Peloton gears up to hike prices, lay off 800 employees, and shutter stores

Photo by Amelia Holowaty Krales / The Verge

When Barry McCarthy took over as CEO of Peloton, the company lay off 2,800 employees. McCarthy sent out a memo to staffers telling them the company plans to eliminate an additional 784 jobs. The price of the Bike Plus and Tread will be increased by Peloton.

The news was confirmed in a statement by the spokesman for Peloton.

“Peloton, today, took several steps to further advance our transformation strategy, better positioning the company for long term success as the largest, global Connected Fitness company. The moves we made include, the implementation of more strategic pricing; the elimination of our North America final mile distribution network and expansion of our third-party logistics (3PL) partnerships; the reduction of our North America Member Support team; and the signal of our intent to significantly reduce our North America retail footprint. Unfortunately, these workforce shifts result in the departure of 784 employees from the company. Any decision we make that impacts team members is not taken lightly, but these moves enable Peloton to become more efficient, cost-effective, and agile as we continue to define and lead the global Connected Fitness category.”

Following a disastrous year, the staffing reductions and plans to close retail showrooms are part of a strict restructuring plan. More than 500 jobs were cut in Taiwan last month as part of a move to reduce in-house manufacturing. Plans for a $400 million factory in Ohio were put on hold. McCarthy said that the company is looking to fill roles on its software engineering team even though it is cutting jobs on its delivery and customer support teams. McCarthy said that the company will reduce its retail footprint next year because of plans to expand e- commerce.

During the Q3 earnings in May, there was a hint of today's news. McCarthy explored third-party retailer partnerships as well as eliminating the need for white-glove delivery for its bikes and treadmills at the time.

Photo by Amelia Holowaty Krales / The Verge

Consumers will be hit the hardest by price hikes. The prices of the original Bike, Bike Plus, and Tread were lowered in April. The Bike Plus will return to its original price of $2,495. The initial launch price was $2,495, but it was later increased to $2,745. The more affordable of the two treadmills was originally thought to be the Tread. Several injuries and the death of a young child were caused by the Tread Plus. The price of the bike and guide will not change.

McCarthy admitted in the memo that the pricing hikes are a reversal of strategy. McCarthy said that the company has been able to manage its inventory and supply chain problems. The hikes are meant to boost the Bike Plus and Tread's "premium" image.

Efforts to restore Peloton's cash flow include layoffs and price hikes. McCarthy stated in a shareholder letter that the company needed to strengthen its balance sheet because it was thinly capitalized. McCarthy wrote that the changes are necessary if Peloton is ever going to be cash flow positive. It's cash that's oxygen. It's life if you have oxygen. We must become self-sufficient.

Photo by Victoria Song / The Verge

The money saved in today's measures will be used for further research and development as well as marketing. McCarthy proposed a plan last quarter. He said that Peloton had barely spent any money on marketing. An ad for the app features actor Christopher Meloni exercising in the nude. McCarthy is adamant about reframing the brand as a connected fitness brand rather than a bike company. The company is planning to build an app store and change its subscription model. A recent pilot program was implemented by McCarthy's.

In his first six months, investors haven't seemed too convinced by Peloton's restructuring plans Over the past year, the stock of the company has nosedived. The shares rose 8.2 percent in response to today's news. The Q4 earnings of Peloton will be released later this month, which could give a better idea of how McCarthy's restructuring strategies have performed.