Peloton told employees Friday that it is slashing roughly 780 jobs, closing a significant number of its retail stores and hiking prices on some equipment in a bid to cut costs and become profitable.
The company did not specify how many of its 86 retail locations it plans to shutter, but said an “aggressive” reduction will begin in 2023. The pace of closures will depend on how quickly Peloton can negotiate getting out of leases.
Peloton said it will exit last-mile logistics by closing its remaining warehouses and shift delivery work to third-party providers, resulting in a portion of the job cuts. It is also cutting a number of positions in its in-house support team, which are mainly located in Tempe, Arizona, and Plano, Texas, and instead will rely on third parties.
The sweeping changes are part of recently installed Chief Executive Officer Barry McCarthy’s plan to steer the connected fitness equipment maker in a new direction. Peloton’s business boomed to unthinkable highs after the onset of the Covid pandemic, sending shares surging alongside other so-called stay-at-home stocks like Zoom. But under then-CEO and Peloton founder John Foley, demand began to slow almost as quickly as it shot up, as people started going out again.
McCarthy’s biggest tasks now include getting rid of fixed costs and finding more ways to cash in on its loyal base of customers.
“The shift of our final mile delivery to 3PLs will reduce our per-product delivery costs by up to 50% and will enable us to meet our delivery commitments in the most cost-efficient way possible,” McCarthy wrote in a memo to employees seen by CNBC.
“These expanded partnerships mean we can ensure we have the ability to scale up and down as volume fluctuates,” he added.
Peloton, which had just lowered the prices for its products earlier this year, is raising the price of its Bike+ by $500 to $2,495 in the United States. The price of its Tread machine is going up by $800 to $3,495. The price of Peloton’s original Bike and its strength-training product known as Guide will remain unchanged.
McCarthy acknowledged the about-face on pricing, saying that the equipment price reductions made sense for the company back in April, as Peloton tried to get rid of inventory quickly.
Investors sent Peloton shares up 13.6% on Friday.
The stock has tumbled more than 60% so far this year, with the company’s share price hitting an all-time low of $8.22 in mid-July. Shares had traded as high as $120.62 apiece roughly a year ago.
Under McCarthy, who took the reins from Foley in February, the business has focused on ways to grow subscription revenue over hardware sales. Earlier this year, for example, Peloton raised the price of its all-access subscription plan in the United States to $44 per month from $39.
In July, Peloton had also announced it would stop all its in-house manufacturing and instead expand its relationship with Taiwanese manufacturer Rexon Industrial. That resulted in about 570 job cuts. The company also suspended operations at its Tonic Fitness facility, which it acquired in 2019, through the remainder of the year.
When McCarthy became CEO, Peloton announced it was slashing roughly $800 million in annual costs. That included cutting 2,800 jobs, or about 20% of corporate positions. The company also said it would be walking away from plans to build a sprawling production facility in Ohio.
CNBC reported in January, ahead of Foley stepping down, that Peloton planned to temporarily halt production of its equipment, according to internal documents detailing those plans, as a way to control costs with demand dropping.
Foley’s missteps included making long-term bets on Peloton’s supply chain during the peak of the coronavirus pandemic that would later prove to be a drag on its business as sales of its Bikes and Tread machines slowed.
Peloton’s losses in the three-month period ended March 31 widened to $757.1 million from $8.6 million a year earlier. Revenue dropped to $964.3 million from $1.26 billion.
The company ended the quarter with 2.96 million connected fitness subscribers, which are people who own one of the company’s products and pay for a membership to its live and on-demand workout classes.
McCarthy said the company is continuing to hire in certain areas, including software and engineering. “I share this so you won’t think we’re driving with our foot on the gas and the brake at the same time,” he said.
McCarthy is also asking all of Peloton’s office-based employees to return to the office three days per week starting on Sept. 6. As of Nov. 14, that will be considered mandatory, he said.
Peloton is expected to report its fiscal fourth-quarter results on August 25.
Read the full memo that Peloton CEO Barry McCarthy sent to employees on Friday:
I’m writing to update all of you on Peloton’s ongoing transformation. The past few months we’ve made considerable progress on our journey. We continue to define and lead the global Connected Fitness category, even as we work to make Peloton more efficient, cost effective, innovative, and to best position ourselves for the future. Thank you for your hard work.
We have a clear strategy to drive the long-term, sustainable future of this company. Job one is generating free cash flow by right-sizing our inventory commitments and converting many of our fixed costs to variable costs because that cost structure better aligns with the seasonal revenue of the business. Second, we are also focused on innovation across our hardware and software to strengthen our Member experience. And, finally, we’re focused on growth and expanding the ways consumers can experience the magic of Peloton.
