01 / 09 / 2022

Righting the Peloton (Or Is that Water Streaming in?)

The captain of the SS Californian became infamous for not coming to the aid of the sinking Titanic. It seems he misread the big ship’s cries for help. Now, the once-mighty Peloton is in distress, and its new captain is making all the wrong moves to save it.

Carey Smith | Founding Contrarian

Alas, poor Peloton, we knew you, back when you were the darling of the pandemic and could seemingly do no wrong. In those halcyon days, we purchased a couple of your products and were quite pleased with your service.

But then came the tragic death of a toddler caught beneath your treadmill. Then, the untimely death of one Mr. Big, who collapsed shortly after stepping off a Peloton in a “Sex and the City” sequel, which didn’t help matters. Your brand lost its luster, and as people have increasingly returned to the gym to exercise, your sales have plummeted and your share price has tanked by as much as 95%.

And now, you’ve brought onboard a CEO who interprets the company’s $2.8 billion annual loss and other negative indicators as “significant progress driving our comeback and Peloton’s long-term resilience.” Sounds a bit like old Stanley Lord, the captain of the nearby Californian who misinterpreted the Titanic’s distress flares as “company rockets” greeting a sister ship and went back to sleep.

This CEO, Barry McCarthy, likened Peloton in his recent shareholder letter to a giant cargo ship that can’t change course quickly. He previously worked as a number-crunching CFO at Netflix and Spotify, so of course he has exactly the kind of experience needed to guide a brand-building manufacturer of products that require nuts and bolts. Nuts!

The steps outlined in that letter sound like a “greatest hits” of shortsighted business mistakes: How to Turn a Great Brand into a Common Commodity in Five Easy Moves.

1. Sell through Amazon. That’s a great idea. Send customers to a website where they’ll see your competitors selling similar equipment at vastly lower prices. And for that opportunity, Amazon will charge at least 15% of your revenue if not more.

2. Set your sights on more price-conscious customers by offering unassembled equipment at reduced prices. Again, awesome plan. Let customers bungle the assembly and potentially damage the equipment, and then they’ll write all about it online. With any luck, no one’s child will be injured.

3. Double-down on subscriptions. Yep, the timing couldn’t be better for this. Just when virtually everybody is suffering from subscription fatigue, you offer more options, because, “You never know which initiative is going to get us where we want to go, but I am confident of the cumulative effect,” McCarthy said.

4. Conduct sweeping layoffs. Because letting go of more than 3,000 employees within a few months — around one-third of the company’s workers — is bound to boost company morale and improve customer service.

5. Outsource manufacturing. Forget about that planned plant in Ohio. Forget about using your own facility in Taiwan. Forget about quality control, too, when you stop manufacturing your own equipment and rely exclusively on contract manufacturers. Great job, Peloton!

And good luck, McCarthy! As some Peloton instructors like to say, “Inhale confidence, exhale doubt,” as you try to right your vessel. But don’t be surprised if eventually you, too, need to flee the sinking ship. Because with the steps you’re taking, it won’t be long.