Peloton Pedals to Growth Outside Homes

Peloton Interactive Inc PTON is looking outside homes for its next stage of growth. Back in April, it acquired Precor whose equipment is usually found in commercial settings for $420 million but it is now doing much more in terms of going outside homes. It is going into branded apparel and making killer deals to expand its customer base as it aims to capitalize on a reopening economy after it benefited from the pandemic keeping people indoors.

A Great Revenue Opportunity

Chief business officer Brad Olson told CNBC that having bikes in hotels and resorts around the world presents a great opportunity to increase awareness of its products and content. It recently revealed an online platform from which hospitality industry customers can buy both its connected fitness equipment and Precor products.

A B2B Play

Although the company does not reveal sales figures for individuals versus commercial businesses, it never hid that it owes the vast majority of its revenue to home gyms. Therefore, the Precor deal not only gave the company manufacturing capacity in the United States but also a slew of strength training equipment found in commercial settings such as wellnesses and hotels. It will also offer exercise cycles in collaboration with its hotel partners. Earlier this year, it already launched a corporate wellness program that gives perks to businesses who choose to equip their office gyms with its products.

Lowering the Price

Besides working on new products, As part of its strategy to gain new users and boost its commercial business after a wider-than-expected loss in the fiscal fourth quarter as costs of recalls ate into profits, Peloton also recently lowered the price of its exercise cycle. A return to profitability isn't expected until fiscal 2023 as marketing spending will also pick up.

Financial Wizardry

The San Francisco-based fintech lender Affirm Holdings Inc AFRM "buy now, pay later" has found a way to make a rock-solid investment from Peloton consumer's pledge to get into shape at home during the pandemic. It sold hundreds of millions of dollars in securities made up of debt backed by loans to people who bought Peloton fitness bikes.

Considering that Peloton's home exercise bikes are among the priciest on the market with a starting price of $1,500, its customer base is made of largely affluent people with high credit scores that rarely default on loans. Peloton contributed approximately 20% of the online lender's $870.5 million in revenue during the fiscal year that ended on June 30^th, 2021, as Affirm offered zero-interest loans on Peloton purchases from 12 to 43 months.

A Killer Deal with UnitedHealth

The connected fitness leader got even stronger by joining forces with UnitedHealth UNH as the insurance giant just announced its members will benefit from a free Peloton digital subscription. This is a win-win for both parties as it will help Peloton further strengthen its leadership in digital fitness and possibly attract a whole new customer base.

A New Source of Revenue

With more and more offices reopening and many shifting to a hybrid model of working, it seems that more casual wear may be here to stay as we all got very comfortable while working from home. To take advantage of that trend, Peloton it's launching its own athleisure line, Peloton Apparel. It's the company's first crack at a clothing line designed in-house but in a very crowded market valued filled with entrenched players such as Lululemon Athletica Inc LULU, Nike Inc NKE, and Athleta. In November last year, Coresight Research valued this US market at roughly $100 billion back in November.

A Brand Extension

Jill Foley, Peloton's vice president of apparel spoke to CNN business, revealing that the company has used the wealth of data from its members over the years and is tailoring the line based on their precious feedback.

It is aimed to be an extension of their experience on the bike to carry the users through their day from their homes to coffee, to work, to a night out, and even to the beach. The focus is on being inclusive, not only with diversified pricing but also with sizing as well as democratizing style.

Instructors are ambassadors for the brand who wear the clothing proudly. However, they are allowed to wear other brands too and are not compensated for wearing it. The company does not want every instructor to be the same so their individual personalities can come out.  Although it's not the logo driving the sale but the quality of the product, the company is betting on customers wanting to wear Peloton.

The company has come to dominate the workout-at-home segment of the fitness market, but only time will tell if it can expand to gyms and clothing. Its Precor acquisition and deals show it is going all-in to attract new customers and keep existing ones happy, which is the strategy that made it succeed in the first place.

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