Peloton gives up on building its own products after just three years
Peloton will no longer build its own connected fitness products, as it's moving entirely to third-party manufacturing. It said in a statement that it's "exiting all owned-manufacturing operations" to simplify its supply chain and cut costs. "We believe that this along with other initiatives will enable us to continue reducing the cash burden on the business and increase our flexibility," Peloton CEO Barry McCarthy said. "Partnering with market-leading third party suppliers, Peloton will be able to focus on what we do best — using technology and content to help our 7 million members become the best versions of themselves."
The company is expanding its long-existing partnership with Taiwanese manufacturer Rexon, which will be the primary builder of Bike and Tread devices. Peloton says it will suspend operations at Tonic Fitness for the rest of the year. It bought that company in 2019 to bring some manufacturing in house.
Things haven't exactly been going swimmingly over at Peloton. In January, then-CEO John Foley said the company was "resetting our production levels for sustainable growth" following reports it was putting all production on hold. It was suggested that Peloton had thousands of products sitting in warehouses and on cargo ships amid decreased demand. The following month, Peloton brought in McCarthy as CEO and laid off around 2,800 corporate employees, equivalent to 20 percent of the total workforce.
After the pandemic-driven boom, when many people were buying Peloton gear to help them work out at home, business took a significant hit. Peloton posted a net loss of $757.1 million for the first three months of 2022 on revenue of $964 million, compared with revenue of $1.262 billion and a loss of $8.6 million a year earlier. It attributed the diminishing returns to a significant increase in operating expenses (which represented 95.4 percent of total revenue for the quarter) and having to manage its stockpile of products, which it believed it would sell eventually.
In April, Peloton cut the prices of some products to lower the barrier to entry while announcing plans to increase subscription fees in the US and Canada for the first time. The company now has a rental program for the original Peloton Bike. It costs $89 per month and an All-Access Membership is included. There's a $150 delivery fee, though you can cancel at any time and there's free pick-up. Customers have the option to buy the device outright after 12 months. Meanwhile, in May, Peloton teased its first rowing machine.