We are making several additional changes to the business to improve our performance.
Maintaining Our Premium Brand Positioning
For several months we’ve been running the business to maximize cash flow. In April, we lowered prices on our original Bike, Bike+ and Tread to make the entry point for new Members more accessible and to accelerate the sale of inventory to generate much needed cash flow. At the time, we were still in the early days of our $800 million restructuring plan. We were under considerable cash flow pressure, and we were in the process of (but had not yet completed) securing a $750 million bank loan.
Because of our success managing our inventory and supply chain issues, and because of the bank financing, we have the opportunity to adopt a more nuanced pricing strategy targeting “value” and Premium Members alike by increasing prices on our Bike+ and Tread models – which contain distinctive, superior design elements, while keeping the price of Bike v1 and Guide the same.
Specifically, in the U.S., our new price structure will be as follows:
- Bike+ will increase by $500 to $2,495
- Tread will increase by $800 to $3,495
This pricing change achieves three objectives – we maintain an attractive entry point for new Members; we continue to sell down excess Bike v1 inventory, creating a financial tailwind on investments already made; and we maintain our position as the undisputed premium brand in the Connected Fitness category.
Optimizing our Operations and Workforce
We continue to make strategic changes to our operations and workforce. Following last month’s exit from owned-manufacturing in Taiwan, we are now restructuring our final mile delivery capabilities by expanding our work with our third party logistics (3PLs) providers. As a result, we are eliminating our North American Field Ops warehouses, resulting in a significant reduction in our delivery workforce teams.
Unfortunately, this means a number of team members will be departing the company. We know changes of this nature are never easy.
The shift of our final mile delivery to 3PLs will reduce our per-product delivery costs by up to 50% and will enable us to meet our delivery commitments in the most cost-efficient way possible. I also want to highlight that we have been actively working with our 3PLs to dramatically improve the Member experience, and we are seeing positive momentum in those CSAT scores. This has been a challenge. We won’t fix it overnight, but we have no choice but to make it work, so we’re leaning into it and proactively managing our 3PL relationships. We are confident in the plan we’ve put in place and we’re encouraged by the progress we’re making.
After re-examining the resources required to provide our Members best-in-class support, we have also decided to reduce fixed costs by eliminating a significant number of roles on the in-house North America Member Support Team. In-bound Member support volume has been lower than forecasted, and like other parts of the business, we are going to expand our work with our third party partners. These expanded partnerships mean we can ensure we have the ability to scale up and down as volume fluctuates while still continuing to provide the level of service our Members have come to expect.
These are hard choices because we are impacting people’s lives. These changes are essential if Peloton is ever going to become cash flow positive. Cash is oxygen. Oxygen is life. We simply must become self-sustaining on a cash flow basis.
I want to take this opportunity to express my gratitude to those delivery team and Member Support colleagues who have been impacted by this decision.
Investing in Talent to Innovate and Grow
In the past you have heard me say we cannot cost cut our way to success. We have to make our revenues stop shrinking and start growing again. We do that with investments in marketing and R&D to drive innovative products. We must also develop new features and functionality for existing CF platforms that delight Members and drive word-of-mouth which drives organic growth. And, we double-down on our existing strengths, particularly our world-class, Instructor-led content that motivates and inspires Members daily.
While we’re reducing our workforce in certain areas of the business, we continue to fill roles on key teams to drive the business forward. This includes further commitment to recruiting top talent in key areas of need such as our software engineering team. I share this so you won’t think we’re driving with our foot on the gas and the brake at the same time. Success is about making the right investments to drive growth while managing to a cost structure the business can afford.
I’ve also long-believed hands-on, shoulder-to-shoulder collaboration is essential for fast, efficient teamwork and innovation. To that end, we’ll be asking all office-based employees to return to their office three days per week starting on Tuesday, September 6th. We know some of you will need more time to sort out related details, and we are asking that you do so, working with your manager, with a deadline of Monday, November 14th for all of us to be back in the office (if your PeloTeam designation is office-based) every Tuesday, Wednesday and Thursday. You also are welcome to come in more often, if you’d like, and take full advantage of the office amenities and gym.
