Politics

Peloton can claw its way back after multiple high-profile blunders



Peloton’s history of miscalculation could have signaled the end for a lesser company.

The fitness and lifestyle brand known for its pricey high-tech stationary bikes and treadmills and live-streamed exercise classes must confront its mistakes if it’s to survive following a series of poorly executed decisions at the highest levels of the company, Peloton executives and retail analysts have said.

Those decisions culminated in widespread layoffs, the resignation of co-founder and longtime CEO John Foley earlier this month, along with other key executives. The shake-up made clear what Peloton did wrong, what it did right, and what the road ahead looks like for the company.

Moving too fast, breaking too many things

Peloton was already wildly popular before pandemic shutdowns forced millions of people to isolate indoors. It had an $8.3 billion market cap at the end of 2019, a number that would swell in 2020, thanks to rapid growth in the at-home fitness market. The company reported $1.8 billion in total revenue for its 2020 fiscal year and triple-digit growth across the board in digital and connected fitness subscriptions. 

While many companies were struggling to navigate supply chain headaches spurred by the pandemic, Peloton kicked its manufacturing apparatus into high gear, growing rapidly through the early months of the Covid pandemic. Neil Saunders, a retail expert and managing director at the intelligence firm GlobalData, said Peloton management behaved as though that new normal would continue indefinitely. 

“They got rather overexcited that they were reshaping the home fitness market, and I think they kind of believed their own spin on that front,” Saunders said, noting that Peloton’s spending decisions were rooted in some flawed assumptions about the future of the at-home fitness sector. 

”Ultimately, they lost the confidence of a lot of investors and that’s really what counts there,” Saunders said. Peloton shares are down about 87 percent from the peak one year ago, reflecting investors’ uncertainty about the company.

Peloton employees experiened the effects of management’s decision to capitalize on pandemic-fueled buying.

“We were pretty busy. It was a minimum of four days per week, 10 hours per day,” said Alonso Loera, a field operations specialist who started at the company in 2017 and left in January this year. “Back then,” Loera said, referring to the period in 2020 when he was delivering more Peloton machines, “it was almost guaranteed that we would get overtime each week, and oftentimes, they would ask us to work on a day off.”

“It was a crazy time on all fronts with the virus going around and us trying to understand what all of that meant with the lockdowns, masking and social distancing,” Loera said of his experience delivering Peloton goods through 2020. He said orders for the $1,500+ bikes and $2,500+ treadmills soon became overwhelming.

“It was just a nonstop flow of order fulfillment,” he said. “Every one of our delivery vans was pretty much filled to the brim.” A growing backlog of orders and shipping delays during summer that year prompted Peloton to address the issue on its blog.

As Peloton’s star rose, so did scrutiny of its products and business practices. The Securities and Exchange Commission opened an investigation of the company’s public disclosures about reports of customer injuries involving some of its equipment. The U.S. Justice Department and the Department of Homeland Security asked Peloton for documents related to those injury reports.

The moves by the federal agencies came after a child was killed by a Peloton Tread+ fitness machine and dozens of other injury reports emerged. The company had resisted issuing a recall even as public criticism escalated— until May 2021, when it recalled its Tread and Tread+ machines. Later that fall, users reported that parts of their Peloton machines began to rust in certain areas.

Foley acknowledged some of the company’s mistakes on a Feb. 8 earnings call.

“To meet market demand, we scaled our operations too rapidly, and we over-invested in certain areas of our business,” Foley said. “We own this. I own this, and we are holding ourselves accountable.”

On the rusting issue, which was first reported by the Financial Times, a Peloton spokesperson described it to NBC News as a “cosmetic” defect affecting 6,000 of its stationary bikes, and that the issue “would have no impact on a Bike’s performance, quality, durability, reliability, or the overall Member experience.”

Foley said the company lowered its revenue forecast for 2022 from $4.4 to $4.8 billion to $3.7 to $3.8 billion. Peloton would also cut $800 million in operating costs across the company in response to waning demand for its products.

A broad reorganization of the company was also underway.

On the same earnings call, the company announced 2,800 employees would be laid off along with 20 percent of corporate staff. And Foley announced his resignation. Since then, other executives, including Mariana Garavaglia, the company’s head of operations, have exited.

Peloton did not immediately respond to an NBC News request for comment on the latest high-level resignations, but shared remarks from Foley about his own departure: “Since founding Peloton a decade ago, we’ve grown this brand to engage and motivate a loyal community of more than 6.6 million Members,” Foley said. “I’m incredibly proud to have worked with such talented teammates over the years who have helped me build Peloton into what it is today.”

We built this city

Foley’s comments offer a glimpse into the cultural phenomenon that Peloton created; one that has taken the banality of stationary at-home exercise equipment and spun it into not just a $10 billion business, but an ultra-chic lifestyle brand that became a coveted household name.

The company’s early success made it a giant in popular culture, thanks to its partnerships with artists whose music is featured in the exercise classes. Peloton’s famous instructors who headline its Hollywood-quality live streams garner their own fan bases among members. Peloton has, for better or worse, earned significant brand exposure on television and social media, spinning off the self-empowering mantra first coined by Nike: if you have a body, you’re an athlete. By most measures, it worked. The company had $1.13 billion in total revenue in the fourth quarter of 2021.

The momentum accelerated. Peloton last year announced the new “plus” versions of its bike and treadmill, but the hype was short-lived. It had to cut hundreds of dollars off the price of its original products due to slowing demand.

Exuberance is written into Peloton’s DNA, evident in the high-energy video workout classes, the marketing and — at least in the company’s early days — its routine corporate communications.

“I found John to always be sort of suspiciously ‘rah-rah’ and cheery.” Nik Mercer, a former Peloton music supervisor who worked at the company for three years, recalled, noting Foley sent “a lot of memos” with what Mercer said were stories of interest and YouTube videos, all featuring inspiring messages about the business and Peloton customers.

That mood changed over time, according to Mercer, who said that, as the company expanded, so did its various offerings, which in turn created confusion among rank-and-file employees.

“Everyone was very competent, very bright,” Mercer said. “There was a specialness to a lot of the people that I worked with. But there was some flailing around. There were a lot of products the company was pursuing, and then there were all these other things that were in development.” He said it seemed as though some of the new initiatives were lacking direction. “I didn’t quite know where those things were coming from and who was assigning them and how I would be involved with them,” Mercer said.

Peloton’s move-fast ethos is hardly new in the startup world, but publicly traded companies tend to have less room for error. Missteps notwithstanding, Peloton’s focus on high-velocity innovation has proven to be successful. The evidence is in the legion of startups following in its footsteps.

“Now, you’re seeing connected rowing machines. You’re seeing a vertical climbing machine, which a bunch of celebrities were angel investors into,” Elina Tunyan, a senior lead analyst at CB Insights, who covers consumer retail, said of Peloton’s influence.

“You’re seeing companies like Tonal that’s received investment from LeBron James. Justin Timberlake is in there, too,” Tunyan said. “You’re definitely seeing a lot more companies following Peloton.”

The way forward

It’s not yet fully clear how the future looks for Peloton as it tries again to find its feet in the space that it popularized. Its new CEO, Barry McCarthy, has vowed to work “at all levels of the organization,” including with the outgoing CEO, to move the company to the next level.

Saunders, the GlobalData managing director, expressed some doubt about what the next level shapes up to be at Peloton with Foley still serving as executive chairman. “It raises the question of, to what degree is he going to be involved,” Saunders asked. “Who’s going to be making the decisions?” 

“It really does muddy the waters with this idea that the leadership change will bring about a new start.”



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