Once a Pandemic Superstar, Peloton Rode Straight Into a Wall. Now What?

Last December, the millions of fans who tuned in for And Just Like That, the much-anticipated sequel series to the late ’90s cult phenom Sex and the City, were in for a big surprise—literally. Leaving aside the challenge of updating Carrie, Miranda and Charlotte with a bit more wisdom and a slightly new style, there was the matter of how to revive Mr. Big, Carrie’s on-again-off-again paramour played by Chris Noth. Writers put him back into the script—but not for long. Just 39 minutes into Episode 1, he drops dead of a heart attack after a ride on his workout bike. Which happened to be a Peloton. It was, New York Times critic James Poniewozik facetiously put it, “Peloton’s most unfortunate product placement.” Ah, but not the only one. After blaming Mr. Big’s death on a diet of cocktails and steaks—then hiring Ryan Reynolds to create a spot with Noth in it—Peloton sustained two other blows. After a few days of triumph, the popular Noth spot was abruptly pulled following allegations of sexual assault made against the actor. Then, on Jan. 23 of this year, Showtime’s series Billions featured Axe Capital’s Mike “Wags” Wagner having a heart attack on his Peloton. Peloton's hit-back ad with Chris ("Mr. Big") Noth got pulled after sexual assault allegations emerged. This myocardial infarction wasn’t fatal. But still. Peloton’s social media team wasted no time in responding to the episode, noting the brand had not agreed to having its intellectual property used in the episode, adding: “As the show itself points out, cardiovascular exercise helps people lead long, happy lives.” If nothing else, the tweet (and the heart attacks) struck an ironic note with Peloton watchers, and certainly Peloton investors. Not so long ago, Peloton itself had every expectation of a long, happy life. And while the once-feted fitness company is far from dead, it’s not a stretch to say it’s been hospitalized. The wheels come off Thanks to a disastrous combination of overproduction, bad forecasting, poor quality control and alienating would-be customers while losing the faith of existing ones, the once ballyhooed brand (winner of two awards from this magazine), has reached the nadir of its decade-long history. In January 2021, Peloton’s market cap was closing in on $50 billion; as of April 2022, it’s down to $6 billion. For its second quarter, Peloton posted net losses of $439 million, and has revised its 2022 revenue forecast downward as well. The looming question for Peloton is: Now what? CEO Barry McCarthy, who moved into his office in February, believes he has an answer. Peloton’s new strategy is to stress its workout experience, broadening the base of subscribers instead of simply selling bikes and treadmills. With a pilot rental program called One Peloton Club, the company also hopes to lower cost barriers while continuing to emphasize its inclusive, egalitarian culture—a marked departure from a not-so-distant past when Peloton was yet another pricey gadget for the McMansion set. It's a plan, at least. But observers differ on whether it’ll be enough. “I think they can make a big pivot,” said Katherine Wintsch, founder and CEO of brand consultancy The Mom Complex, and herself an owner of a Peloton bike. Despite its many missteps, Wintsch said, Peloton still has considerable value in its 54 instructors who produce the workouts that keep Peloton members loyal. “The instructors are really the stars of the brand and there’s a lot of value in their personalities." But not enough value to save the company, counters brand strategist David J. Deal, who believes this ride is simply over. “Peloton’s only option is to sell a company and run for cover,” he said. “The brand's value has been decimated. As a standalone brand, Peloton is dead.” How did we get here? Were we talking about most any other company, that appraisal might seem a bit harsh. But few companies, at least recently, have taken the financial and reputational tumble that Peloton has. John Foley, a Stanford business grad and onetime solo pilot for the U.S. Navy’s Blue Angels squadron, started Peloton in 2012. His idea for instructor-led cardio classes streamed to a web-connected bike was ahead of its time. As such, it failed to enthuse venture investors. Even the company’s IPO saw its stock dip on the first day of trading. Founder John Foley said he wasn't worried when Peloton stock dropped 11% on opening day in 2019. Then, what was bad news for the world turned into great news for Peloton. In the early months of 2020, as the Covid-19 pandemic shuttered gyms and locked