Taichung is the cradle of worldwide known fitness brand manufacturer Johnson. The company, Johnson Health Tech Co. Ltd., is the world’s second-largest manufacturer of fitness equipment for commercial and home users. The various product lines are sold in more than 90 countries around the globe. The treadmills and exercise bikes that you find in the gyms of Planet Fitness, the largest fitness center chain in the United States, are all Johnson brand products.

The COVID-19 pandemic that has been hitting countries around the globe in the first half of the year has yet to be brought under control in the United States and parts of Europe. For Johnson, which counts gyms, fitness centers and hotels among its main customers, business has surely been dealt a heavy blow.

In the first quarter of 2020, the company incurred a COVID-19-related loss of NT$250 million. Revenue from the sale of commercial fitness equipment showed a double-digit decline as fitness centers in the United States and Europe, the company’s main markets, remained closed during local lockdowns. “It really caused us a massive headache” says General Manager Jason Lo in an interview with CommonWealth Magazine. 

No Pandemic-Related Adjustment of Business Targets

Lo joined the family business 25 years ago after returning from the United States where he had earned a master’s degree. Despite being the founder’s son, Lo started his career at the lowest rung of the ladder, stacking transport containers. Although the COVD-19-pandemic is not over yet, Johnson has not had to adjust its annual business targets.

On the contrary, the company is vying to become the largest fitness equipment manufacturer in the world. With annual revenue expected to top US$1 billion this year, Johnson stands a chance of dethroning exercise equipment world leader Life Fitness from the United States. Last year, Johnson’s revenue lagged some U$$100 million behind the global industry leader.

“Their rival is currently on the decline. If Johnson’s revenue growth reaches 20 percent to 30 percent this year, they stand a chance of surpassing them this year,” predicts one investment consulting analyst. In contrast to competitors in the United States and Europe, Johnson provides hardware manufacturing and software integration, which gives it a competitive edge in meeting customer needs.

The first quarter had hardly passed when Johnson already emerged from the doldrums. In the second quarter, revenue recovered to NT$5.64 billion, a record high for a second quarter. Business was buoyed by a surge in demand from consumers who were holed up at home due to the pandemic. In June, global sales of home fitness equipment increased by 130 percent over the same period last year.

Why is Johnson eager to become the world leader in the fitness equipment industry at a time when an end to the COVID-19-pandemic is not yet in sight? Lo points out that the company has gone through two transformations that gave it the necessary skills to reach a world-class level.

Vertical Integration Against Father’s Opposition
From Production to Showrooms – All in One Hand

The first transformation took place in 1996 when the contract manufacturer began to develop its own brands. Thanks to the acquisition of tooling and patents of Trek Fitness, an exercise equipment line of U.S.-based bicycle maker Trek, Johnson was able to shorten the learning curve and subsequently established its own brand, Vision Fitness.

Having embarked on brand ownership and development, Johnson launched the second transformation by branching out into the commercial fitness equipment sector.

Johnson originally mainly made affordable home user products. Eager to expand into the commercial user segment, they set up a production base in Shanghai and strengthened R&D and manufacturing capabilities. Lo also made a few decisions that his father Peter, who serves as chairman, firmly opposed: opening retail outlets and establishing its own distribution channels.

“In the first year, we incurred losses worth NT$ 50 million,” says Lo in recalling this challenging period.

Ignoring his father’s opposition, Lo insisted on establishing the company’s own distribution channels, because relying on dealers did not seem to make sense: “Why would anyone who is selling American and Italian products want to sell an unknown Asian brand? This way we would never be able to make it.”

During the 2008 financial crisis, Johnson again suffered heavy losses of more than US$60 million per year. Determined to focus on the development of high-end commercial use products, the company closed down production lines with a gross margin of less than 15 percent to consolidate the product structure.

Following the two transformations, Johnson had evolved into a vertically integrated company, controlling the entire supply chain from development, manufacturing, sales and distribution to service. This also allowed Johnson to erect barriers to entry that made it more difficult for rivals to compete. With nearly 300 retail stores worldwide, Johnson has a solid backing for its global expansion.

Rewarding Employees, Delegating Power, Cultivating Cohesion

Johnson counts among the handful of Taiwanese companies that have successfully established international brands. But Lo admits that building a transnational team poses the greatest challenge. How do you inspire the employees at more than 30 subsidiaries to work side-by-side for the same goal?

To overcome this difficulty, Johnson decided to share profits with their staff. The company distributes 15 percent of its annual surplus to its employees.

Another incentive is delegating decision-making powers. Johnson has retained a pool of talented people who are ready to go all out for the company’s success. They control the main operational functions. Decision-making powers are tailored to the size of the subsidiary. From manufacturing to sales, this group of people has the final say in making decisions.

Every six months, Johnson holds a Group conference in a different country, enabling all subsidiary supervisors to gather in one place to discuss the business situation and boost morale. “When the local employees see that colleagues from other countries come [to participate], they naturally want to perform even better,” observes Lo.

