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Peloton’s treadmill recall could cost the company $165 million

By recalling 125,000 Tread and Tread+ devices — and by initially refusing to do so – Peloton made its life a lot harder.

The Peloton Tread+

The Peloton Tread+

Photo: Peloton

Peloton's sales exploded during the pandemic, as millions of people searched for a way to exercise that didn't require going to the gym or being around other people. And business continues to boom: Peloton reported earnings on Thursday, and said it brought in $1.26 billion in revenue over the last three months, while also topping the 2 million subscriber mark. It's expanding to new countries, adding more content and looking for ways to continue to capitalize on a quickly shifting exercise market.

But it's Peloton's bad news that had everybody talking.

The company is recalling 125,000 treadmills, and pausing sales of new ones. "We are working to build and introduce more safety measures, and to help set new industry standards for all treadmills," CEO John Foley said, after acknowledging that Peloton didn't take its existing safety issues seriously enough.

The recall applies to both Peloton models, the Tread and the Tread+, but each for different reasons. The Tread's large screen "can detach and fall," Peloton said, "posing a risk of injury to customers." The Tread+ is more complicated: The CPSC said there have been dozens of injuries related to children and pets, including one child death, from being pulled underneath the treadmill.

The CPSC first issued its warning on April 17. Peloton called the warning "inaccurate and misleading," said there were plenty of safeguards already on the product … and saying that the Tread+ should be kept away from "children, pets, and objects" at all times. Which is tough to do with a 450-pound, 6-foot-long treadmill.

But on Wednesday, Peloton changed course and announced a full voluntary recall. And Foley said it should have happened sooner. "I want to be clear, Peloton made a mistake in our initial response to the Consumer Product Safety Commission's request that we recall the Tread+," he said. "We should have engaged more productively with them from the outset."

Peloton has faced recalls before, like in October when the CPSC found that some of its bike pedals were prone to break during use, which caused leg injuries for some users. That was an easier case: Peloton simply alerted customers and gave them a way to quickly request new pedals for free.

This recall will be significantly more challenging and more expensive. The recall takes three forms. Tread+ buyers can get a full refund through Nov. 6, 2022, and Peloton will pick up the treadmill "in the coming weeks." Peloton will also come out and move the treadmill to a different part of the home, "where access by children or pets is restricted," for free. Lastly, Peloton is working with the CPSC on an aftermarket repair that it will offer for free whenever it comes out. Owners of the Tread, the less expensive model that is currently available in Canada and the U.K. and was scheduled to launch this month in the U.S., only get the refund and repair options. And, of course, no one is obligated to do anything at all.

In the worst-case scenario, Peloton would be stuck having to send a delivery team to hundreds of thousands of homes, all at once, to pick up unwanted treadmills. But by offering to move it, repair it or refund it even 18 months from now, it almost certainly shrinks and spreads that return group. In the refund case, Peloton is basically offering to loan users a treadmill for a year and a half, and a lot of people are likely to say yes to that.

No matter what people choose, Peloton is also updating the Tread+'s software with a new security feature, set to be released in the coming days: a four-digit passcode that will be required every time you get on the treadmill. (Unlocking your treadmill will be like unlocking your phone.) As for the hardware improvements, Foley said that they're coming soon, but noted that "hardware features take time to develop, test, manufacture, and in this case the CPSC will need to review our proposed enhancements."

Foley said on Peloton's earnings call that he anticipates a short-term financial hit, and that Peloton was delaying the U.S. launch of the Tread to sometime later this year. But he insisted that the company would continue pushing forward with content and hardware in anticipation of having things shipping again soon. Jill Woodworth, the company's CFO, elaborated. "It is more difficult than usual to predict our financial results," she said, but estimated the total revenue impact of the recall, from refunds to logistics to the free subscriptions it's offering users, at $165 million.

Adding to Peloton's woes, security researcher Jan Masters found he could access Peloton user data without permission through its API. So far the company has avoided discussing the details of the vulnerability, except to tell TechCrunch that "we took action, and addressed the issues based on his initial submissions, but we were slow to update the researcher about our remediation efforts."

Correction: An earlier version of this story misspelled Jill Woodworth's name. This story was updated on May 6, 2021.

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