In February, when Barry McCarthy assumed the position of CEO of Peloton, the business had laid off 2,800 people. About six months later, McCarthy warned employees in a message that the company wanted to lose 784 more positions in the third wave of layoffs. Peloton will also hike the Bike Plus and Tread pricing beginning in 2023 while closing its retail stores.
Peloton’s Beginning of The End
After a catastrophic year, the cutbacks in personnel and plans to close retail showrooms are an extension of Peloton’s stringent reorganization plans. Peloton eliminated over 600 workers in Taiwan last month to reduce in-house production. It furthermore communicated in February that it was abandoning plans for a $400 million facility in Ohio. McCarthy also mentioned that although the firm is eliminating positions from its delivery with consumer service teams, it is aggressively hiring for placements in its software engineering section. McCarthy mentioned ambitions to enhance Peloton’s e-commerce presence as another reason the company decided to shrink its retail footprint beginning next year.
Peloton’s Q3 financial report previewed the day’s news in May. McCarthy also proposed investigating third-party store relationships and reducing the need for white-glove delivery for its bikes and treadmills at the time.
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The Impact on Consumers
Consumers will most likely be affected by expected price increases. In April, Peloton reduced the costs of the original Bike, Bike Plus, and Tread to $1,445, $1,995, and $2,695, respectively, to handle surplus inventory. Now, the price of the Bike Plus will revert to its original $2,495, while the price of the Tread will climb by $800 to $3,495.
This is higher than Tread’s actual launch price of $2,495 (raised to $2,845 after that). Initially, The Tread was intended to be the “cheapest” of Peloton’s two treadmills. However, the Tread Plus was recalled and withdrawn when it caused many injuries and the death of a small kid. The pricing of the original Bike and the newly released Peloton Guide will stay the same.
McCarthy disclosed in the letter that the price gains represent an impulsive tactical shift. McCarthy asserts that the corporation has successfully controlled its inventory and supply chain issues. It has also acquired a $750 million bank loan, and the price increases are intended to enhance the “luxury” image of the Bike Plus and Tread.
The Reason Behind The Layoffs
The layoffs and price increases are components of Peloton’s continuous attempts to recover its financial flow. In a shareholder letter from the previous quarter, McCarthy said that Peloton’s difficulties had left it “undercapitalized” and that the firm needed to bolster its balance sheet. McCarthy stated in the email, “These modifications are needed if Peloton is ever to become cash flow positive.” “Money is oxygen. Oxygen is essential to life. Simply, we must become self-sufficient in terms of financial flow.”
McCarthy concluded the message optimistic about Peloton’s potential; yet, in his first six months as CEO, Peloton’s reorganization efforts have failed to impress investors. Peloton’s stock has declined by over 90% in the last year. However, investors were receptive to today’s news, as shares rose 8.2%. Peloton is anticipated to announce its Q4 profits later this month, which may provide light on the success of McCarthy’s restructuring initiatives.
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