Why, who could’ve seen this coming?
You might be familiar with Peloton. They sell fairly expensive exercise bikes and treadmills that come with a service that connects you to a fitness trainer giving a class over the internet. And, currently, they aren’t doing too well from a financial standpoint.
Documents obtained by CNBC show that the company, which got a massive boost during the pandemic when nobody could go anywhere or do anything, is running up against a hard fact. The fact that, as more people get back to some semblance of normalcy, the demand for their equipment is dropping. And to that end, they’re going to stop production of their premium Bike+ model, which retails for nearly $3000. And as the demand for their ~$2,500 Tread treadmill is in a similarly bleak demand; beginning in February, no new Tread+’s will be manufactured for 6 weeks. Moreover, no Tread+’s will be built for the remainder of fiscal 2022, which ends June 30th.
If you thought the company’s abundance of supply might precipitate some sort of clearance or sale, you’d be wrong. As a matter of fact, they’ll start charging an extra $250-$350 for delivery, depending on model and type. Delivery used to be included in the cost of the machines; not anymore.
As for why they’re experiencing these issues, would you believe me when I say that people with business degrees, while good with numbers, tend to be kind of dumb when it comes to people further down on the social ladder? When the pandemic hit, they saw an explosion of growth; with gyms closed, the health conscious bought treadmills and exercise bikes at an accelerated rate. Now that options outside the home exist, though, demand is no longer at that artificial height. When you think that growth will always accelerate into eternity, you tend to make dumb decisions like continuing to produce way more units of a more than $1000 piece of equipment than you can reasonably expect to sell when that bubble eventually pops.
Peloton’s problems don’t just end with their surplus supply of treadmills and bikes in warehouses and cargo containers. Last year, they acquired their rival equipment manufacturer Precor. And May of last year, the announced the opening of a $400 million factory in Chicago, an announcement that came right after another in which they paid $100 million to ship delayed products by air.
Now, they’ve been forced to reduce the cost of their entry-level bike to $1495, a move which seems to have availed them nothing. Q1 2022 furnished them a net loss of about $372 million, leading execs to consider laying off 41% of the sales and marketing staff, and even considering asking retail employees to answer customer service calls when business is slow, according to Business Insider. Following the leaks by BI and CNBC, Peloton CEO John Foley said the following in a letter to customers:
We have always done our best to share news with you all first, before sharing with the public. This week, we’ve experienced leaks containing confidential information that have led to a flurry of speculative articles in the press. The information the media has obtained is incomplete, out of context, and not reflective of Peloton’s strategy. It has saddened me to know you read these things without the clarity and context that you deserve. Before I go on, I want all of you to know that we have identified a leaker, and we are moving forward with the appropriate legal action. But moving forward, I want to take a moment to talk about some of the changes with you directly.
As a public company that is in a pre-earnings “Quiet Period”, we are limited in what information we can share. However, we issued a pre-earnings press release earlier this evening about our preliminary Q2 results, in order to offer an initial and more accurate picture of our business performance.
As you have heard me and other leaders say over the past few months, we are continuing to invest in our growth, but we also need to review our cost structure to ensure we set ourselves up for continued success, while never losing sight of the important role we play in helping our 6.2+ million Members lead healthier, happier lives.
It’s not like their fortunes have been rosy otherwise. The Tread+ earned some controversy when an accident involving a 6-year old being pulled underneath it died, precipitating a recall. Not to mention the fact that the Consumer Product Safety Commission (CPSC) had previously logged 72 instances of adults, pets, and objects being dragged under the machine. Not to mention their ad from Holiday 2019. And, of course, things weren’t going well for them when a character in the Sex and the City sequel series, And Just Like That dies of a heart attack while using one of Peloton’s bikes; this actually caused their stocks to drop and forced them to release a statement about the safety of their products. They even had a parody video featuring Chris Noth:
…which blew up in their face when he found himself on the business end on sexual assault allegations.
Some of this may be hubris; some, mere misfortune. But It’s hard to be surprised when explosive growth is almost immediately followed by a tumultuous fall.
Source: Gizmodo
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