Peloton is an exercise equipment miracle. Driven to some extent by the COVID-19 pandemic, it sold people exercise equipment for thousands of dollars. Many of the customers had abandoned big gyms because they were crowded and therefore dangerous. Poor people had to exercise with cheap weights and run or bike outside. For the well-off, there was Peloton.
Peloton’s sales began to crumble. Perhaps they have reached a saturation level given their limited markets. People may have returned to gyms. And some probably became bored riding the same stationary bike over and over.
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As part of a downsizing which began months ago, Peloton made more deep cuts as a way to move toward profitability. CEO and founder John Foley was dumped by his board for his slow reaction to what was clearly a change in the market. New CEO Barry McCarthy gets to prove that he can cut his way to profitability.
The strategy of driving financial success by making a company much smaller is usually bedeviled by problems. McCarthy is trying to raise sales, but his primary tool is raising prices. This is in a market where people have already started to abandon his company’s products, and is also into the teeth of a recession. The move will not work.
Peloton has over 80 retail locations. The company will close many of these. It is too early for investors and the press to know how many. The risk is that people who buy products in person and do not like to buy expensive items online will simply not buy Peloton exercise equipment at all. McCarthy is betting the company on this strategy.
McCarthy recently wrote that “Cash is oxygen. Oxygen is life.” He’ll soon find out if depriving customers of in store shopping works to preserve Peloton’s life.
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