Peloton Taps Brakes to Fix Delivery Woes

Date: Tuesday, February 9, 2021
Source: Wall Street Journal

Peloton Interactive Inc. PTON -8.05% said it would delay the U.S. launch of a much-anticipated new treadmill and start shipping exercise equipment by air in an effort to ease extreme delivery delays on its connected exercise gear.

The company has cut back marketing and doubled the size of its customer-service operation to address monthslong wait times and delivery cancellations that have legions of would-be customers railing against Peloton on social media. It said it expects delivery times to return to normal by the end of June.

“We are going to do everything we can to get back on the right side with our new customers,” Chief Executive John Foley said Thursday.

Since last fall, Peloton has acknowledged logistics problems in keeping up with demand for its bikes, which start at $1,895 and are equipped with a screen that shows subscription workout classes. The nine-year-old company has cited surging demand, shipping logjams, particularly at ports as the bikes are transported to the U.S. from manufacturers overseas, and weather disruptions. The pressures haven’t let up as demand continues to surge from people wanting to exercise at home amid Covid-19.

Peloton’s rapid ascent continues despite the shipping woes.

The company said Thursday that sales more than doubled in the most recent period, while subscriptions to its online workout classes grew by 134%. Peloton turned a profit for the third straight quarter, reporting net income of $63.6 million, compared with a loss of $55.4 million a year ago.

Peloton again raised its sales forecast for the fiscal year ending June 30 and now projects revenue of $4.1 billion, more than double the previous fiscal year. The company said it would spend $100 million in the first half of the year on airfreight and expedited ocean freights in an effort to improve delivery times.

It isn’t clear what percentage of Peloton orders are affected by delays. Some 10,000 people have joined a Facebook group devoted entirely to the problems, while the Better Business Bureau has registered more than 1,100 complaints about the company in the past year. A common gripe in social-media posts and BBB complaints: Customers get a delivery date that is weeks or months away, only to have their delivery canceled within hours of the expected arrival. Rescheduled dates can be months out.

Another complaint is that customers who finance a Peloton are making payments, sometimes for months, before receiving their bike.

“They are taking our money, not delivering a bike and then continuing to sell and deliver new bikes to new customers,” said Laurie Donnelly, who canceled her order after hers was delayed at the last minute and the new date was months out. She grew angry seeing accounts on social media of people receiving bikes in much shorter windows, and by differing explanations given by the company for the delay.

Peloton said it provides full refunds to anyone who wants one.

“Unfortunately, there are a number of port and pandemic-related issues out of our control that can impact our delivery schedule, and we are doing our best to get affected customers new delivery dates as quickly as possible,” a Peloton spokeswoman said before Thursday’s earnings.

She said the company “enables customers in most areas to schedule a convenient delivery date and time window,” adding that inventory as well as delivery issues can lead to delays.

BMO analyst Simeon Siegel said Peloton could see an end to its ability to thrive amid such logistics turmoil. “Before Covid, there were no large competitors that were largely funded, now there are more rivals that have raised meaningful amounts of capital,” he said.

Manufacturers in many industries have suffered production and delivery problems during the pandemic, and Mr. Siegel said a year in, consumers are far more tolerant of long wait times for coveted products. “It’s one thing to not have the units, but to have such a mismatch on deliveries is what’s triggering so much of the frustration,” he said. “It’s a classic indication of a company that grew quicker than its infrastructure.”

Peloton in December agreed to acquire commercial fitness-equipment provider Precor Inc., which will give the company additional U.S. manufacturing capacity. Peloton said Thursday that even without Precor, it has six times more capacity than it did a year ago.

Amie Stier started digging into Peloton’s shipping woes last fall mainly as a way to lock down a delivery date on her long-delayed bike.

Four months later, Ms. Stier, a 37-year-old former oil-industry project coordinator, has helped organize disgruntled would-be Peloton owners while amassing a database of delivery delays that has attracted Wall Street’s attention.

“They’ve got a great thing to offer, but I don’t appreciate how they’re treating a good chunk of their members,” said Ms. Stier, of Bellingham, Wash. She sold her bike after receiving it, she said, disappointed by the quality and overall experience with the company. She then bought another brand.

In December, Ms. Stier started surveying people on the Peloton delivery Facebook page and crunching the numbers using a Google data-gathering tool, to both track down patterns and convince Peloton executives that they had a serious problem.

She recently presented her findings to an investor group hosted by a stock analyst who follows the company.

“I started this out of frustration,” she said. “Now I’m doing it more to answer my own questions.”


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