(Bloomberg Opinion) -- Peloton Interactive Inc. is spinning backwards again.
On Thursday, the fitness company said Chief Executive Officer Barry McCarthy would step down after just over two years, as it announced another restructuring. Board chair Karen Boone and director Chris Bruzzo will serve as interim co-CEOs.
Whoever succeeds McCarthy must pedal toward Peloton’s luxury roots.
The former Spotify Technology SA and Netflix Inc. executive was brought on in February 2022, replacing founder John Foley. Amid the post-Covid bust, the company was then under pressure from activist investor Blackwells Capital LLC, which also demanded that it find a buyer for the business.
Facing a slump in demand as consumers rediscovered working out at gyms, McCarthy never found firmer footing, as his strategic initiatives seemed to take the company in opposite directions.
Some of his plans sought to reassert Peloton’s original position as a luxury brand, such as a decision in August 2022 to raise prices on its flagship bikes and treadmills, after cutting them a few months earlier to clear a glut of inventory.
Putting bikes into hotels, including Hyatt Hotels Corp. was also sensible, as was the deal announced with Lululemon Athletica Inc. whereby the fancy leggings maker would tap Peloton’s online workouts and the fitness company would sell co-branded sportswear. The two companies perfectly complemented each other in their top-end positioning.
Yet some elements seemed to take Peloton down market, such as selling on Amazon.com Inc. and allowing users to rent its equipment. Shuttering Peloton’s retail stores, with more closures announced on Thursday, has also made the brand less visible.
For all the activity, Peloton has continued to post net losses, although the deficit narrowed in the third quarter when it made a profit before interest, tax depreciation and amortization and raised Ebitda guidance.
But the company narrowed its full-year revenue outlook, with the new range below expectations. The shares are down 98% from their peak in December 2020, and more than 90% since McCarthy’s arrival.
His successor will inevitably have to shrink the business further. The new shakeup involved cutting about 400 jobs, in order to save $200 million.
McCarthy said the company had delivered positive free cash flow for the first time in three years. His successor will need to continue this cash generation, given a $1 billion convertible note is repayable in 2026.
But to have any chance of growing Peloton again, something that McCarthy said had proved elusive, he or she must find a fresh way forward.
They should pursue more deals with luxury hotels and apartment developers. I’ve long wondered why Peloton doesn’t forge more heavily into the luxury gym sector. Out-of-home fitness is booming, so why not take more advantage? Physical locations should be complementary to Peloton, not threatening. Apps are now de rigueur for all fitness operators. Given Peloton’s highly regarded content, there must be scope for largescale partnerships.
And with the shuttering of its own stores, Peloton needs to find different a way to keep its products at the forefront of consumers’ minds. Upscale retailers could hold the key. Even the best may have space that could be utilized by Peloton, given the continued shift to online shopping. There may even be room within some locations for Peloton studios. Lululemon would be an obvious partner.
McCarthy said in a letter that reorienting Peloton has taken a lot of “blood sweat and tears.” His successor will be in for an equally wild ride.
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Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times.
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