As of November 14th, return to office for office-based workers (not you if you were hired to be remote) will be mandatory. There are many successful businesses, like Airbnb and Spotify, who have chosen to operate remotely. There are also many successful companies who have opted to collaborate in the office in person, like Nike and Google. The culture you choose to work in should be compatible with your personal preference. For those of you who don’t want to return to the office, we respect your choice. We hope you choose to stay, but we understand not everyone will.
Balancing e-Commerce and Retail
Lastly, we need to rebalance our e-Commerce and retail mix to drive efficiencies, which means we will reduce our retail presence across North America. This decision will result in a significant and aggressive reduction of Peloton’s retail footprint.
Data tells us that in the post-COVID economy, consumers want a mix of virtual and in-person engagement with the brands they love, meaning a hybrid model of e-commerce as well as limited physical retail touchpoints. We have to meet our prospective Members where they are.
We will provide future updates on which retail operations will be impacted by this decision in the coming months. We do not anticipate closing retail locations in calendar 2022, but the timing is uncertain as we begin negotiations to exit our store leases.
In closing, I want to reiterate that I know some of this news is difficult to hear as it has a real impact on people’s lives who believe in the mission and our ability to manage the business for success.
Today’s news reminds us it was never more important that we be successful in managing our turnaround. That’s the reason we’re making the hard choices to shift our cost structure from fixed to variable and to right size our spending in retail stores. As we face economic uncertainty in the global macroeconomic outlook, we will continue to analyze our workforce and expenditures. Change is constant, and we need to embrace it and make it one of our super powers.
Overall, I continue to be optimistic about the future of Peloton. That doesn’t mean there won’t be challenges ahead. There will be, and there will be unforeseen setbacks. That’s the nature of turnarounds. But I’m confident we can overcome the challenges because we’ve come so far in just the last four months, which feeds my optimism about our ability to engineer our long-term success. No one’s gonna give it to us, least of all our competitors. We’re going to have to step up and make it happen. The future of connected fitness is Peloton’s to own.
Me to you. You to me. You to each other. And all of us to our Members.
Ford’s supply chain problems include blue oval badges for F-Series pickups
A Ford F-150 pickup truck is offered for sale at a dealership on September 6, 2018 in Chicago, Illinois.
Scott Olson | Getty Images
DETROIT – Recent supply chain problems for Ford Motor have included a small, yet important, part for the company and its vehicles – the blue oval badges that don nearly every vehicle for its namesake brand.
The Detroit automaker has experienced shortages with the Ford badges as well as the nameplates that specify the model, a Ford spokesman confirmed to CNBC. The Wall Street Journal first reported the problem, including badges for its F-Series pickups, on Friday, citing anonymous sources.
The issue is the latest is a yearslong supply chain crisis that has ranged from critical parts such as semiconductor chips and wire harnesses to raw materials and now, vehicle badges.
The Journal reported a Michigan-based supplier called Tribar Technologies that has made badges for Ford in the past had to limit operations in August, after disclosing to Michigan regulators it had discharged industrial chemicals into a local sewer system.
A message seeking comment from Tribar was not immediately answered. Ford declined to comment on whether Tribar’s limited operations were connected to the automaker’s name-badge shortage.
A spokesman also declined to comment on how many vehicles have been impacted by the problem.
The report comes after Ford on Monday said said parts shortages have affected roughly 40,000 to 45,000 vehicles, primarily high-margin trucks and SUVs, that haven’t been able to reach dealers. Ford also said at the time that it expects to book an extra $1 billion in unexpected supplier costs during the third quarter.
The announcement earlier this week, including a pre-release of some earnings expectations, caused Ford’s stock to have its worst day in more than 11 years.
Separately, Ford on Thursday announced plans to restructure its global supply chain to “support efficient and reliable sourcing of components, internal development of key technologies and capabilities, and world-class cost and quality execution.”
Bed Bath & Beyond’s merchandise problems will make it hard to pull off a turnaround this holiday season
A person exits a Bed Bath & Beyond store in New York City, June 29, 2022.
Andrew Kelly | Reuters
Bed Bath & Beyond is betting on a drastic change in strategy and well-recognized brands to revive its struggling business.
But the retailer’s strained relationships with suppliers of products such as air fryers and stand-mixers – some of which were missing from shelves two holiday seasons ago – could leave stores without hot items once again. Out-of-stock products could cripple Bed Bath’s already-declining sales and push the company toward bankruptcy.
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Bed Bath is fighting to win back customers as it contends with a leadership shakeup, a mountain of debt and the aftermath of a meme-stock frenzy fueled by activist investor Ryan Cohen. On top of that, tensions with merchandise suppliers grew as the company’s problems worsened, according to former executives who recently left the company. They declined to be named because they were not authorized to speak about internal discussions.
