MAY 3, 2024 — MORE RESTRUCTURING AND CUTS
Continuing restructuring and cost-cutting will see a change in leadership and a 15% reduction in the workforce.
The reduction in force will impact 400 employees. Additional measures include reducing the company’s brick-and-mortar presence.
After two years of attempting a turnaround, current CEO, president, and board director, Barry McCarthy is vacating the top spot.
In an outgoing message…
By now you’ve heard or read the news that I’m stepping down as CEO of Peloton and that we’re reducing headcount again. You’ve often heard me talk about the importance of dealing with the world as it is and not as we want it to be. This is one of those moments.
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. The company had to do that in order to generate sustainable positive FCF. Achieving positive FCF makes Peloton a more attractive borrower, which is important as the company turns its attention to the necessary task of successfully refinancing its debt.
In my very first shareholder letter as Peloton’s CEO in May 2022 I outlined three priorities for the business: 1. stabilizing the cash flow 2. getting the right people in the right roles and 3. growing again. Together we’ve achieved the first two of these goals. I’m counting on you to achieve the third goal, growing again, next year.
This morning Peloton announced that it finally achieved the first goal, a remarkable accomplishment and a significant milestone. Last quarter the business produced positive free cash flow for the first time in 3 yrs. That’s a lifetime removed from where the business was two years ago.
It may seem counterintuitive to you but for me, the pursuit of FCF has been, first and foremost, about the company’s mission, and not about its financial performance.
The mission is powering Members to be the best version of themselves through connected fitness, but Peloton can’t pursue its mission if it can’t sustain its business, which is why I said two years ago that stabilizing cash flow was Job One. The headcount cuts announced today were made to ensure that Peloton is able to continue to produce FCF while continuing to invest in software, hardware and content innovations, even if revenues continue to shrink Y/Y.
Investing in hardware, software and content innovation is the lifeblood of the business, and the key to reversing the decline in revenues and restoring the company’s growth. I’ve never been more optimistic that Peloton is on the right path to achieve this objective. There have never been more green shoots or more talent in the building than we have today to complete the turnaround successfully.
You’ve often heard me speak about the importance of talent density. I believe it’s foundational to success, and I’ve done my very best to recruit a truly talented exec team to lead the turnaround. If I have one lasting legacy at Peloton, it will be this. You have a GREAT lead team, and although the stock market hasn’t recognized this yet, they will. It’s simply a matter of time.
To shareholders, I once described turnarounds as a full contact sport; intellectually challenging, emotionally draining, physically exhausting, and all consuming, the decisions never more consequential, the urgency ever present, the teamwork never more central to the mission. From where I sit today, that pretty much summarizes my experience these last two years.
A lot of blood sweat and tears have been shed to make Peloton’s turnaround possible. In town halls these last two years you’ve heard me encourage all of us to be worthy of the moment and the sacrifices made by Peloton alums to position the business for success. Dare to be great. It’s your race to win. You’ve got the talent, the resources, and the tools you need to win, and I’m counting on you to win it.
-Barry
OCTOBER 6, 2022 — 500 ADDITIONAL LAYOFFS, RESTRUCTURING COMPLETE
After multiple rounds of layoffs this year, the company announces another 500 layoffs and claims its restructuring is complete.
According to CEO Barry McCarthy, who assumed his position earlier this year, "A key aspect of Peloton’s transformation journey is optimizing efficiencies and implementing cost savings to simplify our business and achieve break-even cash flow by the end of our fiscal year. With that in mind, we have made the difficult decision to reduce our workforce by approximately 12 percent," a Peloton spokesperson told Engadget in a statement. "This will result in the reduction of approximately 500 global team members. Decisions like this are incredibly difficult, and Peloton is doing all we can to help our impacted colleagues. As we pivot to growth, today marks the completion of the vast majority of our restructuring plan we began in February 2022."
AUGUST 12, 2022 — 784 LAYOFFS
CEO Barry McCarthy has announced plans to raise prices on key products, shutter stores, and lay off hundreds of workers.
McCarthy noted, “These changes are essential if Peloton is ever going to become cash flow positive. Cash is oxygen. Oxygen is life. We simply must become self-sustaining on a cash flow basis.”
Previously, Peloton announced it will outsource manufacturing to a Taiwanese manufacturer, resulting in the layoff of about 600 employees at Tonic Fitness Technology, a company it bought in 2019 to make its equipment.
McCarthy’s staff memo…
Team
I’m writing to update all of you on Peloton’s ongoing transformation. The past few months we’ve made considerable progress on our journey. We continue to define and lead the global Connected Fitness category, even as we work to make Peloton more efficient, cost effective, innovative, and to best position ourselves for the future. Thank you for your hard work.
We have a clear strategy to drive the long-term, sustainable future of this company. Job one is generating free cash flow by right-sizing our inventory commitments and converting many of our fixed costs to variable costs because that cost structure better aligns with the seasonal revenue of our business. Second, we are also focused on innovation across our hardware and software to strengthen our Member experience. And, finally, we’re focused on growth and expanding the way consumers can experience the magic of Peloton.
