Peloton CEO Barry McCarthy had his job cut from him when he took over in February when the company laid off 2,800 employees. Now, about six months later, McCarthy has sent a memo to staff warning the company that it plans to cut another 784 jobs in a third round of layoffs. Bloomberg. Peloton will also increase the prices of the Bike Plus and Tread, while the retail showrooms will be shuttered from 2023.
Platoon spokesman Ben Boyd confirmed the news in a statement to: The edgeto write:
“Peloton took several steps today to further develop our transformation strategy, which better positions the company for long-term success as the largest global Connected Fitness company. The moves we’ve made include implementing more strategic pricing; the elimination of our last mile distribution network in North America and the 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 retail footprint in North America. Unfortunately, these staff shifts lead to the departure of 784 employees from the company. Any decision we make that affects team members is not taken lightly, but these steps enable Peloton to become more efficient, cost-effective and agile as we continue to define and lead the global Connected Fitness category.”
The staff reductions and plans to close store showrooms are an extension of Peloton’s strict restructuring plans after a disastrous year. Last month, Peloton cut nearly 600 jobs in Taiwan as part of a move to cut its own production. In February, it also announced it was putting an end to plans for a $400 million plant in Ohio. Meanwhile, McCarthy noted that while the company is cutting jobs in its delivery and customer support teams, it is actively seeking positions in its software engineering team. McCarthy also cited plans to expand Peloton’s e-commerce presence as one reason the company will reduce its retail footprint starting next year.
Today’s news was announced during Peloton’s Q3 results in May. At the time, McCarthy also came up with ideas about exploring partnerships with third-party retailers and eliminating the need for white glove supplies for his bikes and treadmills.
However, consumers will be most directly affected by planned price increases. To address excess inventory, Peloton cut prices on the original Bike, Bike Plus and Tread in April to $1,445, $1,995 and $2,695, respectively. Now the Bike Plus returns to its original price of $2,495, while the tread 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 thought of as the more “affordable” of Peloton’s two treadmills. However, the Tread Plus was recalled and discontinued after causing several injuries and in one case the death of a young child. However, the price of the original Bike and the recently launched Peloton Guide remains unchanged.
McCarthy acknowledged in the memo that the price increases represent an abrupt reversal in strategy. That’s because, according to McCarthy, the company has had success in managing its inventory and supply chain issues. It has also secured a $750 million bank loan, and the raises are intended to bolster Bike Plus and Tread’s “premium” image.
The layoffs and price hikes are also part of the ongoing effort to restore Peloton’s cash flow. In a shareholder letter last quarter, McCarthy noted that Peloton’s woes had left it “thin capitalized” for its needs and forced the company to bolster 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 just need to become self-sufficient based on cash flow.”
According to the memo, the money saved with today’s measures will go towards further research and development as well as marketing. This is in line with the plans McCarthy proposed last quarter. At the time, for example, he revealed that Peloton had barely spent any money on marketing its standalone app subscription. The company has since rectified that with a ad promoting the standalone app with actor Christopher Meloni training in the buff. Brutal (literally) ads aside, McCarthy has been adamant about reformulating Peloton as a connected fitness brand as opposed to “that bike company.” That has so far included proposed plans to tweak the company’s subscription model and build an app store. McCarthy’s has also implemented a recent pilot program for leasing bicycles from the company.
McCarthy ended the memo optimistic about Peloton’s prospects, although investors didn’t seem too convinced in its first six months by Peloton’s restructuring plans. Peloton’s stock has fallen about 90 percent in the past year. That said, investors seemed to react to today’s news with: shares rise 8.2 percent. Later this month, Peloton is expected to release its fourth quarter results, which could provide a clearer picture of how McCarthy’s restructuring strategies have progressed.