Peloton CEO Barry McCarthy had his job cut out for him when he took over the helm in February as the company laid off 2,800 employees. Now, roughly six months later, McCarthy has sent out a memo to staffers warning the company plans to eliminate an additional 784 jobs in a third round of layoffs, reports Bloomberg. Peloton will also increase the prices of the Bike Plus and Tread, while shuttering retail showrooms starting in 2023.
Peloton spokesperson Ben Boyd confirmed the news in a statement to The Vergewriting:
“Peloton, today, took several steps to further advance our transformation strategy, better positioning the company for long term success as the largest, global Connected Fitness company. The moves we made include, the implementation of more strategic pricing; the elimination of our North America final mile distribution network and expansion of our third-party logistics (3PL) partnerships; the reduction of our North America Member Support team; and the signal of our intent to significantly reduce our North America retail footprint. Unfortunately, these workforce shifts result in the departure of 784 employees from the company. Any decision we make that impacts team members is not taken lightly, but these moves enable Peloton to become more efficient, cost-effective, and agile as we continue to define and lead the global Connected Fitness category.”
The staffing reductions and plans to shutter retail showrooms are an extension of Peloton’s strict restructuring plans following a disastrous year. Last month, Peloton cut nearly 600 jobs in Taiwan as part of a move to reduce in-house manufacturing. In February, it also announced that it was putting an end to plans for a $400 million factory in Ohio. Meanwhile, McCarthy noted that although the company is cutting jobs on its delivery and customer support teams, it’s actively looking to fill roles on its software engineering team. McCarthy also cited plans to expand Peloton’s e-commerce presence as a reason why the company will reduce its retail footprint starting next year.
Today’s news was foreshadowed during Peloton’s Q3 earnings in May. At the time, McCarthy also floated ideas of exploring third-party retailer partnerships as well as eliminating the need for white-glove delivery for its bikes and treadmills.
Consumers will be most directly impacted by planned price hikes, however. To address excess inventory, Peloton lowered prices on the original Bike, Bike Plus, and Tread in April to $1,445, $1,995, and $2,695, respectively. Now, the Bike Plus will return to its original price of $2,495, while the Tread’s price will increase by $800 to $3,495. That’s higher than the Tread’s initial launch price of $2,495 (it was later increased to $2,845). The Tread was initially envisioned as the more “affordable” of Peloton’s two treadmills. However, the Tread Plus was then recalled and discontinued after causing several injuries and, in one instance, the death of a young child. The price of the original Bike and the recently launched Peloton Guide, however, will remain unchanged.
McCarthy acknowledged in the memo that the pricing hikes are an abrupt reversal in strategy. That’s because, according to McCarthy, the company has seen success in managing its inventory and supply chain woes. It’s also secured a $750 million bank loan, and the hikes are meant to boost the Bike Plus and Tread’s “premium” image.
The layoffs and price hikes are also part of ongoing efforts to restore Peloton’s cash flow. In a shareholder letter last quarter, McCarthy noted that Peloton’s woes had left it “thinly capitalized” for its needs and that the company needed to strengthen its balance sheet. “These changes are essential if Peloton is ever going to become cash flow positive,” McCarthy wrote in the memo. “Cash is oxygen. Oxygen is life. We simply must become self-sustaining on a cash flow basis.”
According to the memo, the money saved in today’s measures will go toward further research and development as well as marketing. That tracks with plans McCarthy proposed last quarter. At the time, for example, he revealed that Peloton had barely spent any money marketing its standalone app subscription. The company has since rectified that with an ad promoting the standalone app featuring actor Christopher Meloni exercising in the buff. Cheeky (literally) ads aside, McCarthy has been adamant about reframing Peloton as a connected fitness brand, as opposed to “that Bike company.” That’s thus far included proposed plans to tweak the company’s subscription model and build an app store. McCarthy’s also implemented a recent pilot program for leasing the company’s bikes.
McCarthy ended the memo bullish on Peloton’s prospects — though, in his first six months, investors haven’t seemed too convinced by Peloton’s restructuring plans. Peloton’s stock has nosedived roughly 90 percent over the past year. That said, investors seemed responsive to today’s news, with shares rising 8.2 percent. Later this month, Peloton is expected to release its Q4 earnings, which might paint a clearer picture as to how McCarthy’s restructuring strategies have fared.