Peloton cuts jobs and raises prices

It’s part of a major cost-cutting strategy as the beleaguered fitness company continues to make changes under new CEO Barry McCarthy.
Peloton is laying off nearly 800 employees, McCarthy said in a memo first reported by Bloomberg. It’s part of an effort to “become more efficient, cost-effective and agile,” Peloton said in a statement to CNN Business.

The company will also increase prices by $500 for its Bike+, bringing it back to $2,495, where it was before a price drop in April. And the Peloton’s Tread treadmill is up $800, bringing its new price to $3,495.

“We need to get our income to stop declining and start growing again,” McCarthy wrote. “Money is oxygen. Oxygen is life.”

Other changes include “a significant reduction[ing]“86 retail stores in North America, as well as outsourcing delivery – which is currently performed by Peloton employees – and customer service to third parties.

As people return to gyms, Peloton has struggled to sustain its electric growth since the early days of the pandemic. Sales of bicycles and subscriptions have stagnated. The company has too much inventory and demand is falling.

McCarthy has an uphill climb

McCarthy, a former senior technology executive, joined the company in February and was tasked with a difficult turnaround.

Peloton had said in May that it had only $879 million in cash in the bank at the end of the quarter, which left it “thinly capitalized,” McCarthy noted in its memo. This forced the company to borrow $750 million over five years on Wall Street to maintain operations.

In an analyst note, GlobalData chief executive Neil Saunders said the changes are “a continuation of the company trying to resize itself after grossly overestimating post-pandemic demand for its products.”

“While Peloton has already taken corrective action, its losses are spiraling out of control and a course correction is desperately needed to stabilize the balance sheet and restore investor confidence,” Saunders wrote.

Employees who will be impacted by the layoff element of this strategy include its customer support team, warehouse employees, and personnel who perform delivery and installation. After Friday’s layoffs are completed, Peloton will have about 5,000 employees.

The memo arrives a month later Platoon (PTON) announced that it would stop making its own gear and outsource it to a Taiwanese manufacturer, a significant change. That move alone resulted in the layoff of around 600 employees at Tonic Fitness Technology, a company she bought in 2019 to manufacture her equipment.

Peloton shares were up nearly 10% in afternoon trading on the news. The stock is down about 90% from the all-time high it hit at the end of 2020.

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