Connected fitness company Peloton, known for its tech-enabled stationary bikes and treadmills, has cycled through yet another chief executive.
On Thursday, the beleaguered company announced Peloton CEO Barry McCarthy is stepping down from his roles as company CEO, president and board director. He will be succeeded by interim co-CEOs Karen Boone and Chris Bruzzo, both Peloton board members. Peloton also announced it is cutting 15% of its staff — or 400 employees — as it tries to trim costs.
The job cuts mark the fifth time Peloton has reduced its headcount since the company peaked in 2021. As the company struggles to regain its stronghold in the fitness industry and among consumers, questions are being raised about what the future has in store for the formerly red-hot fitness fad.
"Hard as the decision has been to make additional headcount cuts, Peloton simply had no other way to bring its spending in line with its revenue," McCarthy said in a statement announcing his departure Thursday. He added that the move was necessary as the company prioritizes "the necessary task of successfully refinancing its debt."
Based in New York, Peloton was among the companies that were well-positioned during the COVID-19 pandemic, benefitting tremendously from lockdown policies that kept Americans isolated indoors. At its height, it was valued at $50 billion, and had long waitlists for its equipment.
With the fate of crowded gyms and fitness studios uncertain at best, it appeared during the pandemic that the future of fitness would be in-home equipment.
Peloton's sales surged, and the company couldn't keep up with customer demand. That is until 2021, when restrictions eased and gyms and fitness studios reopened. Peloton, which had funneled money into meeting the mountain of unprecedented consumer demand, appeared to be caught flat-footed.
Still recovering from COVID
Eric Koester, adjunct professor at Georgetown University's McDonough School of Business, described Peloton as a "company that is still trying to find itself post-COVID," adding that it's eventual new CEO will likely take one of two tacks.
"A company that hit those heights and came back to earth now has to decide how to pivot," Koester told CBS MoneyWatch.
That could mean either focusing on developing new in-home fitness products and attacking the traditional gym business industry, or focusing on embracing its existing customer base and capitalizing on their devotion to the brand.
"The company has rabid fans, and maybe the company crossed the chasm into the mass market too hard and not everyone was a believer," Koester said.
Amidst challenges faced by Pelaton, interim co-CEO Bruzzo attributed the decline in sales to consumers still adapting to life after the pandemic. He mentioned, "We are still dealing with the whiplash, the normalizing that occurred post-COVID," during an investor call.
Despite experiencing cash-flow problems, multiple product recalls, and a shrinking subscriber base, Pelaton seems to have missed the opportunity to leverage the unexpected surge provided by the global pandemic. How did a once highly popular company among consumers and investors find itself struggling now?
The Impact of Pandemic Demand
One perspective suggests that while the pandemic initially boosted demand for Peloton's high-end fitness equipment, the sudden spike in interest may have actually harmed the company.
"Some people believe the pandemic was the best thing to happen to Peloton, but I believe it was the worst," shared BMO Capital Markets analyst Simeon Siegel with CBS MoneyWatch.
This shift occurred as Peloton, previously a niche luxury fitness brand with limited appeal, suddenly became a prominent feature of the lockdown period, symbolizing the era.
"It was a really great idea with a very strong following and a great community, that was propelled onto the big stage and basically pulled forward a lifetime's worth of demand," Siegel explained.
According to Siegel, the company may have misunderstood the temporary surge in demand during the pandemic as a sign of enduring growth.
"The pandemic provided the perfect breeding ground for the Peloton craze," Siegel remarked. While some individuals who were initially attracted to Peloton during the pandemic may have abandoned fitness altogether.
Peak Performance
If the pandemic had never happened, Peloton might not have gained the widespread recognition it enjoys today. Instead, it would have been a company with steady growth and a devoted fanbase paying profitable monthly fees," Siegel suggested. "It would have been a smaller, but healthier business that never experienced that moment of stardom."
BNB Paribas managing editor and senior equity analyst Laurent Vasilescu noted that the company had ample time to readjust post-pandemic, but failed to do so under McCarthy's leadership.
"I believe he attempted to implement too many changes too quickly and didn't focus on the core business. I don't have a solution for them; I'm unsure of their future direction," Vasilescu stated. "However, I anticipate it will shrink to the extent that one day, it will no longer be of significance."