We are making several additional changes to the business to improve our performance.
Maintaining our Premium Brand Positioning
For several months we’ve been running the business to maximize cash flow. In April, we lowered prices on our original Bike, Bike+ and Tread to make the entry point for new Members more accessible and to accelerate the sale of inventory to generate much needed cash flow. At the time, we were still in the early days of our $800 million restructuring plan. We were under considerable cash flow pressure, and we were in the process of (but had not yet completed) securing a $750 million bank loan.
Because of our success managing our inventory and supply chain issues, and because of the bank financing, we have the opportunity to adopt a more nuanced pricing strategy targeting “value” and Premium members alike by increasing prices on our Bike+ and Tread models – which contain distinctive, superior design elements, while keeping the price of the Bike v1 and Guide the same.
Specifically, in the U.S., our new price structure will be as follows:
Bike+ will increase by $500 to $2,495
Tread will increase by $800 to $3,495
You can see the full pricing menu for all products across all markets here.
This pricing change achieves three objectives – we maintain an attractive entry point for new Members; we continue to sell down excess Bike v1 inventory, creating a financial tailwind on investments already made; and we maintain our position as the undisputed premium brand in the Connected Fitness category.
Optimizing our Operations and Workforce
We continue to make strategic changes to our operations and workforce. Following last month’s exit from owned-manufacturing in Taiwan, we are now restructuring our final mile delivery capabilities by expanding our work with our third party logistics (3PLs) providers. As a result, we are eliminating our North American Field Ops warehouses, resulting in a significant reduction in our delivery workforce teams.
Unfortunately, this means a number of team members will be departing the company. We know changes of this nature are never easy.
The shift of our final mile delivery to 3PLs will reduce our per-product delivery cost by up to 50% and will enable us to meet our delivery commitments in the most cost-efficient way possible. I also want to highlight that we have been actively working with our 3PLs to dramatically improve the member experience, and we are seeing positive momentum in those CSAT scores. This has been a challenge. We won’t fix it overnight, but we have no choice but to make it work, so we’re leaning into it and proactively managing our 3PL relationships. We are confident in the plan we’ve put in place, and we’re encouraged by the progress we’re making.
After re-examining the resources required to provide our Members best-in-class support, we have also decided to reduce fixed costs by eliminating a significant number of roles on the in-house North America Member Support Team. In-bound Member support volume has been lower than forecasted, and like other parts of the business, we are going to expand our work with our third party partners. These expanded partnerships mean we can ensure we have the ability to scale up and down as volume fluctuates while still continuing to provide the level of service our Members have come to expect.
These are hard choices because we are impacting people’s lives. These changes are essential if Peloton is ever going to become cash flow positive. Cash is oxygen. Cash is life. We simply must become self-sustaining on a cash flow basis.
I want to take this opportunity to express my gratitude to those delivery team and Member support colleagues who have been impacted by this decision.
Investing in Talent to Innovate and Grow
In the past you have heard me say we cannot cost cut our way to success. We have to make our revenues stop shrinking and start growing again. We do that with investments in marketing and R&D to drive innovative products. We must also develop new features and functionality for existing CF platforms that delight Members and drive word-of-mouth which drives organic growth. And, we double-down on our existing strengths, particularly our world-class, Instructor-led content that motivates and inspires Members daily.
While we’re reducing our workforce in certain areas of the business, we continue to fill roles on key teams to drive the business forward. This includes further commitment to recruiting top talent in key areas of need such as our software engineering team. I share this so you won’t think we’re driving with our foot on the gas and the brake at the same time. Success is about making the right investments to drive growth while managing to a cost structure the business can afford.
I’ve also long believed hands-on, shoulder-to-shoulder collaboration is essential for fast, efficient teamwork and innovation. To that end, we’ll be asking all office-based employees to return to their office three days per week starting on Tuesday, September 6th. We know some of you will need more time to sort out related details, and we are asking that you do so, working with your manager, with a deadline of Monday, November 14th for all of us to be back in the office (if your PeloTeam designation is office-based) every Tuesday, Wednesday, and Thursday. You also are welcome to come in more often, if you’d like, and take full advantage of the office amenities and gym.
As of November 14th, return to office for office-based workers (not you if you were hired to be remote) will be mandatory. There are many successful businesses, like Airbnb and Spotify, who have chosen to operate remotely. There are also many successful companies who have opted to collaborate in the office in person, like Nike and Google. The culture you choose to work in should be compatible with your personal preference. For those of you who don’t want to return to the office, we respect your choice. We hope you will choose to stay, but we understand not everyone will.
