Peloton's past history of miscalculation could have been a sign that the company was doomed.
Peloton executives and retail analysts said that the fitness brand, known for its high-tech treadmills and stationary bikes as well as live-streamed classes, must admit its mistakes in order to survive.
These decisions led to widespread layoffs and John Foley, co-founder, and long-term CEO, resigning earlier this month along with other executives. This shake-up revealed what Peloton did wrong and what it did well, as well as the future plans for the company.
Too fast and you end up breaking too many things
Peloton was already very popular before the pandemic shut downs that forced millions to stay indoors. The company had a market cap of $8.3 billion at the close of 2019, which will increase in 2020 due to the rapid growth in at-home fitness. The company had $1.8 billion in total revenue in 2020 and triple-digit growth in connected and digital fitness subscriptions.
Peloton grew rapidly during the Covid pandemic while many other companies struggled to manage supply chain headaches caused by the pandemic. Neil Saunders is a retail expert and managing Director at intelligence firm GlobalData. He said that Peloton management behaved like the new normal would continue for many years.
"They got quite overexcited about reshaping home fitness markets, and I think that they kind of believed that their spin on it was true," Saunders stated. He noted that Peloton's spending decisions were rooted within flawed assumptions about the future at-home fitness industry.
Saunders stated that "Ultimately, they lost confidence in a lot of investors" and that is what matters most. Peloton shares have fallen by 87 percent since the peak one-year ago. This is a reflection of investors' uncertainty regarding the company.
Employees at Peloton felt the consequences of management's decision not to capitalise on pandemic-fueled purchasing.
"We were very busy. Alonso Loera, who was a field operations specialist and joined the company in 2017, said that it was at least four days per week and 10 hours per day. He left in January of this year. Loera spoke of the time in 2020, when he was delivering more Pelotons machines. "Back then, it was almost certain that we would receive overtime each week and sometimes they would ask us to take a day off."
Loera described his experiences delivering Peloton goods from 2010 to 2020 as "a wild time on all fronts" Loera said that orders for the $2,500+ treadmills and $1,500+ bikes quickly became overwhelming.
He said, "It was just an inexorable flow of order fulfillment." "Everyone of our delivery vans were pretty much full to the brim." The growing backlog of orders during summer prompted Peloton's blog to address the problem.
Peloton's star rose with scrutiny of its business practices and products. The Securities and Exchange Commission began an investigation into the company's public disclosures regarding reports of customer injuries that involved some of its equipment. Peloton was requested by the U.S. Justice Department as well as the Department of Homeland Security for information related to these injury reports.
After a child was killed by a Peloton Tread+ exercise machine , and many other injuries reports emerged, the federal agencies took action . The company refused to issue a recall despite increasing public criticism. It recalled its Tread+ and Tread+ machines in May 2021. Users reported that their Peloton machines started to rust later in the fall.
Foley admitted some company mistakes during a February 8 earnings call.
Foley stated that in order to meet market demand we increased our operations too quickly and over-invested certain areas of the business. We own this. "I own this and we hold ourselves responsible."
Peloton spoke out about the rusting issue to NBC News. It was first reported by Financial Times. A spokesperson for Peloton said that it was a cosmetic defect that affected 6,000 stationary bikes and "would not have any impact on a Bike’s performance, quality durability, reliability or overall experience."
Foley stated that the company has reduced its revenue forecast for 2022 to $4.4 billion to $4.8 billion, to $3.7 billion to $3.8 billion. In response to declining demand for its products, Peloton will also reduce operating costs by $800 million across the company.
The company was also undergoing a broad restructuring.
The company also announced that 2,800 employees would be fired along with 20% of corporate staff during the earnings call. Foley resigned. Other executives have resigned, including Mariana Garavaglia (head of operations), since then.
Peloton didn't immediately respond to NBC News' request for comment about the resignations of high-ranking officials, but Foley shared his thoughts on Foley's departure. Foley stated that since founding Peloton a decade back, this brand has been able to attract and motivate a loyal group of over 6.6 million members. "I am incredibly proud to have worked over the years with such talented colleagues who have helped make Peloton what it is today.
This is how we built it
Foley's comments give a glimpse of the cultural phenomenon Peloton has created. One that took the banality in stationary at-home exercise machines and turned it into a $10 billion company, but also into a chic lifestyle brand that is a sought-after household name.
Because of its partnership with artists whose music is used in the classes, Peloton's early success was a major in popular culture. Famous instructors from Peloton have their own fan base. Peloton has earned considerable brand exposure on television as well as social media. This is a spinoff of the self-empowering slogan first created by Nike: "If you have a body you're an athlete." It worked by most measures. In the fourth quarter 2021, the company generated $1.13 billion in revenue.
The momentum picked up. The hype around the Peloton "plus" version of its treadmill and bike was short-lived. Due to slowing demand, it had to reduce the price of its original products by hundreds of dollars.
Peloton's DNA is full of exuberance, as evident in its high-energy video classes, marketing, and -- at the very least -- its routine corporate communications.
"I found John to be always sort of suspiciously rah-rah" and cheery. Nik Mercer, a former Peloton music supervisor, recalled that Foley sent "a lot” memos with what Mercer called stories of interest and YouTube videos. All of these included inspiring messages about the business, Peloton customers, and Foley.
Mercer said that the mood changed as time went by. He stated that as the company grew, so did its offerings. This confusion led to confusion among rank and file employees.
Mercer stated that everyone was extremely competent and bright. Many of the people I worked with had a special quality. There was also some flailing about. There were many products that the company was working on, as well as all the other things in development." He stated that it felt like some of the new initiatives had lost their direction. Mercer stated that he didn't know where the items were coming from, who was assigning them, and how he would get involved.
Peloton's "move-fast" philosophy is not new to the startup world. However, publicly traded companies have more room for error. Peloton's focus is on high-velocity innovations, despite its mistakes. Peloton's success is evident in the thousands of startups that have followed its lead.
"Now you can see connected rowing machines. "You're looking at a vertical climbing machine which a lot of celebrities were angel investors into," Elina Tuyan, senior analyst at CB Insights who covers consumer retail, stated about Peloton's influence.
"You can see companies like Tonal, which have received investment from LeBron James. Tunyan also mentioned Justin Timberlake. "You can see a lot more companies following Peloton," Tunyan said.
Peloton is still trying to figure out its future as it attempts again to make its mark in the same space it helped create. Barry McCarthy, the new CEO of Peloton, has pledged to work with the outgoing CEO to take the company to the next level.
GlobalData managing director Saunders expressed doubts about the future of Peloton, with Foley as executive chairman. Saunders asked, "It raises questions about to what extent he will be involved." "Who is going to make the decisions?"
"It does muddy waters with the idea that the leadership changes will bring about a fresh start."