Chief Executive Mark Tritton, hired in 2019 to oversee the company’s previous turnaround effort, got ousted by the board this year. Bed Bath’s merchandising chief was also pushed out. Chief Financial Officer Gustavo Arnal, who was integral in lining up a new loan for Bed Bath, died by suicide earlier this month. The company is now led by an interim CEO and interim CFO.
On a call with investors in late August, two days before Arnal’s death, company leaders announced the fresh financing and revealed a new merchandising strategy that heavily relies on national brands to get more people into stores. Under Tritton, Bed Bath launched and tried to grow nine exclusive brands. Bed Bath now intends to sharply scale back those private labels – including discontinuing several.
Bed Bath has merchandise from its remaining store brands to fill shelves. It has deals with direct-to-consumer brands, such as mattress maker Casper, and is trying to court more of them. Yet to deliver on its new plan, Bed Bath must secure steady shipments from brands many shoppers recognize.
Bed Bath leaders say that the strategy shift has been well received. Interim CEO Sue Gove said in August that she’s even received thank you notes from vendors.
Read more retail coverage
“As previously shared, we are committed to delivering what our customers want, driving growth and profitability, and strengthening our financial position. We recognize the vital importance of our supplier partners and our team is working continuously with them, where support has been enthusiastic and high, particularly with our largest partners,” a company spokeswoman said in a statement.
“They want us to win, by supporting the assortment changes previously announced to create the best experience for our shared customers.” Bed Bath plans to give an update on its vendor relationships and strategies when it reports fiscal second quarter earnings next week, she added.
Over the past two years, however, Bed Bath has tested vendor relationships by making late payments, pushing aggressively into private labels and losing shoppers. Those tensions have intensified as financial troubles mounted, according to the former Bed Bath executives.
Make or break
A customer carries a shopping bag outside a Bed Bath & Beyond Inc. store in Charlotte, North Carolina.
Logan Cyrus | Bloomberg | Getty Images
Vendor relationships can make or break a retailer. Typically, suppliers ship goods and get reimbursed weeks or months later. The terms can change, however, if a retailer shows signs of financial distress – sometimes pushing a vendor to shorten the payment window, require cash on delivery or halt shipments.
Bed Bath has already agreed to tougher payment terms and advance payments for some suppliers, the company said in public filings. Company leaders acknowledged in a call with investors that it was managing vendor relationships on a week to week basis.
Tension with vendors is often a major reason retailers are pushed toward restructuring. Debt-burdened Toys “R” Us filed for bankruptcy in September 2017, and later liquidated, shortly after its suppliers demanded cash on delivery ahead of the holiday season. Other retailers, such as appliance chain H.H. Gregg and electronics store RadioShack, suffered a similar fate as they struggled to keep shelves stocked and burned through cash due to vendors’ tightened payment terms.
One factor working in Bed Bath’s favor is that it works with a vast number of vendors, and if needed, could replace one that wouldn’t ship to the retailer. Retailers like Toys “R” Us, as well as sporting goods chain Sports Authority – which liquidated as part of a bankruptcy filing in 2016 – were heavily reliant on very few suppliers to stock their shelves.
Bed Bath already had a significant debt load prior to the new financing. The retailer has a total of nearly $1.2 billion in unsecured notes – with maturity dates spread across 2024, 2034 and 2044 – which are all trading below par, a sign of its financial distress. In recent quarters, the company said it burned through significant amounts of cash. Despite this, it pressed ahead with an aggressive stock buyback plan that added up to more than $1 billion in repurchases.
The funding announced in August is expected to provide Bed Bath some breathing room and buy it some grace from vendors. But even before the company needed a loan, it lost standing with some of its suppliers, according to the former executives. Bed Bath has tussled with big-name vendors over terms of payment, and executives grew frustrated with smaller shipments of popular products, while seeing other retailers with more of that merchandise – and sometimes exclusive versions.
During the 2020 holidays, air fryers ran low across Bed Bath’s stores. KitchenAid stand mixers, a top item on Christmas lists and wedding registries, were out of stock. The few vacuums and hair styling tools from Dyson that arrived at stores quickly got shipped to online shoppers, leaving store displays bare. Yet at Amazon, Target and Best Buy, those same products were available – and in some cases, even at buzzy promotional prices.
KitchenAid parent company Whirlpool and Dyson didn’t respond to multiple requests for comment.
Customers carry bags from Bed Bath & Beyond store on April 10, 2013 in Los Angeles, California.