Balancing e-Commerce and Retail
Lastly, we need to rebalance our e-Commerce and retail mix to drive efficiencies, which means we will reduce our retail presence across North America. This decision will result in a significant and aggressive reduction of Peloton’s retail footprint. Data tells us that in a post-COVID economy, consumers want a mix of virtual and in-person engagement with the brands they love, meaning a hybrid model of e-commerce as well as limited physical retail touchpoints. We have to meet our prospective Members where they are.
We will provide future updates on which retail operations will be impacted by this decision in the coming months. We do not anticipate closing retail locations in calendar 2022, but the timing is uncertain as we begin negotiations to exit our store leases.
Forward Focus
In closing, I want to reiterate that I know some of this news is difficult to hear as it has a real impact on people’s lives who believe in the mission and our ability to manage the business for success.
Today’s news reminds us it was never more important that we be successful in managing our turnaround. That’s the reason we’re making the hard choices to shift our cost structure from fixed to variable and to right size our spending in retail stores. As we face economic uncertainty in the global macroeconomic outlook, we will continue to analyze our workforce and expenditures. Change is constant, and we need to embrace it and make it one of our super powers.
Overall, I continue to be optimistic about the future of Peloton. That doesn’t mean there won’t be challenges ahead. There will be, and there will be unforeseen setbacks. That’s the nature of turnarounds. But I’m confident we can overcome the challenges because we’ve come so far in just the last four months, which feeds my optimism about our ability to engineer our long-term success. No one’s gonna give it to us, least of all our competitors. We’re going to have to step up and make it happen. The future of connected fitness is Peloton’s to own.
Me to you. You to me. You to each other. And all of us to our members.
-Barry
This is only the beginning.
FEBRUARY 8, 2022 — EMPLOYEE RED FLAGS
John Foley announced he will step down as CEO of the company he founded in 2012 and become Peloton's executive chair. Barry McCarthy, the former CFO of Spotify and Netflix, will replace him.
[Cost-cutting and reductions in headcount follow the replacement of a CEO like night follows the day.]
The company will also lay off 2,800 employees, or roughly 20% of its workforce, as part of cost-cutting measures amid slowing demand for at-home fitness products like the company's connected bike and treadmill.
It appears that the company is for sale and two interested parties are said to be Amazon and Nike.
JANUARY 25, 2022 — Original post…
New York, New York-based Peloton Interactive, an exercise equipment, apparel, and media company specializing in internet-connected stationary bicycles and treadmills, has hired a major consultancy company, to conduct a strategic review of the company's operation.
According to published reports, the company is considering store closings and a major layoff including 15 of its 123 showrooms in the U.S., Canada, the United Kingdom, and Germany as well as possibly cutting jobs at its apparel division.
Other reports are more dire...
"Peloton's top executives discussed plans to lay off 41% of the sales and marketing teams, with more minor cuts coming to the e-commerce and retail teams. The company has hired consulting firm McKinsey to help swing the ax"
“Last week, Foley broke from a pre-earnings ‘quiet period’ to address some of the reports that have swirled around the company, calling news that it was halting all production false. He did, however, confirm that adjustments to production and headcount were seemingly inevitable.
“In the past, we’ve said layoffs would be the absolute last lever we would ever hope to pull,” the executive wrote. “However, we now need to evaluate our organization structure and size of our team, with the utmost care and compassion. And we are still in the process of considering all options as part of our efforts to make our business more flexible.”
The company has been beset by bad news involving the company's exercise treadmills that resulted in the injury of young children, with one death.
An activist investor: the breath of life or the kiss of death?
Activist investor Blackwells Capital has sent a letter to the company…
We believe the pandemic offered Peloton a tremendous and unexpected opportunity to accelerate consumer adoption of its category-defining products and drive performance of the business and value for shareholders. With the stock now trading below the IPO price, and down more than 80% from its high, it is clear that the Company, the executives and the Board have squandered this opportunity.
Remarkably, the Company is on worse footing today than it was prior to the pandemic, with high fixed costs, excessive inventory, a listless strategy, dispirited employees and thousands of disgruntled shareholders. And no wonder, the latter, given that Peloton underperformed every other company in the Nasdaq 100 over the last twelve months.
We recognize that Mr. Foley undoubtedly regards Peloton as ‘his’ company and you, the Company’s directors, as ‘his’ Board,” He has outsized influence and outsized voting power by virtue of his status as founder. Perhaps some of you – friends with Mr. Foley for many years – feel obligated to do as he wishes. But the law and equity markets expect more. You are not here to preserve Mr. Foley’s dignity or his pride. Your role, as directors, is not to protect him from embarrassment or to shield him from blame.”
The ride for Mr. Foley is over. This Board must now independently chart a new path for Peloton.
Change is coming. There will always be a tomorrow, no matter how much you may try to ignore it. There are no guarantees in life or promises for a bright future. Just because something bad hasn't happened yet, doesn't mean it won't. It can happen to anyone, anytime, anywhere. No one is guaranteed to wake up tomorrow and still have a job by evening. Are you now wondering, Am I Next?