millions at home, demand for Peloton’s $2,245 bikes and $4,295 treadmills shot through the roof. By Q4 of 2020, Peloton sales were up by 172% to $607 million—80% of which came from the hardware. Accordingly, contracted manufacturers in Taiwan cranked up the production lines. But just as all those bikes and treadmills began arriving in the U.S., the gradual reopening of fitness clubs began to dampen the enthusiasm for working out at home, leaving Peloton with a surplus of equipment. But worse was coming. The assembly-line ramp-up had also led to product defects—serious ones. After 72 reports of adults, children and pets being sucked under its Tread+ machine (resulting in the death of one 6-year-old) Peloton recalled the unit. By January of this year, the company had paused production of everything. In February, Peloton announced a massive restructuring plan determined to shave $800 million in costs and cut capital expenditures by $150 million in 2022 alone. The company issued pink slips to 2,800 employees (about 20% of its workforce). Foley surrendered his CEO post, and McCarthy stepped into the breach. Time to pivot Going forward, global head of marketing Dara Treseder told Adweek, Peloton is an experiential brand, not one that sells equipment. CMO Dara Treseder did much to get rid of Peloton's elitist image. “It’s about the content. It’s about the software. It’s about the experience,” she said. “We’ve always been about connected fitness. We started out with our bike, but now we have a suite of products.” In carrying this message forward, Treseder is playing a role arguably more essential than the one she was hired for in August 2020. Intentionally or not, Peloton had long been perceived as a brand for affluent suburban career women—a reputation enshrined by the disastrous 2019 holiday ad that became known as “Peloton Wife.” It showed a yuppie husband gifting his spouse (a woman who was already fit) a Peloton bike. The wife’s evident lack of confidence—coupled with the heady suggestion that hubby expected her to lose weight—would see Peloton excoriated on social media. Within two months, Treseder turned that image around with a campaign called “We All Have Our Reasons,” which eschewed actors in favor of showing real Peloton customers who, not incidentally, came in many shapes, sizes and colors. Now, as Peloton struggles to find its footing, Treseder is taking that message of inclusivity and accessibility and expanding it even further. She was instrumental in launching the One Peloton Club, a pilot program that, for between $60 and $100 monthly, allows members to rent a bike with no commitment to purchase, while also getting access to the brand’s live and on-demand workout classes. “With One Peloton Club, we're testing flexibility and a lower upfront cost of entry,” Treseder said. Meanwhile, in mid-April, Peloton slashed its bike price yet again (to $1,445 from $1,745) while inching up its subscription plan ever so slightly from $39 to $44 a month. The digital-only membership—sold to people who do not own Peloton’s equipment—will remain $12.99 a month. It’s just too late But the company’s latest strategic shift has failed to impress some observers, who say the only reasonable path left for Peloton is to put itself on the clearance rack. Blackwells Capital—which holds slightly less than 5% of the company—has been pushing for a Peloton sale since the beginning of last year. The activist investor group has argued that Peloton’s position as a publicly traded company is not conducive to the radical restructuring it needs. Blackwells has also suggested that well established athletic or technology companies—among them Nike, Apple, Amazon and Google—might benefit from snapping up Peloton. Indeed, Deal is among the observers who took McCarthy’s ascent to the CEO’s office as a sign that a sale was in the cards. New CEO Barry McCarthy has promised to engineer Peloton's turnaround. “He’s a former CFO of Spotify and Netflix, and when you promote a CFO to CEO like that, you're positioning your company to sell,” said Deal, who also infers that Peloton’s shedding of 20% of its workforce was also a preparatory move for a sale. Publicly at least, McCarthy has dismissed these rumors. Shortly after taking the helm, he sent an email to employees promising them that he’d be “here for the comeback story.” How much equity is left? The sale of Peloton would give a prospective buyer access to customer data—the most valuable commodity in the business world today. Which begs the question: Aside from that data, is there real brand equity left in Peloton itself? Marisa Mulvihill, head of brand