Peloton Is Spinning Out of Control

Peloton Is Spinning Out of Control

After enjoying rapid growth during the pandemic, which boosted sales of its at-home exercise equipment, Peloton is now careening off the rails. Internal documents obtained by CNBC suggest Peloton will soon take drastic measures to control costs and account for declining demand.

To that end, Peloton reportedly plans to pause Bike production from February through March after halting manufacturing of the premium Bike+ model in December. The more expensive “Plus” version, which was introduced just over a year ago, will be halted until June.

Demand for Peloton’s controversial treadmills appears to be just as dire: Its cheaper treadmill, the $US2,495 ($3,464) Tread, won’t be manufactured for six weeks starting in February. According to CNBC, not a single Tread+ will be produced in fiscal 2022, which ends June 30. (The pricier treadmill is still subject to a recall due to issues with its design that led to injuries and the death of a child. Peloton has net yet re-released the Tread+ with a fix for those design issues.)

You would think this overabundance of supply might force Peloton to drop prices, but instead, the company will start charging an extra $US250 ($347) to deliver some bikes and $US350 ($486) for treadmills. The all-in cost of buying a bike is now $US1,745 ($2,422) while the treadmill is $US2,845 ($3,949). Those delivery fees used to be included in the cost of the machines.

Peloton’s troubles can be traced back to various incidents, but it’s clear the company didn’t properly account for rapid market swings. In December 2020, Peloton acquired Precor, a rival exercise equipment maker, and in May of last year, it said it would spend $US400 ($555) million to build its first factory in Ohio — that news arriving shortly after the company paid $US100 ($139) million to ship delayed products by air.

Peloton made these massive investments because it was riding a wave of demand caused by the pandemic, which forced people to seek out ways to exercise at home. The fitness brand seemed to be an unstoppable force, but the 2021 holiday season wasn’t kind to the company. Toward the end of last year, Peloton reduced its entry-level Bike price to $US1,495 ($2,075) (almost 20%) to generate interest through the end of the year, but the tactic didn’t seem to help raise demand. Now the company reportedly has thousands of spin bikes and treadmills sitting in warehouses and cargo ships.

The company faced a net loss of $US372 ($516) million in fiscal Q1 2022, and executives are reportedly planning to lay off 41% of the sales and marketing staff while considering whether to ask retail employees to answer customer service calls when they aren’t busy, according to audio recordings leaked to Business Insider. Following the CNBC and Insider reports, Peloton CEO John Foley said in a letter to customers that the company is “taking significant corrective actions to improve our profitability outlook and optimise our costs.”

Peloton’s value has been plummeting for several months, but before the crash, executives and insiders reportedly sold $US496 ($689) million in stock, according to Securities and Exchange Commission filings. Peloton’s president, William Lynch, secured $US105 ($146) million before the stock price declined by more than 85% from where it peaked last year.

Peloton reportedly blames this meteoric decline on customer price sensitivity — its equipment is expensive — and increased competition. It’s true that Tonal, Bowflex, NordicTrack, Echelon Mirror (owned by Lululemon), and others have piggybacked off of Peloton’s early success and launched their own subscription-based smart home gym equipment, and at least one analyst believes Apple’s Fitness+ is taking a toll, but many of the hurdles Peloton faces are self-inflicted.

News of declining demand arrives a year after the 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 instances of adults, pets, and objects being dragged under the machine.

There was the infamous Peloton Wife ad that led to the company being mocked on social media as being sexist, and previous marketing campaigns showing attractive people riding their stationary bikes in penthouses overlooking stunning vistas were criticised for catering to the ultra-wealthy.

Peloton proved it couldn’t steer away from controversy when a beloved Sex and the City character died of a heart attack after taking a Peloton spin class in the spinoff show And Just Like That. The company’s stock instantly plummeted and it released 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 surfaced about the actor.

Peloton’s fall from the leaderboard may seem abrupt, but there have been hints that supply would eventually surpass demand. Last year, the company posted troubling results in a November earnings report, revealing a net loss of $US376 ($522) million in one quarter compared with a $US69.3 ($96) million profit from the year prior. At the time, Peloton placed some of the blame on Apple for releasing in iOS 14.5 a new Ad Tracking Transparency feature that makes it more difficult for companies to target shippers based on their interest. The company is reportedly developing new products, but not at a fast enough clip. Its first scheduled release of 2022 will be Peloton Guide, a camera that assists with strength-training workouts — not exactly the rowing machine Peloton fans have been clamoring for.

In a rather interesting twist of irony, Apple is being floated as a buyer for Peloton. An op-ed from The Information considers Apple an “obvious buyer” and others, including The Motley Fool and Inc, are weighing in.

Peloton, once the golden child of connected fitness tech, is running out of roadway, and we’ll find out just how grim things are when the company releases its first quarterly report on Feb 8.

Editor’s Note: Release dates within this article are based in the U.S., but will be updated with local Australian dates as soon as we know more.

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