Peloton Interactive will be testing a small-format "micro" concept for its showrooms, even as it closes some of its larger brick-and-mortar locations while trying to formulate the best retail strategy for the company.
The New York-based maker of high-end stationary exercise bicycles and treadmills discussed its plans for its physical locations, which serve as combined showrooms and stores, when it released its first-quarter fiscal 2025 earnings Thursday. Peloton also announced it had tapped Peter Stern, the 52-year-old co-founder of Apple Fitness+, as its new president and CEO effective Jan. 1.
Peloton has been trying to map out a route to profitability and sales in the wake of its financial slump following the pandemic. Its bike sales and subscription fees for online classes spiked when Americans, homebound because of COVID, signed up for memberships. But the tide turned for Peloton when people could return to their reopened gyms. The company has been trying to mount a turnaround after naming a new CEO in February 2022 — who stepped down earlier this year — finding new channels to sell its bikes, doing several rounds of layoffs, selling a Ohio factory it never occupied and closing some stores, which are typically located in malls.
"In Q1, we continued our efforts to close underperforming first-party retail stores," Karen Boone, interim Peloton co-CEO, said during the earnings call. "Next month, we will test a re-imagined smaller store concept in Nashville, Tennessee, to evaluate a more cost-efficient retail model."
The pilot small-format location is slated to open Friday at The Mall at Green Hills in Nashville, according to Peloton's website. It lists 28 showroom-stores, including the new one in Nashville, in 15 states, and five in Canada. At the peak, Peloton had 70 to 80 stores. With its experiment, Peloton will be joining a host of chains — including Macy's, Bloomingdale's and Kohl's — that have debuted small-format stores to reduce the cost of expanding their footprints.
The company has also struck deals to sell its bikes through third parties, including Amazon and Dick's Sporting Goods, and most recently at Costco.
Trying a compromise
"The smaller store plan sounds like a compromise," Neil Saunders, a retail analyst and managing director at analytics firm GlobalData, said in an email to CoStar News. "Peloton is caught between the devil and the deep blue sea on stores. Most of its larger stores don’t work economically because they’re expensive to run and don’t drive enough revenue from what remains a very limited proposition. However, without a physical presence, Peloton’s visibility and awareness suffers, which can also have a negative impact. They need to find the sweep spot, and a smaller store might do the trick. But so too does showcasing the offer in third-party retailers like Dick’s and on Amazon. The mix of these two approaches will be tested over the next couple of years."
Peloton didn't immediately respond to an email from CoStar News seeking comment on its retail test and on Saunders' remarks.
But Boone was asked for more details on Peloton's pilot and brick-and-mortar strategy, and whether people are more willing to buy a bike after seeing it in-person at a store, during the earnings call's question-and-answer session.
"So on retail in general, I'd say we are still on the path to close some of the underperforming retail stores," Boone said. "We will have them this holiday season. So the team has put together some really thoughtful activations in a subset of those stores to bring instructors and magic and excitement to them to make sure ... they're still representing the brand well and we can engage with our members and new customers and have some excitement around those spaces."
In addition, Peloton will kick off testing the "smaller micro store concept in Nashville," according to Boone.
"So it's a way to do it [stores] in a lower capital, lower payroll, lower square footage [way,] but still have a business presence," she said. "It's also the reason why we are exploring additional 3P [third party] locations like Costco. We're hoping that reaches an incremental audience."
Stern's track record
In the first quarter, Peloton took a $7.8 million impairment and restructuring expense, with $4.9 million of it non-cash charges primarily related to asset write-downs in relation to exiting retail showrooms.
In May, Barry McCarthy, a former Netflix executive, left Peloton after about two years as the company's CEO. His replacement Stern will be exiting his current post as president of Ford Integrated Services, where he is responsible for a portfolio of subscription services that includes BlueCruise, Pro Intelligence, connectivity and security, and leads the company’s digital product team.
Prior to joining Ford, Stern spent more than six years as vice president of services at Apple, where he managed the businesses of Apple TV+ and Sports, iCloud, Apple News, Apple Books, Apple Arcade, Apple Fitness+ and Apple One. He also led marketing for Apple services, including the App Store, Apple Card, Apple Pay, Apple Music, Apple Podcasts and Apple Maps. Before joining Apple in 2016, Stern was executive vice president and chief product, people and strategy officer at Time Warner Cable.
Peloton significantly cut its net loss in the first quarter, to nearly $1 million compared with $159.3 million in the prior-year period. Total revenue was $586 million, down from $595.5 million a year ago.