The peloton will outsource all production as part of its turnaround operation

A Peloton Interactive Inc. logo on a stationary bike at the company’s showroom in Dedham, Massachusetts, USA, Wednesday, February 3, 2021.

Adam Glanzman | Bloomberg | Getty pictures

The peloton said on Tuesday that they plan to end all their own production and instead expand their current relationship with Taiwanese manufacturer Rexon Industrial, in an attempt to turn around the money-losing business.

Peloton̵[ads1]7;s CEO Barry McCarthy said this is a step for the company to simplify the supply chain and fix the cost structure, which is a top priority.

“We believe that this, along with other initiatives, will enable us to continue to reduce the cash burden on our business and increase our flexibility,” McCarty said in a statement.

Peloton shares fell less than 1% in pre-market trading on the news.

Peloton said that Rexon is now set to become the primary manufacturer of Pelotons Bicycle and treadmills. The company will also stop operations at the Tonic Fitness facility for the remainder of 2022. The peloton acquired Tonic in October 2019.

The company did not disclose any financial consequences in its press release. It was also not immediately clear what this meant for Peloton’s Precor business, which Peloton bought for $ 420 million to expand its production capacity in the United States.

McCarthy, a former Spotify and Netflix CEO, was appointed CEO of Peloton in early February, replacing founder John Foley. He took over when the company’s expenses got out of control and the demand for the connected training equipment decreased.

At the time of the C-suite shakeup, Peloton announced that they were cutting down about $ 800 million in annual costs. That included cutting 2,800 jobs, or about 20% of corporate jobs. The peloton also said it would abandon plans to build a wild-growing production facility in Ohio.

CNBC reported in January that Peloton planned to temporarily halt production of its equipment, according to internal documents describing those plans, as a way to control falling demand costs.

One of Foley’s biggest mistakes was to focus long-term on Peloton’s supply chain during the peak of the pandemic, as consumers stuck in the home were eager to pay out hundreds of dollars for ways to sweat in the living room or garage.

However, the momentum quickly changed as Covid vaccines were made widely available and gyms and indoor gyms could reopen without so many restrictions.

From the beginning of his reign, McCarthy has made it clear that he is more interested in the Peloton as a subscription business than as a producer.

He has already raised the prices of Peloton’s training membership with all access and is testing a new model where customers can pay a fixed price for renting equipment and taking training hours on request.

He has also been tasked with trying to increase employee morale, especially with the company’s share price under so much pressure. Peloton’s share is down more than 75% so far this year, with Monday’s stock exchange closing.

Last week, employees at the company learned that Peloton offers one-time bonuses to hourly workers who continue early next year and make changes to the share compensation plans, given the share price.

“Turning away from owned production is probably the right move,” said BMO Capital Markets analyst Simeon Siegel, who added that McCarthy appears to be trying to “reverse past mistakes” from the Foley era.

“It will definitely be savings,” Siegel said. “But given the status of Peloton’s balance, it’s worth asking what it costs to relax and what else needs to be done.”

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