Have the wheels come off Peloton?

Peloton’s business has been booming.  (PELOTON)
Peloton’s business has been booming. (PELOTON)

Peloton was poised to take London by storm. After record sales during the pandemic, the behemoth brand beloved of everyone from Rishi Sunak to David Beckham was due to open a 30,000 sq ft exercise studio and filming space in Covent Garden in September. Fans were thrilled. After all, the bikes became hot property during the pandemic. Times were tough, gyms were shut… shouldn’t you treat yourself to a £1,750 exercise bike complete with swishy-haired American instructors there at the touch of a button?

But as yet, the London studio has not opened to the public. Peloton has not given any indication as to when it might open, only saying that “the safety, health and well-being of our employees, members and communities remain our top priority”. So what is going on?

Peloton’s business has been booming. According to estimates from JP Morgan, it made $1.8 billion in sales last year alone. Richard Branson has one on Necker Island and President Joe Biden apparently wanted to Cleatsring his Peloton to the White House but couldn’t because it was a cyber-security risk.

But now that so many of us have come to regret our lockdown purchases, the brand’s progress has stalled. Earlier this month it announced disappointing first quarter results and was forced to slash its sales forecasts by a $1 billion due to a “more pronounced tapering of demand” (corporate speak for “the lockdown boom is over”).

Chief executive John Foley (who tripled his personal wealth to $1.3 billion during the pandemic) said the outlook was “very challenging” to forecast and blamed “supply chain constraints and commodity cost pressures”. Peloton’s share price subsequently went downhill faster than Lance Armstrong on a bender. At one point, it was down by 35 per cent, instantly wiping $9 billion from the company’s market value. There was a more pressing worry, though — cash flow. Peloton revealed it had burned through $684 million in the first quarter and only had $924 million to last until quarter end. Last week Peloton announced that it was offering another $1 billion of shares to raise more capital.

Money spinner: Peloton chief executive John Foley (Peloton)
Money spinner: Peloton chief executive John Foley (Peloton)

The company, which was valued at $45 billion last year, now has a recruitment freeze and has slashed its prices. A Peloton bike is currently £1,350 — “our best Christmas price ever”.

What’s gone awry? “The big problem Peloton is facing is there’s just so much competition now,” says David Minton, a fitness industry analyst at DB Leisure. “During lockdown, suppliers of exercise bikes teamed up with spinning studios to offer a home-cycling experience which was incredibly similar to Peloton, but at a fraction of the cost. You can buy a decent exercise bike for £300, or even rent one. There’s a bike called the Echelon which is almost identical to Peloton but it is half the price.” Could Peloton become the next Fitbit — the hyped fitness gadget whose share price collapsed under competition from Apple and Samsung?

“The downfall of Peloton is once you have one, that’s all you need,” says Emma Chiu, trend forecaster and Global Director at Wunderman Thompson Intelligence. Peloton has tried to solve its saturation problem by launching the Peloton Digital app, allowing people who don’t (yet) want to buy pricey bikes (and treadmills) access to other classes for £12.99 a month. They currently have around 800,000 subscribers.

Cycl-o-path: Rishi Sunak (AFP via Getty Images)
Cycl-o-path: Rishi Sunak (AFP via Getty Images)

But there have been other bumps in the road. Prior to the pandemic, its value plunged by $1.5 billion after an advert in which a man surprised his already-slim partner with a bike in what appeared to be a bid to get her to lose weight. In 2018, the company brought out a range of treadmills, but in May last year had to recall two models after the death of a child. In May, a data breach revealed that millions of riders’ details were up for grabs due to a “leaky API” which has since been patched up.

There is also the ongoing problem Peloton faces involving the copyright of the music it uses in its classes. When it went public in 2019, it was being sued by more than a dozen music publishers, who were seeking more than $300 million in damages over its alleged use of unlicensed songs. In response, Peloton removed every class from its library that had at least one of the copyrighted songs. Some users refer to this as “The Day the Music Died,” and themselves are suing the company over its claim that its on-demand library is “ever-growing”. But according to Peloton, its future lies in content. Foley wants to turn the brand into “the most influential media company in the world”.

Peloton has splashed a lot of its cash signing deals with artists such as Beyoncé (a Peloton member) and investing in its content (Getty Images for Coachella)
Peloton has splashed a lot of its cash signing deals with artists such as Beyoncé (a Peloton member) and investing in its content (Getty Images for Coachella)

Peloton has splashed a lot of its cash signing deals with artists such as Beyoncé (a Peloton member) and investing in its content. Its classes are scripted and tightly-produced by a team that has collectively won more than 19 Emmys. Peloton instructors such as Robin Arzón (who has 882,000 followers on Instagram) have become celebrities. Arzón’s rides can attract over 20,000 riders, roughly the capacity of the O2. Peloton is now experimenting with “how far we can go as a media company,” says Jennifer Cotter, its chief content officer. This includes producing videos for YouTube beyond fitness, such as one about Arzón’s pregnancy. “Are we the Netflix of wellness?” says Cotter. “Those things are happening now, and they’ll be a part of our future.”

“It’s this investment in its content that will set Peloton apart,” says Daniel McCarthy, an assistant professor of marketing at Emory University’s Goizueta Business School who has studied Peloton’s business model. “But the billion-dollar question right now is just how different its next million customers will be from its last million customers. Early customers paid high prices for bikes with high renewal rates on subscriptions. But there are growing signs, especially after Peloton’s recent price cut, that customers acquired today are simply not as good. They require more advertising to get them in, leading to concerns that they may also not stick around as long.”

Peloton devotees say it’s more than an exercise bike. Crystal O’Keefe, from Missouri, set up fan podcast The Clip Out in 2017. She has travelled to New York five times for Peloton’s Homecoming events, where fans can take classes and queue for selfies with instructors. “It’s the highlight of my entire year,” she says. “It’s like a cross between a giant cocktail party and Disney world.”

But a quick browse on Facebook Marketplace suggests another story, with hundreds of second-hand Pelotons for sale. “Excellent condition! Barely used!” reads one caption. To hit its target of 100 million subscribers, Peloton needs to appeal to more than just fanatics.