Place strategy

Peloton’s new strategy spins all over the place

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So neither Nike Inc. nor Inc. stepped in to buy Peloton Interactive Inc. after all.

The winner-turned-loser of the pandemic must face an independent future and change their strategy accordingly. Yet the plan laid out Friday by new CEO Barry McCarthy is spinning in confusing directions.

Peloton is trying to reaffirm its position as a luxury brand, thanks to price increases in the United States for its flagship bicycle and treadmill products. Bike+ will increase by $500 to $2,495, while the cost of a tread will increase by $800 to $3,495.

This is the right approach, as Peloton is a premium name and should be priced accordingly. But the increases come after the company cut prices in April. McCarthy told Bloomberg News last week he wouldn’t have “bothered” them if it weren’t for the glut of inventory weighing on the company’s financial strength. As McCarthy acknowledged, price cuts have devalued brand perception.

The problem is that it will be difficult to convince customers to pay hundreds of dollars more for a product that was previously on sale. The rise also comes as Americans feel pressure from inflation and higher borrowing costs. Big purchases, like a $2,500 exercise bike, are often among the first to be abandoned when consumers tighten their purse strings.

Although Peloton customers may be better off than the average shopper, there are some early indications that inflation is changing buying behavior more than poorer households. For example, Citi’s proprietary data on US credit cards showed a slowdown in the number of luxury transactions, indicating more volatile demand from younger high-end spenders.

And there are other elements of Peloton’s strategy that will prove difficult. As the company seeks to strengthen its position as a luxury home, it is also changing its delivery and customer service offerings, resulting in the loss of nearly 800 jobs.

In a memo to staff, McCarthy said moving away from in-house teams altogether and towards more third-party vendors would reduce delivery costs per product by up to 50%. But some customers have already complained that the service isn’t as good. Peloton needs to address this issue quickly if it wants to increase its value proposition. He must also not let slip the support service he offers to demanding customers.

Starting next year, Peloton will close many of its 86 North American stores as it embarks on a “significant and aggressive reduction” in locations. While this reduces some costs – the company has chosen to open many showrooms in expensive malls alongside other high-end retailers – the closure of these outposts could also weigh on high positioning. of the company’s range. Nothing is more “old fashioned” than the “we’re closing” sign on a storefront.

The move also means there will be fewer Peloton bikes to see and try in physical locations — something I argued is needed to win and retain customers as Americans return to gyms. Of note, rival Lululemon Athletica Inc. is using its stores to promote Mirror, its home fitness product.

McCarthy may be able to revisit physical locations once he stabilizes Peloton and reduces cash outflows. For example, he could trade more small stores for fewer, larger locations that combine retail and workout space.

Shares of Peloton, which have lost 90% of their value since January 2021, rose 14% on Friday, so investors are giving the CEO the benefit of the doubt.

But for now, striking the delicate balance between stemming cash burn and maintaining Peloton’s luxury positioning feels like a tough climb.

More other writers at Bloomberg Opinion:

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• Facebook is doing something good for a change: Parmy Olson

• A Supply Hike So Small It Makes No Sense: Elements of Julian Lee

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

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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