-depth about the company and its direction, and learned more up close and personal about the teeming city of Shanghai. Stay tuned for an additional report about the retail stores we saw and other observations from the trip.



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