Peloton gets out of control
After experiencing rapid growth during the pandemic, which boosted sales of its home exercise equipment, Peloton now derails. Internal documents obtained by CNBC suggest that Peloton will soon take drastic measures to control costs and accommodate the drop in demand.
To that end, Peloton reportedly plans to suspend bike production from February to March after ceasing production of the top-of-the-line Bike+ model in December. The more expensive “Plus” version, which was introduced just over a year ago, will be discontinued until June.
Demand for Peloton’s controversial treadmills appears to be equally dire: its cheaper treadmill, the $2,495 Tread, will not be manufactured for another six weeks from February. Not a single Tread+ will be produced in fiscal year 2022, which ends June 30, according to CNBC. (The most expensive treadmill is still is being recalled due to design issues that resulted in the injury and death of a child. The peloton still has a net re-released the Tread+ with a fix for these design issues.)
You’d think this glut of supply might force Peloton to lower prices, but instead the company will start charging an extra $250 to deliver bikes and $350 for treadmills. The overall cost of buying a bike is now $1,745 while the treadmill is $2,845. These delivery costs were previously included in the cost of the machines.
Peloton’s problems can be traced to various incidents, but it’s clear that the company didn’t properly account for the rapid fluctuations in the market. In December 2020, Peloton acquired Precor, a rival exercise equipment maker, and in May last year announced it would spend $400 million to build its first factory in Ohioh— that the news comes shortly after the company has paid $100 million to ship products delayed by air.
Peloton made these massive investments because it surged on a surge in demand caused by the pandemic, which has forced people to look for ways to exercise at home. The fitness brand seemed like an unstoppable force, but the 2021 holiday season hasn’t been kind to the company. Late last year, Peloton slashed their entry-level bike price to $1,495 (nearly 20%) to generate interest through the end of the year, but the tactic did not seem to help increase demand. Now the company is said to have thousands of spin bikes and treadmills sitting in warehouses and cargo ships.
The company faced a net loss of $372 million in the first quarter of fiscal 2022, and executives plan to lay off 41% of sales and marketing staff while considering asking retail employees to respond to customer service calls when not busy, according to audio recordings leaked to Business Intern. Following CNBC and Insider reports, Peloton CEO John Foley said in a letter to customers that the company is “taking significant corrective action to improve our profitability outlook and optimize our costs”.
Peloton’s value has been plummeting for several months, but before the crash, executives and insiders reportedly sold $496 million in stock, according to Securities and Exchange Commission filings. Peloton chairman William Lynch secured $105 million before the stock price fell more than 85% from its peak a year ago.
Peloton attributes the dramatic decline to customer price sensitivity – its equipment is expensive— and increased competition. It’s true that Tonal, Bowflex, NordicTrack, Echelon Mirror (owned by Lululemon) and others built on Peloton’s early success and launched their own subscription-based smart home gym equipment, and at least an analyst believe apple Fitness+ takes its toll, but many of the obstacles Peloton faces are self-inflicted.
News of falling demand comes a year after company voluntarily recalled two treadmills, including the Tread+ which was involved in an accident where a 6 year old child died after being pulled under the equipment. The U.S. Consumer Product Safety Commission (CPSC), prior to the recall, reported 72 cases of adults, pets, and objects being dragged under the machine.
There was the infamous Peloton Wife ad which led to the company being mocked on social media as sexist, and previous marketing campaigns showing attractive people riding stationary bikes in penthouses overlooking stunning views have been criticized for serving the ultra-rich.
Peloton proved it couldn’t avoid controversy when a beloved sex and the city personage died of a heart attack after taking a Peloton spin class on the spin-off show And just like that. Company shares instantly dropped and he let go a statement ensuring the safety of its equipment. Peloton then made a parody video featuring sex and the city actor Chris Noth, but was forced to remove it after sexual allegations have surfaced about the actor.
Peloton’s fall from the rankings may seem abrupt, but there have been hints that supply will eventually outpace demand. Last year, the company released troubling results in a November earnings report, showing a net loss of $376 million in one quarter, compared to a profit of $69.3 million. of the previous year. At the time, Peloton placed some of the blame apple for launching a new Ad Tracking Transparency feature in iOS 14.5 that makes it harder for businesses to target senders based on their interests. The company would develop new products, but not fast enough. Its first release scheduled for 2022 will be Platoon guide, a camera that helps with strength training – not exactly the rowing machine Peloton fans have been asking for.
In a rather interesting twist of irony, Apple is presented as a buyer for Peloton. An editorial by information sees Apple as an “obvious buyer” and others, including The Motley Fool and Inc., weigh.
Peloton, once the golden child of connected fitness tech, is running out of ground, and we’ll find out just how bleak things are when the company comes out its first quarterly report on February 8.