What happened to Peloton?
Good morning! This Friday, once the golden child of the fitness world, Peloton has crashed back down to earth. And the “Sex and the City” storyline is only partially to blame. I'm Lizzy Lawrence, and after accidentally killing two succulents, I'm cautiously optimistic my third one will survive (fingers crossed).
Ride or die
Remember when Peloton could do no wrong? It wasn’t that long ago. The at-home fitness company saw a 172% spike in sales over the course of 2020, buoyed by the pandemic forcing wealthy gym-goers to stay home.
Peloton's glory days are definitely gone. Yesterday, CNBC reported that the company is temporarily halting production of its bikes, and Peloton shares promptly plunged 24%. Earlier this week, we learned that Peloton is considering laying off 41% of its sales and marketing staff and closing down stores. Also, the company has hired McKinsey & Co. to help cut costs. “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.
- 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 it made plans to build a factory in Ohio.
- But with a waxing and waning pandemic, demand has fallen below the company’s high expectations.
- “During the pandemic, there wasn't enough supply to meet what was a pull forward of demand,” BMO Capital Markets analyst Simeon Siegel told me. “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.”
- This explains Peloton’s desperate need 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.
But some say problems were there even before the pandemic. Bryan O'Rourke, president of the Fitness Industry Technology Council, told me he thought that its valuation was flimsy when it IPO’d in 2019.
- The $8 billion valuation assumed 60% of home fitness equipment in the U.S. would be from Peloton, O'Rourke wrote in a November 2019 post.
- But Peloton’s not the only connected fitness product out there. “There's just too much competition,” O'Rourke told me. “Business was never going to be sustained at that kind of valuation.”
And wait, there’s more. Peloton’s increasingly complicated business ventures and its reaction to a treadmill consumer safety issue also highlighted the company’s problems.
- Peloton initially brushed off a warning from the Consumer Product Safety Commission about its treadmills possibly injuring children. It ultimately changed course and recalled the treadmills, but this first response showed arrogance, O'Rourke said.
- “Hubris, born of success, is one of the key dynamics behind companies that get a little full of themselves,” he told me.
- Peloton’s ventures into corporate wellness and apparel suggested a company focused on “stock prices instead of doing the things that are best for the business,” O'Rourke said. He said Peloton has built a great product and large customer base, but the business became too sprawling.
Ultimately, Peloton lost sight of itself. Intense, faddish mania is common in the fitness industry, but Siegel thinks at-home, digital fitness products are here to stay. Peloton just needs to recognize it’s not the only one in the room.
This story first appeared on Protocol.com. Read it here.
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