NEW YORK: Peloton Interactive Inc will embark on a sweeping overhaul that includes cutting nearly 800 jobs, raising prices for its Bike+ and Tread machines, and outsourcing functions such as equipment deliveries and customer service to outside companies.
The changes, which the company disclosed last Friday in a memo to employees, also include gradually closing many of its retail showrooms – a process that will get underway next year.
It’s the widest-ranging shake-up yet under chief executive officer Barry McCarthy, a tech veteran who took the helm in February.
Peloton is hoping to turn around a business that thrived during the early days of the pandemic but suffered a punishing slowdown in the past year.
Revenue is declining, losses are mounting, and the company’s stock price was down nearly 90% over the past 12 months. The latest moves are an attempt to reinvigorate sales, boost efficiency and restore some of Peloton’s former cachet.
“We have to make our revenues stop shrinking and start growing again,” McCarthy said in the memo provided to Bloomberg, adding that the changes are essential to making Peloton cash-flow positive again.
“Cash is oxygen. Oxygen is life.”
Investors applauded the moves, sending the shares up 14% to US$13.53 (RM60) in New York trading. It was the biggest one-day gain in more than three weeks.
In its third known set of layoffs this year, the company will fire 784 employees across its distribution and customer service teams.
Peloton will stop using in-house employees and vans to deliver equipment and shutter 16 warehouses across North America.
Instead, it will rely on providers of third-party logistics, or 3PL, to set up bikes and treadmills at customer homes.
Peloton already uses third-party shipping companies JB Hunt Transport Services Inc and XPO Logistics Inc for some deliveries and will offload its remaining in-house distribution to those firms.
The company acknowledged that such a change might not be loved by all buyers, as some have complained that the third-party delivery services aren’t on par with Peloton’s own efforts.
“This has been a challenge,” McCarthy told employees.
“We won’t 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’ve put in place and we’re encouraged by the progress we’re making.”
Peloton is also cutting about half of its customer support team, which is mainly located in Tempe, Arizona, and Plano, Texas.
The company will use third-party firms to handle support requests as needed to augment the staff it is keeping.
“These expanded partnerships mean we can ensure we have the ability to scale up and down as volume fluctuates while still continuing to provide the level of service our members have come to expect,” McCarthy wrote.
The winding down of in-house deliveries, distribution and warehouses will eliminate 532 jobs, while another 252 will be culled from support teams.
Peloton said last month it would cut about 570 employees in Taiwan as part of a move away from in-house equipment manufacturing.
In February, it fired nearly 3,000 employees across the company.
Still, McCarthy said the company would continue to hire in key areas, including its software engineering group.
“I share this so you won’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 US$500 (RM2,222) to US$2,495 (RM11,089) and its Tread treadmill by US$800 (RM3,555) to US$3,495 (RM15,533).
The increases are a reversal as the Bike+ was priced at US$2,495 prior to cuts in April. The new Tread price is higher than it was four months ago.
McCarthy acknowledged the about-face, saying that the April price cuts were necessary to more quickly move units and generate cash flow.
“I probably wouldn’t have messed with the prices at all if I had been confronted with different inventory states back when we lowered the pricing,” he said in an interview.
At the time, Peloton was in the early days of an US$800mil (RM3.56bil) restructuring plan and was still in the process of securing a US$750mil (RM3.3bil) bank loan.
The price cuts “cheapened at least the perception of the brand,” he said. “So this is a return to historical positioning.”
Peloton is betting that the price increases will help juice sales. During its fiscal third quarter, the New York-based company missed analyst estimates – with revenue declining 24% and losses coming in far wider than expected.
Peloton also said it intends to undergo a “significant and aggressive reduction” of its retail footprint in North America beginning in 2023.
The company operates 86 stores across the United States and Canada.
McCarthy said the number of locations shuttered will be determined by negotiations with landlords. — Bloomberg
