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Peloton’s luxe veneer is fading fast as it seeks to find more customers.
Why it matters: The tradeoff is the result of a self-imposed makeover amid a huge turnaround strategy that began in February.
Driving the news: Shares of the company plummeted over 18% Thursday as investors digested its latest earnings report, which reflected a sixth consecutive period of losses — and losses that were wider than expected.
- But the reality of its makeover hit Wednesday, when Peloton announced it would start selling some of its equipment and accessories through Amazon in an effort to grow sales.
State of play: Peloton, which has focused on a high-income consumer from the start, has to sell as many products as possible to claw back to profitability.
- Doing so through Amazon is an “obvious” choice given its size, Thomaï Serdari, director of the fashion and luxury MBA at NYU Stern, tells Axios.
- “But it also means that now Peloton is a mass market good.”
On this morning’s earnings call, CEO Barry McCarthy described the company’s “good, better, best strategy [which] targets not only the premium segment of the market, but the value segment of the market.”
- “I’d love to sell all of our connected fitness platforms on Amazon,” he said.
By the numbers: Peloton’s $1.2 billion loss in the three-month period ending in June was nearly four times its losses from a year ago — and included $415 million in restructuring charges, the company reported Thursday.
- Total revenue fell 28% from last year to $678.7 million, while active members fell as well by around 100,000 from the previous quarter, to 6.9 million.
- Two years ago over the same period, revenue reached $607.1 million, a 172% year-over-year growth rate.
The bigger picture: In just the past six months, Peloton has replaced its CEO, laid off more than 3,000 people and raised prices for its products.
- Former CEO John Foley acknowledged the company overspent on operations based on a bet that Peloton’s popularity would last longer than it did.
Flashback: Peloton’s first pop-up store was located in a luxury mall in New Jersey staffed by “two 24-year-old guys [hired] out of Abercrombie & Fitch.” It’s partnered with premium hotel gyms and offered in-home white glove delivery service.
Reality check: This kind of premium to mass-market life cycle is common, says Serdari.
- Be smart: Tiffany & Co has had to toe the line — for decades — between appealing to more consumers for growth, while maintaining its prestigious image.
- Designers have leaned into the concept of “masstige” — mass-produced goods marketed as aspirational — including Vera Wang (see: Kohl’s) and Michael Kors (see: department stores).
Yes, but: Maintaining prestige or “masstige” as a technology company has its own hurdles.
- Gadgets can be commoditized. They age and can be quickly replaced by something new.
- “That is the weak spot of technology when they compete in the premium or luxury market,” Serdari says.
What to watch: Peloton needs to get to breakeven cash flow and “it’s not enough to just cut expenses, we have to grow revenue,” said McCarthy.
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