Kevork Djansezian | Getty Images News | Getty Images
Vendors and licensees, likewise, grew concerned by the pace of Bed Bath’s changes – particularly as the retailer launched its own brands of bedding, kitchen utensils and more. As some brands and manufacturers saw Bed Bath pare down orders quarter after quarter, they looked to other stores and websites.
The uneasy relationships exacerbated Bed Bath’s supply chain woes during the first two years of the pandemic, when all retailers coped with temporarily shuttered factories, congested ports and a shortage of truck drivers. The company lost $175 million in sales during the three months ended Feb. 26 as several items that were advertised in circulars were out of stock.
Vendors, which had limited supply, had to pick and choose where to send their hot products. As sales declined sharply at Bed Bath’s namesake stores, it had a harder time getting those items – such as Dyson’s hair styling tools or Keurig’s coffee makers– that were available at retail rivals, according to the former executives.
At company meetings, Bed Bath’s small shipments became a frequent theme – with merchandising leaders urging buyers to go to vendors and ask for more. There were also internal concerns that Bed Bath & Beyond was losing its clout and its relevance, the former executives said.
Bed Bath’s troubles have grown in recent months. Its stock has fallen about 50% this year, its market cap now at about $565 million.
About 60% of total net sales come from Bed Bath’s stores, but its footprint is shrinking. Last week, the company announced the first wave of approximately 150 store closures of its namesake brand. Including Harmon and BuyBuy Baby stores, the company went from nearly 1,500 stores at the end of the first quarter in 2020 to fewer than 1,000 stores at the end of the same period this year. As of February, Bed Bath had roughly 32,000 associates, including approximately 26,000 store associates and about 3,500 supply chain associates.
Meanwhile, the first wave of holiday merchandise has arrived at stores, including autumn wreaths, pumpkin-print kitchen towels and other fall-themed decor. Much of the merchandise at stores is from Bed Bath & Beyond’s private brands, such as budget-friendly home line Simply Essential.
During a CNBC visit in recent days, Bed Bath’s flagship store in New York City was full of clues that the retailer may not have enough of the hottest items. A Dyson display had six vacuum models – but only one type available for purchase. A display for French cookware company Le Creuset showed off Dutch ovens in many colors, but only had bright orange ones in stock.
Only one stainless-steel, step-on SimpleHuman garbage can, which retails for $149.99, was boxed and ready to be carried away. However, there were small plastic garbage cans from Bed Bath’s owned brand, spread across multiple rows – selling for $3 each.
If you are having suicidal thoughts, contact the Suicide & Crisis Lifeline at 988 for support and assistance from a trained counselor.
GM to close reservations for electric Hummer pickup, SUV after topping 90,000
Production is now set to begin at the former Detroit-Hamtramck assembly plant, less than two years after GM announced the massive $2.2 billion investment to fully renovate the facility to build a variety of all-electric trucks and SUVs.
Photo by Jeffrey Sauger for General Motors
DETROIT — General Motors will close reservations for its electric GMC Hummer pickup and the forthcoming GMC Hummer SUV after more than 90,000 of the vehicles were reserved, the company said Wednesday.
Closing the reservations is a way for the automaker to attempt to fulfill the current list of reserved vehicles, which extends out to at least 2024. The number of reservations is notable because of the starting prices of the vehicles, which range between roughly $85,000 and $111,000.
GM said it plans to close reservations for both vehicles starting Thursday. Anyone wanting to reserve one of the electric trucks must do so by the end of Wednesday.
GM has been slowly ramping up production of the Hummer EV pickup since earlier this year. As of the end of June, the company had sold less than 400 of the vehicles. The SUV version is expected to begin arriving to dealers and customers starting in early 2023.
The 2024 GMC Hummer EV SUV and 2022 GMC Hummer EV sport utility truck, or SUT.
Duncan Aldred, global head of GMC, said production of the SUV should happen more quickly than the pickup, which was the first consumer vehicle to feature GM’s next-generation Ultium batteries and vehicle platform.
“We knew it would be a slow ramp. But next year, when you look at the calendar year, I think you’ll see a normalized year,” he told CNBC last week at the Detroit auto show. “When we produce SUV, that should get into stride right away … Next year is a big year for Hummer EV, both truck and SUV.”
GM’s decision follows Ford Motor shutting down reservations for its electric F-150 Lightning pickup after hitting roughly 200,000 units. It also had shut down reservations for the electric Mustang Mach-E crossover, but they have since reopened.
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