Peloton Interactive
"We are thrilled to be expanding our partnership with Rexon, a leading Taiwanese manufacturer with over 50 years of experience," Peloton's Chief Supply Chain Officer Andy Rendich said. "Rexon has been with Peloton for many years and is a proven partner for our global operations. We plan to maintain a significant corporate and manufacturing presence in Taiwan with over 100 Peloton Taiwan team members who continue to play a key role in our engineering and manufacturing strategy."
As part of that transition, Peloton announced that it would be suspending operations at Tonic Fitness Technology, a Taiwanese manufacturing company the company bought in 2019. The company has not disclosed what will become of its Tonic assets or how it plans to recoup its investment, nor has it addressed the fate of its other manufacturing subsidiary Precor, which was acquired in 2020.
The COVID-19 pandemic was initially a boon for Peloton, which benefitted immensely from consumers turning to at-home fitness products during country-wide lockdowns. The company expanded its production capacity rapidly as it struggled to keep pace with orders but didn't take any steps to wind down its investments as consumers began to return to gyms and exercising outdoors. By the beginning of 2022, Peloton had begun considering restructuring, and hired McKinsey to help it review its options.
Despite trying to wave away rumors of a manufacturing halt in January, internal documents leaked to media outlets showed that the company had stopped manufacturing to help reduce costs. The company's co-founder and then-CEO John Foley would leave the company in February, taking 20% of corporate staff with him as Peloton laid off workers to further reduce costs. By May, new CEO Barry McCarthy warned that the company was "thinly capitalized" and still had a considerable unsold inventory.
It's a little difficult to tell if taking manufacturing out of house will be all that much of a boon for a company that not only faces declining consumer demand for its products but rising inflation and slowing consumer spending. Additionally, Peloton is still on the hook for the costs of maintaining its mothballed production facilities, and other liabilities tied to them such as leases. With no current sign that Peloton is considering selling its unused assets, there doesn't seem to be much hope for investors that the company will recoup its manufacturing investments anytime soon.
Peloton's focus on fixing its cost structure, as McCarthy mentioned, still seems to be a way for the company to regain some of its lost attention. The company is currently testing a model that allows consumers to pay a flat rate to rent a Peloton bike and receive access to on-demand classes, which could help it attracted frugal consumers facing rising inflation.
Peloton shares started the week with a plunge, sliding 11.4% on Monday. Shares recovered slightly on Tuesday on news of manufacturing being taken out of house, rising 3.7%. Peloton's stock slipped back into the red on Wednesday though, sliding 4.1% by noon.
