Peloton (PTON, $9.25) has discovered that outsourcing can be a smart business strategy too. I mean there's something cathartic about a fitness company realising that it's just too much hassle to do it yourself. Peloton, the lockdown darling, has announced that it will cease all in-house production of its bikes and treadmills and move manufacturing to partners in an effort to simplify its operations and reduce costs.
The decision is a part of a wider move, which sees Peloton expand its relationship with Rexon Industrial – who will become the primary manufacturing partner for the brand. This also calls the curtain on its Tonic Fitness Technology unit, a Taiwan-based firm bought by Peloton in 2019, an estimated 570 jobs are set to be cut. Shares of Peloton, which have lost about three-fourths of their value this year, were up 2.8% at $9.17 in afternoon trade. The company, under new chief executive Barry McCarthy, has moved to cut costs and shore up capital this year after demand for its popular home equipment dropped as people went back to working out at gyms.
McCarthy added that this was “another significant step in simplifying our supply chain and variablizing our cost structure — a key priority for us. We believe that this, along with other initiatives, will enable us to continue reducing the cash burden on the business and increase our flexibility.”
Why it matters
Peloton has struggled to maintain the traction it achieved during the pandemic in the past several months, including a string of injuries using its equipment and episodes of popular shows depicting injuries and deaths by Peloton users. It has about 7 million members today, per the release. The company’s financials was on thin ice with unsold inventory and mounting costs leading to a heavy loss last quarter. However, a five-year $750 million debt agreement with J.P. Morgan and Goldman Sachs has soothed some investor concerns.
