Peloton Downscales in Hunt for People Making $50,000 a Year
(Bloomberg) -- Peloton Interactive Inc., whose bikes have become a symbol of affluence, is cutting prices in an effort to go downmarket and accelerate a push into middle-class households.
The company slashed the price of its most popular bike on Thursday by $400 to $1,495, or $39 per month with a 39-month financing plan. That level should make the product more appealing to younger and lower-income consumers who want to get fit, President William Lynch said in an interview. Already, the company’s fastest-growing customer segment is people under the age of 35 who make less than $50,000 a year, he said.
“That’s a huge market,” said Lynch, a former chief executive officer of Barnes & Noble Inc. who joined Peloton in 2017. The inroads show that the Peloton image is changing. “Early in Peloton’s growth, it wasn’t the case that we were penetrating as quickly, those demographics,” he said.
But Peloton’s move downscale is bringing some pain. The price cut will contribute to losses this year, the company warned on Thursday, with profits returning in fiscal 2023. Increased marketing spending -- to help spread the word about Peloton’s everyman appeal -- is buoying expenses as well. The shares tumbled 7.8% in premarket trading Friday.
Peloton also suffered setbacks with its new treadmill line, with the company recalling both of its models in May. It’s now bringing back the lower-end treadmill, but the more expensive version, which was linked to a child’s death, is still getting overhauled.
“We’re working on design modifications with an eye toward making it one of the safest products in fitness,” Lynch said. The company is working with the U.S. Consumer Product Safety Commission and doesn’t yet have a release date for the pricier treadmill, he said.
Peloton also disclosed an accounting problem Thursday, saying it wasn’t measuring its inventory properly. There was a discrepancy between a manual count of the products in its facilities with what the system said they should be, according to Lynch.
There was enough of a mismatch to call it a material weakness, he said. “In some warehouses there were more -- in some warehouses there were less.”
The company is spending more on technology to help fix the problem, Lynch said.
Peloton is “ensuring our scanners are scanning the products as they come into the different warehouses and field-op facilities and updating in the system on a nightly basis,” he said. “It’s essentially investing in sophisticated inventory tracking.”
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