Flailing Company Heads Towards the Graveyard of Fitness Fads

The connected fitness company is in trouble. Its CEO, who joined the company in February 2022, is already stepping down. It recently announced plans to lay off 400 people, or around 15% of its workforce. The private equity sharks are reportedly circling. The stock is near its record lows. Peloton isn’t going away anytime soon, but let’s face it: No fitness fad lasts forever. At least culturally, Peloton Cemetery is probably on the horizon, right next to Tae Bo Cemetery and ThighMaster Crematorium.

Peloton was a bit of a pandemic Cinderella story. The company launched in 2012 and began shipping bikes in 2014, but for much of its history it operated as the creator of a product designed for a certain type of affluent fitness enthusiast. Her initial equipment wasn’t great and she had trouble finding investors. Finally, it took off. It went public in September 2019 — the same year he aired that viral holiday ad with this pained-looking woman getting a Peloton who we can assume is her not-so-great husband.

When COVID-19 hit in 2020 and gyms closed, demand for his products skyrocketed. Customers have complained of months-long wait times to get their bikes and treadmills, and Peloton has scrambled to get its supply chain in order. Despite the problems, times were pretty decent: Peloton recorded its first $1 billion in quarterly sales in the last three months of 2020, and its market cap peaked at around $50 billion.

The narrative and hype have overshadowed the real market opportunities.

But what goes up often comes down, and in Peloton’s case, the descent has been difficult. While there have been plenty of problems, the long and short term is that Peloton has failed to read the room on its pandemic popularity.

“The narrative and hype have overshadowed the real market opportunity,” said Rina Raphael, author of the book “The Gospel of Wellness” and the wellness industry newsletter “Well To Do.” . “It’s not that Peloton isn’t a good business model; it’s just that it’s not a mass product but rather a niche, luxury product,” she said.

The pandemic increased demand, meaning people who might have considered buying Peloton equipment later decided to go ahead and pull the trigger in 2020. Just like other darlings pandemic businesses, Peloton believed the level of demand was a long-term problem. change, rather than a one-off event, and therefore invested accordingly. The problem is that by the time the company upgraded its manufacturing and supply chain, this was no longer necessary.

“Peloton saw its strength in COVID and exploited it in perpetuity, and that’s just not the reality,” said Simeon Siegel, an analyst at BMO Capital Markets who covers Peloton.

Peloton did not respond to a request for comment for this story.

Beyond the demand for craters, the company has faced various problems in recent years. It has issued several recalls of its devices and been the subject of public relations debacles. The company has reduced its workforce and outsourced its logistics in an attempt to regain a more stable financial footing. The company now says it is trying to reduce its annual spending by $200 million by mid-2025, but it is not certain that this will be enough. Investors dumped the company, and Peloton’s market cap, once $50 billion, fell to less than $2 billion.

This is a company that convinces people to pay over $40 a month to buy equipment from them. It’s an incredibly profitable story, and yet the company is losing money.

His troubles don’t necessarily mean that all is lost. Siegel thinks Peloton is simply too focused on growth instead of looking at its user base and making money from it.

“The main goal should be to hug their brand loyalists, rather than trying to find new customers who are losing money,” he said. “This is a company that convinces people to pay more than $40 a month to buy equipment from them. It’s an incredibly profitable story, and yet the company is losing money.”

Peloton’s subscription business itself isn’t the problem, it’s everything else. The company has low margins on hardware, such as in selling bikes, treadmills, rowing machines and others, but it has stronger margins on subscriptions, said Paul Golding, an analyst at Macquarie Capital. Instead of spending to bring more bikes into people’s homes, it could simply focus on discouraging people from opting out. But that’s not the case, and other costs are eating into its subscription margins.

“The company incurs other expenses, including marketing expenses, general administrative expenses and research and development, given that it is also a technology platform,” Golding said. “Over the past few quarters, subscriber expectations for connected fitness services have stagnated, along with the decline of entry-level apps. These economies of scale did not favor exceeding the cost structure with which the company found itself. “.

The road ahead is strewn with pitfalls. Peloton has a decent subscriber base, with over 3 million paid connected subscribers (i.e. people who own the device and a subscription) and 675,000 paid app users (they don’t have not purchased equipment and only have the application) at the end of its largest period. recent quarter. But there is churn. It expects its subscriptions to decline in the current quarter and its usage of paid apps. When I went to search Peloton on Google Trends for this story over the past month, “how to cancel Peloton subscription” was the second search listed.

Peloton has many direct competitors in the connected fitness equipment space, including Echelon and Tonal. He also has to contend with the gym, which offers all sorts of classes and fitness equipment that lets people mix things up, including, in many cases, Pelotons or other connected fitness machines.

“If you can get competing content and do it on demand at your gym, just paying the monthly gym membership fee and also being able to use a bunch of other things when “You’re not feeling fit today, so does that change the value proposition for you when you’re wondering if it makes sense to buy equipment over $2,000,” Golding says.

There are options if you’re shy about working out in public and worried about spending money on expensive equipment or any type of membership.

“Do you want to practice at home?” Wellness author Raphael said. “Then just log in to YouTube for free.”

Beyond Peloton’s own issues, the company faces an age-old reality of fitness: trends come and go quickly, whether it’s Jazzercise, Zumba, CrossFit, Pilates, Cardio Barre, or, you know, you get the point. Fitness is a lot like fashion.

America is a capitalist, consumerist nation, and as such, we experience fitness as a capitalist consumer product. Yes, the science is changing somewhat – we didn’t really think cardio was for everyone until the 60s and 70s, nor really pushed strength training until the 90s – but the different packages it comes in is presented change much more quickly. As Natalia Mehlman Petrzela, a fitness historian, professor at the New School and author of “Fit Nation,” told me in a 2022 interview: “There’s this constant cycle of exercise trends, mostly because that there is the need to keep creating new products and flashy experiences that people can spend money on.

Fitness companies are great at capitalizing on basic human nature when it comes to exercise. People are bored with their routine and are often eager for a change. Fitness requires variety for most people. Hope springs eternal that this workout will finally be the one who will put us in shape and not exhaust us. The best fitness advice is to find something you love and stick with it, even if it’s just a walk. The problem is there’s no money in it. And no matter, trends evolve. The spin craze has been on the wane for some time. High-intensity training isn’t entirely out of fashion – some people are getting into that Hyrox – but there’s also more emphasis and interest in gentler, more enjoyable workouts right now.

“It’s not uncommon to hear more and more consumers, particularly women, say they exercise to achieve psychological benefits rather than, say, to achieve killer abs or a bikini body” , said Raphael. “So you see some of the market moving toward modalities like yoga or venturing outside.”

Personally, I love my Peloton, and while I don’t think I’ve ever reached a level of cultish fanaticism, I do some sort of Peloton class most days of the week. But I follow enough people on the app to notice how many of them have fallen through, and I regularly come across used bikes on Facebook Marketplace. I recognize that one day I will move on. Once the bike breaks, I can’t imagine I’ll get a new one, or maybe the company will cease to exist, and then I’ll have a bike-sized brick in my hands .

As for the instructors who are a little too close to my heart, I’ve noticed that many of them take on other business ventures, whether it’s landing sports broadcasting deals, appearing on “Dancing With the stars” or simply to do more things. influencer stuff from the mill. I imagine they also see the possible writing on the wall, or at least I hope they do.

Emilie Stewart is a senior correspondent at Business Insider, writing about business and economics.