and activation for brand consultancy Prophet, said yes—lots. Its most recent Brand Relevance Index, in fact, ranks Peloton at No. 2 on the list of Brands People Can’t Live Without in 2022. Activist investors and the “machinations of the C-suite,” Mulvihill argued, are not things ordinary consumers care about. They do care about getting value for their dollar and Peloton, she said, has long delivered that. “Consumers [have had] a brand experience with Peloton that met their practical needs for convenience and connecting them on a more emotional level—[it’s] a brand that inspired them and motivated them,” she said. If anything, Wintsch added, Peloton is not doing enough to emphasize that experience in its advertising. Peloton’s experience is created by its instructors, many of whom are celebrities in the fitness realm. She singles out Cody Rigsby (“a gay guy and just hilarious—like standup comedy while you’re riding”) and Robin Arzon (“we watched her go through the process of having a baby”) as people who could credibly communicate the value of the Peloton experience. Some argue that Peloton's real brand equity lay with instructors like Cody Rigsby. “Where are [they] in the communication?” Wintsch asked. “All of their instructors are just a big part of the loyalty and affinity.” The luxury question Another question facing the future Peloton is what category it’s now in. Is it still a luxury brand? Or do its lowered prices and appeal to a broader audience make it the Halston of the workout world: a once-ritzy name that’s lost its luster in the mass market. In view of the past troubles Peloton had with its exclusionary perception, Treseder is careful with this question. “Peloton is a premium offering,” she said, but “there’s a difference between luxury and premium. When you talk about premium, you're talking about the best value that you can get and the best experience that you can get. That's what we're about. We are for everyone.” Lola Bakare, a consultant who specializes in inclusive marketing, believes this positioning is exactly where Peloton needs to be in order to remain relevant. Pointing to the “We all have our reasons” campaign that Treseder piloted, Bakare lauded the messaging because it “helped us get over some of the assumptions that we don’t want to make about who this exercise equipment is for.” Few would argue that inclusivity is ever a bad thing. However, Deal suggested that Peloton’s original air of exclusivity was, like it or not, what made it valuable. “Peloton branding itself as the lifestyle brand for the elite was a perfect positioning,” Deal said. “When the company found a niche audience of privileged people, the company found its direction. In fact, I think Peloton’s fatal mistake was moving away from his positioning as an elitist brand. The company tried to reposition itself from being an elitist brand to being a popular brand.” The next step It remains to be seen, of course, if CEO McCarthy’s emphasis on experience over hardware and the One Peloton Club deliver the results investors expect. (The club, still in testing mode, will allow the brand to “learn about what the value proposition should be,” Treseder said.) For now, there’s one final piece that veteran ad man Derek Walker would like to see put into place—a thing, he argued, that would go a long way in salvaging the brand’s reputation: an apology. During pandemic lockdown, Peloton couldn't sell bikes quickly enough. Today, things are different. Walker—who’s run his own creative shop, Brown & Browner, since 2007—pointed out that Peloton, caught up in the hype of pandemic-era demand for its products, let customers down by charging high prices for equipment that turned out to be sub-par. (The Tread+ recall aside, Peloton also had a problem with rust on some of its bikes, according to reporting by The Financial Times in February.) But Peloton could regain consumer faith by owning up to the problems publicly. “The one thing no brand will do is apologize,” Walker said, but Peloton “can explain” its missteps by telling customers: “We weren’t prepared for the pandemic. We weren’t prepared for the amount of business, and that led us to take our eye off the ball. So we’re going to slow down, build up our quality, communicate to our standard. We’re going to get back to who we are.” That medicine might be a bit strong for management to swallow, but Treseder is aware that Peloton’s remedial work is far from over. “This is a completely different brand than it was,” she said. “We have big goals, big dreams and big ambition. But we still want Peloton to be for everyone. And we’re still on that journey.”