US-based fitness company Peloton Interactive, which recorded a meteoric rise in its sales and subscribers during the peak of the pandemic in 2020, is going through a rough patch. The company's CEO is being replaced, it is laying off employees, checking its expansion plans, and there are reports of the business being sold off.

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To understand how the company rose to heights but came down crashing within a few months, let's reset the clock.

Crest and trough

In 2012, John Foley founded Peloton Interactive. Headquartered in New York, the company sells internet-connected treadmills and stationary bicycles. These exercise equipment have screens on which Peloton subscribers can watch a gym class while working out. Basically, Peloton products help you work out and access a training session as well, perfectly suiting the needs of those who want to exercise but don't have the time or will to hit a gym. Expectantly, Peloton's business grew during the COVID-19 lockdown in 2020 when people were confined to their homes, and awareness regarding health issues climbed sky-high.

However, the surge in demand for Peloton products during the period caught the company officials by surprise. The supply chain found it difficult to keep up with the dramatic rise in demand. In view of the delays in delivery, Peloton spent millions to better its logistics management. The company also spent $420 million to acquire Precor, one of the world’s largest commercial fitness equipment makers. Besides, Peloton invested another $400 million to set up a factory in Ohio.

To Peloton's disappointment, this sharp rise in demand was short-lived. As restrictions were lifted and gyms reopened, the demand for Peloton products dropped. Additionally, several cases of children suffering injuries while using Peloton products surfaced around the same time. In one case, the child succumbed to injuries. This led to a lot of negative press for the company. Instead of active damage control, the company's response was "tepid".

As if all this was not enough, Peloton was left red-faced when Sex and the City-fame actor Christopher Noth, who shot a viral ad for the company, got embroiled in a sex scandal. Two women accused Noth of sexual assault. After facing much heat, Peloton issued a statement saying that it won't promote the videos featuring Noth until it “learns more” about the accusations.

The brand suffered another blow when two drama shows -- "And Just Like That..." and "Billions" -- showed Peloton in a bad light, with characters having a heart attack while riding the company's stationary bike.

The aftermath

Peloton’s market cap plummeted from a pandemic peak of around $50 billion to around $8 billion last week. To cut its input cost, Peloton is forced to lay off 2,800 employees, i.e 20 percent of its workforce. It is also winding down the $400-million factory it was building in Ohio. Other cost-cutting measures include a reduction in delivery teams and warehouse space. Going by an estimate, these measures will help the company save nearly $1 billion this year.

According to media reports, companies like Amazon, Nike, Disney, and Apple, among others, are eyeing to acquire Peloton. Fearing low returns, Peloton investors have been expressing their disapproval of the potential sale.

Amid all this, Peloton co-founder John Foley is being replaced as CEO by Barry McCarthy, the former CFO of both Spotify and Netflix. In a recent interview with the Wall Street Journal, Foley, who will now become the executive chair of Peloton, said, "I have always thought there has to be a better CEO for Peloton than me... Barry is more perfectly suited than anybody I could’ve imagined."

On being asked about Peloton's rumoured sale, Foley, who holds an 80 percent stake in the company, said, "We are open to exploring any opportunity that could create value for Peloton shareholders."

According to observers, the cost-cutting measures taken by Peloton will show results by the second half of 2022 but investors are left with little patience and they want their piece of the pie. While there's a consensus that Peloton, which has a loyal user base, has the potential to emerge from this crisis, it remains to be seen if the brand would be able to come out of the tunnel independently. If not, Peloton's acquisition by a bigger company would just be a matter of time.

(Edited by : Thomas Abraham)