It’s been a hell of a ride for Peloton. The headlines have been practically nonstop, from 2019’s cringey wife ad to 2021’s series of unfortunate “Sex and The City” events. But in 2020, Peloton could do no wrong. The at-home fitness company saw a 172% spike in sales over the course of that year, buoyed by the pandemic forcing wealthy gym-goers to stay home.
But nothing is ever easy or certain when it comes to Peloton. In the past week, Business Insider reported that Peloton is considering laying off 41% of its sales and marketing staff and closing down stores. CNBC learned that the company has hired McKinsey & Co. to help cut costs. And yesterday, CNBC reported that Peloton is temporarily halting production of its bikes. Peloton shares promptly plunged 24%.
“Morale is at an all-time low,” one employee told CNBC. After Peloton went on a massive hiring spree over the course of 2021, many employees could now be losing their jobs.
Peloton did not immediately respond to comment.
How did Peloton go from pandemic star to sinking ship? One answer is the classic problem of supply and demand. Demand exploded during the early stages of the pandemic, and at first the company struggled to get everyone bikes. It bought exercise equipment manufacturer Precor, and made plans to build a factory in Ohio. But with a waxing and waning pandemic, demand has fallen below the company’s sky-high expectations. Peloton CEO John Foley told employees that the company’s rush to hire and churn out bikes was “a little undisciplined,” according to Business Insider.
“During the pandemic, there wasn't enough supply to meet what was a pull forward of demand,” BMO Capital Markets analyst Simeon Siegel told Protocol. “But unfortunately, the company read that as an expansion of demand. And now because of that, there's too much supply and too little demand.”
Hence the company’s rush to cut costs. Before reports of possible layoffs and store closures, the company put a hiring freeze in place in November. It will also raise prices on its original bike and treadmill products, in part because of supply-chain costs and inflation.
Some were skeptical even prior to the pandemic, back when the company was preparing to IPO. Bryan O'Rourke, president of the Fitness Industry Technology Council, read Peloton’s public filings and was not sold on its original $8 billion valuation. In a November 2019 post, he wrote that this valuation assumed 60% of home fitness equipment sold in the U.S. would be from Peloton.
“I really take no joy in saying this, but you'd have to be blind if you're looking at it not to go, ‘This is a problem,’” O'Rourke told Protocol. “There's just too much competition. Business was never going to be sustained at that kind of valuation.”
Another Peloton moment that stuck in O'Rourke’s head as a warning sign: the company’s reaction to consumer safety issues with its treadmills. Peloton initially brushed off a warning from the Consumer Product Safety Commission about its treadmills possibly injuring children. Ultimately it changed course and voluntarily recalled the treadmills. But O'Rourke said that the company’s first reaction hinted at problems. “Hubris, born of success, is one of the key dynamics behind companies that get a little full of themselves,” O'Rourke said.
O'Rourke also pointed to Peloton’s ever-shifting business priorities as a sign of trouble. The company has sought to expand beyond bikes and brand itself as a lifestyle fitness company. Some Peloton users just pay for the app without any Peloton hardware. These aren’t bad things, O'Rourke said, emphasizing that he believes in the product. But the announcements started getting excessive, he said.
“‘Oh, we’re going into corporate wellness;’ ‘Oh, we’re launching our apparel line,’” O'Rourke said. “That’s when companies are chasing their stock prices instead of doing the things that are best for the business.”
Intense, faddish mania is common in the fitness industry. Think of SoulCycle’s rise and decline. Peloton President William Lynch told The New York Times in 2018 that it intended to avoid the industry’s “baggage” by focusing on providing “serious fitness” at home. At-home, digital fitness products are here to stay, Siegel said. But Peloton, despite its lofty predictions and former valuations, is not the only player.
“[Peloton has] heralded the next wave of connected fitness,” Siegel said. “Connected fitness is still in its infancy, and I think that there's an increasing amount of very attractive competitors.”