Sunday November 27, 2022

Peloton Is Spinning Out of ControlPeloton is spinning out of control

Photo: Caitlin McGarry/Gizmodo

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.

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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 $2,495 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 $250 to deliver some bikes and $350 for treadmills. The all-in cost of buying a bike is now $1,745 while the treadmill is $2,845. 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 $400 million to build its first factory in Ohio—that news arriving shortly after the company paid $100 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 $1,495 (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 $372 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 optimize our costs.”

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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’s president, William Lynch, secured $105 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.

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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 criticized for catering to the ultra-wealthy.

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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 $376 million in one quarter compared with a $69.3 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.

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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.

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Photo by Caitlin McGarry/Gizmodo Peloton has been experiencing rapid growth since the pandemic. This helped to boost sales of its at home exercise equipment. Now, however, it is slipping off the tracks. CNBC obtained internal documents that indicate that Peloton will soon implement drastic measures to reduce costs and account for the decline in demand.
Advertisement Peloton plans to suspend bike production in February and March, following the December halt to production of the premium Bike+ model. The production of the more expensive Plus version, which was launched just over a year ago will be stopped until June. Peloton’s controversial treadmills are in high demand. The $2,495 Tread, its cheaper treadmill, won’t be made for six weeks beginning in February. CNBC reports that not one Tread+ will be manufactured in fiscal 2022 (which ends June 30). (The recall of the pricier treadmill is still being considered due to design issues that caused injuries and even the death of a child. Peloton has yet to re-release the Tread+ with a fix to those design issues. Peloton might think that this excess supply would force them to lower prices. Instead, they will charge $250 more to ship bikes and $350 to transport treadmills. The total cost of purchasing a bike is $1,745 and the treadmill is $2.845. These delivery fees were previously included in the price of the machines. Peloton’s problems can be traced back at many incidents, but it is clear that the company failed to properly account for rapid market swings. Peloton purchased Precor, a competitor in the exercise equipment industry, in December 2020. In May last year, it announced that it would spend $400m to build its first Ohio factory. This news came shortly after the company spent $100 million to ship delayed products via air. These huge investments were made by Peloton because it was riding the wave of demand created by the pandemic. People had to find ways to exercise at their own pace. Although the fitness brand appeared to be a formidable force, the 2021 holiday season proved to be a challenge for the company. Peloton cut its entry-level Bike price by almost 20% towards the end last year. However, the tactic didn’t seem to increase demand. The company now has thousands of treadmills and spin bikes in warehouses and cargo ships. According to audio recordings that were leaked to Business Insider, the company suffered a net loss in fiscal Q1 2022 of $372 million. Executives are planning to layoff 41% of sales and marketing staff. They also may consider asking retail employees to take customer service calls when they’re not busy. According to filings by the Securities and Exchange Commission, Peloton CEO John Foley stated that the company was taking “significant corrective actions to improve its profitability outlook and optimize costs.” Advertisement Peloton’s stock price has been falling for several months. However, insiders and executives reportedly sold $496m in stock before the crash. William Lynch, Peloton’s president secured $105 million in stock before the stock price dropped by more than 85% from its peak last year. Peloton blames its meteoric fall on customer price sensitivity (its equipment is costly–and increased competition). While Tonal, Bowflex and NordicTrack have all launched their own subscription-based smart home fitness equipment, it is true that Peloton has faced many obstacles.

Advertisement News reports on declining demand one year after the company voluntarily recalls two treadmills, including Tread+, which was involved in an accident in which a 6-year old child died from being pulled under the machine. The U.S. Consumer Product Safety Commission reported 72 instances in which adults, pets, or objects were being dragged underneath the machine prior to the recall. Peloton Wife’s infamous ad led to the company being ridiculed on social media for being sexist. Previous marketing campaigns that featured attractive people riding stationary bikes in penthouses overlooking breathtaking views were also criticized as catering to the ultra-wealthy. Advertisement Peloton proved that it could not avoid controversy after a beloved Sex and the City character succumbed to a heart attack while taking a Peloton spin class on the spinoff show And Just Like That. Peloton’s stock plummeted immediately and it issued a statement to ensure the safety of its equipment. Peloton made a parody video with Sex and the City actor Chris Noth but had to remove it due to sexual allegations. Although Peloton’s sudden fall from the leaderboard may seem sudden, there were hints that demand would eventually outweigh supply. The company reported troubling results last year in November’s earnings report. It revealed a net loss in one quarter of $376 million, compared to a $69.3million profit in the year before. Peloton attributed some of the blame to Apple for releasing in iOS 14.5 an Ad Tracking Transparency feature which makes it harder for companies to target shippers based upon their interest. The company is developing new products, but not at an adequate pace. Peloton Guide will be the company’s first product release in 2022. This camera assists with strength-training workouts, not the rowing machine Peloton enthusiasts have been waiting for. Advertisement Apple is being considered as a potential buyer for Peloton in a fascinating twist of irony. According to The Information, Apple is an “obvious buyer”. Others, such as The Motley Fool and Inc are also weighing in. Peloton, once the shining star of connected fitness tech, is in serious trouble. We’ll see how dire things are when the company releases its quarterly report on February 8. Advertisement

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