Following are the highlights from the CommonWealth Magazine interview with Johnson Health Tech General Manager Jason Lo:

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Q: Johnson suffered losses worth NT$250 million in the first quarter due to the COVID-19 pandemic. With the gradual lifting of lockdowns in the United States and Europe, commercial fitness equipment sales have begun to recover in the second quarter. What do you expect for the latter half of the year?

A: Because of the pandemic, fitness centers, hotels and schools remained virtually all closed in Europe and the United States. This had a huge impact on the commercial market because our customers could not install new machines in April, when the situation was the worst, but in May and June, sales gradually recovered.

In the second half of the year, some medium- and small-sized fitness centers that were not able to hold out during the pandemic will go under. Our large customers will very likely take advantage of the situation to take them over to accelerate their expansion. This is bound to lead to increased equipment procurement.

Moreover, the pandemic has raised people’s health awareness. This means that after the lockdowns, it is foreseeable that fitness-related demand is going to rise further, and will become most visible in the fourth quarter.

Therefore, we expect the market to develop quite well in the coming six months. We have not adjusted our annual target due to the pandemic at all.

Targeting Home Users With Interactive Fitness Coaching

Q: Which decisions and strategies helped Johnson recover from the pandemic shock so quickly? Where do the greatest challenges lie?

A: Since people are confined at home because of the pandemic, we have accelerated our expansion in the e-commerce and home user markets. Some people still want to exercise at home. They can order online and assemble the equipment themselves.

Although home exercise equipment is less expensive, everyone is going for high-priced (products) now because the run on equipment has been causing shortages. The average customer order value is US$70 to US$80 higher than before. Our e-commerce sales have also grown three- to four-fold.

Secondly, we relocated the production bases for our home user products from Shanghai to Vietnam to bring down unnecessary costs and also to cut out U.S. tariffs on goods exported from China.

On top of that, we are developing new products that integrate hardware and software. We’ve created a fitness product that looks like a dressing mirror.

It works like a one-way mirror. You don’t need to go to the gym, just go online and you can take classes with famous fitness coaches from around the world from the comfort of your home. On the one hand, you can have a long-distance dialogue with the coach; on the other hand you can adjust your posture or invite friends to exercise together with you and share your progress.

In the future, these courses will become subscription-based, and subscriptions can be updated with the courses of different coaches at any time so that consumers will have even more choices.

For this product, we have put together a team of more than 10 people who are in charge of producing digital content. For the music in the videos alone, we need to negotiate over copyrights with every single rights owner.

That’s the trend of the future. Consumers’ fitness needs will shift from hardware to software.

Commercial Market, Direct Selling, No Dealers

Q: Commercial-use products account for the lion’s share of Johnson sales with a revenue share of 58 percent (first half of 2020). What is Johnson’s strongest competitive edge in comparison with American and European competitors? How did you get there?

A: If you want to get a foothold in the commercial fitness equipment market, you must establish an all-round competitive advantage from R&D, manufacturing and sales to distribution and service; all are essential.

In contrast to our competitors, Johnson has integrated its global resources and implemented a global professional division of labor. Our R&D center is located in the United States, which is our biggest market. It has around 1,000 American employees. We do not dispatch people from Taiwan; that’s the only way to stay abreast of changes in the local market and react to them.

We have factories in the United States, Taiwan, China and Vietnam, which allows us to plan differently based on the advantages of the various locations.

Taiwan is very knowledgeable in electronic controls and machinery. We keep manufacturing of the most expensive and most important products in Taiwan.

Since the United States is closest to the end-consumer market, it is appropriate to manufacture special and customized products there. That way you can ensure a fast reaction. In China and Vietnam, we make inexpensive products because production costs are low there.

From day one of launching our own branding, I have packaged Johnson as an international brand.

We now have almost 300 retail locations around the globe, using our own people to sell instead of relying on dealers.

Large dealers will only sell famous brands; they sell American and Italian products. Why would they want to sell an unknown Asian brand? That way we would never be able to make it. We had better sell ourselves, given that we even have our own service teams. When fitness center equipment breaks, it must be repaired within 48 hours; the customers won’t wait for you.

Looking back at this process, it seems that we needed to keep making breakthroughs just like an athlete competing in local sports competitions and then going all the way to the national cup and the Olympics.

Source: Johnson

After Acquiring Japanese Company
Holding Company and Listing not Ruled out

Q: How do you want to become the world’s largest fitness equipment manufacturer? Which capabilities need to be reinforced?

A: Our goal is to develop toward becoming an equipment manufacturer with a comprehensive wellness division.

We do not just want to become the global No. 1 in fitness equipment. Last year, we bought a 60 percent stake in Japanese massage chair maker Fuji Medical Instruments Mfg. Co. Ltd. (Fujiiryoki brand). We are planning to take the company public within four years. We do not rule out merging it in the future to evolve into a holding company.

I feel that when a company has reached a certain size, we should spin off a few parts and take them public, enabling employees to share the profit. That’s what we have been doing since founding our first subsidiary in 1996.

If one day, the largest wellness brand in the world stems from Taiwan, this success will not be owed to the management team alone but all of our employees.

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Translated by Susanne Ganz
Edited by TC Lin
Uploaded by Judy Lu