As losses mount, Peloton lays out a new way to grow memberships

In the letter to shareholders released alongside today’s presentation, McCarthy announced his intentions to grow Peloton membership to 100 million, far from the brand’s current seven million members. “That’s equivalent to roughly half the world’s global gym memberships,” said McCarthy. “It’s a long, long way from where we sit today.”

Essentially, Peloton’s plan to reinvigorate growth is to decouple its online fitness videos with its bike and treadmill products and charge more for the video workout service alone. In April, all-access membership rose from $39 a month to $44 a month in the U.S.

“There absolutely are members who want to own the bike outright and we’re delighted to sell it to them,” said McCarthy. “And then there’s others for whom that cost of entry poses a barrier.” Peloton’s online fitness videos can instead be those customers entry point to the brand with live and on-demand classes for boxing, running, yoga and strength. App membership alone costs $12.99 a month.

However, while overall membership grew 29% year-over-year in the fiscal third quarter, average monthly workouts from connected consumers were down 28%. Neil Saunders, managing director of GlobalData, pointed out that while membership is growing, that growth is slowing.

“Membership growth is slowing for a number of reasons,” Saunders said over email. “People are returning to gyms after pandemic lockdowns, there are a lot of competing platforms, on the subscription side people are more reluctant to spend money, and Peloton has picked a lot of the low hanging fruit and it is now having to work harder to win-over new consumers.”

Another tool the brand has used to address a high barrier to entry is simply lowering that barrier. In April, Peloton announced it was lowering the cost of both its bike and treadmill products by $150 to $350 — putting them in the range between $1,400 to $3,000.

“I’ve seen a significant increase in total revenue as a result of the price decrease,” said McCarthy. “It’s abundantly clear that the business was better served as a result of the reduction.”

In 2019, Modern Retail reported the challenges Peloton was facing in its positioning as a luxury brand: namely maintaining cult status while finding new customers while fending off competitors like Mirror, Echelon and Tonal. In many ways, the fitness brand still faces these same problems. Lower-priced competitors like Lululemon’s Mirror or Echelon — which start at $1,495 and $900, respectively — are also ramping up investment in customer acquisition.

But if Peloton lowers its prices on its core products, its threatens to become a low-profit company with less prestige. “The perception that people have with Peloton, is the perception that people have with Apple.” Jono Bacon, a brand community and collaboration consultant, earlier told Modern Retail. “Apple is a luxury product. People seek it out for the luster and services tied to it.”

Another focus for Peloton is on growing its other sales channels. In the earnings call, McCarthy was hesitant to give many details about how Peloton would be embracing third-party retail, only reconfirming his intent to move the brand from a strict direct-to-consumer and owned showroom strategy.

“We’re in discussions with several potential retail partners now,” said McCarthy. “I would say that it’s still  early enough for us have a sense for what some of the cost-benefit trade-offs might be, but.. [there’s] no reason particularly to think that any deals that we were able to negotiate would be different than anybody else who distributes hardware through third-party retailers.”

In Peloton’s letter to shareholders, this pivot to third-party was listed in a series of initiatives that will be rolled out “in the months ahead,” according to the company.

As digital marketing costs rise amid iOS14 privacy changes, Peloton isn’t the only fitness company moving beyond DTC. Tonal, for example, invested in shop-in-shops in department store Nordstrom. Lululemon, meanwhile, features Mirror workout technology in many of its store floors.

Saunders praised the third-party strategy, but explained it likely wouldn’t be a magic bullet.

“There is a path [towards turnaround], but it is a narrow one,” said Saunders. “Peloton has to simultaneously cut costs and boost memberships and subscriptions. That is not an easy balancing act, especially when there are so many competing offers around. It also has to retain existing customers which, again, is a hard ask that may involve incremental expenditure.”