Most Read by Bloomberg The changes, which the company revealed Friday in a memo to employees, also include phasing out several retail showrooms — a process that will begin next year. It’s the broadest overhaul to date under CEO Barry McCarthy, a tech veteran who took the helm in February. Peloton is hoping to turn around a business that flourished in the early days of the pandemic but has suffered a punishing slowdown over the past year. Revenues are falling, losses are mounting and the company’s share price is down nearly 90% in the past 12 months. The latest moves are an effort to revive sales, boost efficiency and restore some of Peloton’s legacy package. “We need to get our revenue to stop shrinking and start growing again,” McCarthy said in the note provided to Bloomberg, adding that the changes are necessary to make Peloton cash flow positive again. “Cash is oxygen. Oxygen is life.” Read the full memo from Peloton’s CEO here. Investors applauded the moves, sending shares up 11% to $13.18 in New York. In the third known round of layoffs this year, the company will lay off 784 employees in its distribution and customer service teams. Peloton will stop using in-house employees and trucks to deliver equipment and close 16 warehouses across North America. Instead, it will rely on third-party logistics providers, or 3PLs, to bring bikes and treadmills to customers’ homes. The story continues Peloton already uses third party shipping companies JB Hunt Transport Services Inc. and XPO Logistics Inc. for certain deliveries and will offload its remaining domestic distribution to these companies. The company acknowledged that such a change might not appeal to all shoppers, as some have complained that third-party delivery services aren’t on par with Peloton’s own efforts. “This has been a challenge,” McCarthy told the staff. “We’re not going to fix it overnight, but we have no choice but to make it work, so we’re leaning into it and proactively managing our 3PL relationships. We are confident in the plan we have put in place and are encouraged by the progress we are making.” Peloton is also cutting about half of its customer support team, which is primarily located in Tempe, Arizona, and Plano, Texas. The company will use third party companies to handle support requests as needed to augment the staff it maintains. “These expanded partnerships mean we can ensure we have the ability to scale up and down as volume fluctuates, while still providing the level of service our members expect,” McCarthy wrote. The liquidation of internal deliveries, distribution and warehouses will eliminate 532 jobs, while another 252 will disappear from support groups. Peloton said last month it would cut about 570 employees in Taiwan as part of a shift away from in-house equipment manufacturing. In February, it laid off nearly 3,000 employees across the company. But McCarthy said the company would continue to hire in key areas, including its engineering software group. “I’m sharing this so you don’t think we’re driving with our foot on the gas and the brake at the same time,” he said. The company is raising the price of its flagship Bike+ by $500 to $2,495 and the Treadmill by $800 to $3,495. The increases are a reversal, as the Bike+ was priced at $2,495 before the cuts in April. The new tread price is higher than four months ago. McCarthy acknowledged the “relevant person,” saying April’s price cuts were necessary to move units faster and generate cash flow. “I probably wouldn’t have messed with the prices at all if I had been faced with different inventory situations when we lowered pricing,” he said in an interview. At the time, Peloton was in the early days of an $800 million restructuring plan and was still in the process of securing a $750 million bank loan. The price cuts “at least cheapened the perception of the brand,” he said. “Well, this is a return to the historical position.” Peloton is betting that price increases will help juice sales. In the third quarter of its fiscal year, the New York-based company missed analysts’ estimates – with revenue falling 24% and losses far larger than expected. Peloton also said it plans to undergo a “significant and aggressive reduction” of its North American retail footprint beginning in 2023. The company currently operates 86 stores across the U.S. and Canada. McCarthy said in the interview that the number of locations to close will be determined by negotiations with the owners. It said savings from the store closures will be reallocated to marketing and selling its products in other ways. “We need to be where our customers are when they make purchasing decisions,” McCarthy said in the interview. “More and more they’re doing this online,” he said, and that’s reflected in foot traffic. The announcements come six months after McCarthy was appointed CEO in a wider management reshuffle. The former executive of Spotify Technology SA and Netflix Inc. promised to cut costs, improve Peloton’s products and move increasingly to a subscription-based model. The pandemic has been a boon for Peloton’s business, with lockdowns sending consumers scrambling to buy its bikes and sign up for online fitness classes. But the company overestimated demand, produced too much equipment and mistakenly believed demand growth would continue after economies opened up. After Peloton began to struggle, the board replaced co-founder John Foley with McCarthy — though Foley remains chairman. Before the latest moves, Peloton had already moved away from in-house device manufacturing, shifting production of its bikes to partners in Asia. The company also implemented a leasing program that could reduce equipment ownership costs and raised the price of its content subscription service by $5 to $44 a month. Peloton is making other changes, including a return to in-person work. Office workers will have to come in at least three days a week starting Sept. 6, McCarthy said Friday. That’s in line with the approach used by other tech companies, such as Apple Inc., but it marks a turnaround for a company that has benefited from the work-from-home lifestyle. So far, Wall Street has been skeptical of Peloton’s return. Shares have continued to slide since McCarthy took the job and remain down about two-thirds through 2022. Management is betting that Peloton’s improving fixed costs and rising prices will boost investor sentiment. “I remain optimistic about the future of Peloton,” McCarthy said in the note. “That doesn’t mean there won’t be challenges ahead. There will be and will be unforeseen setbacks. That’s the nature of twists. But I’m confident we can overcome the challenges because we’ve come so far in the last four months, which fuels my optimism about our ability to build on our long-term success.” (Updates the sharing reaction in the sixth paragraph.) Most Read by Bloomberg Businessweek ©2022 Bloomberg LP
