What happened
Shares of Peloton Interactive (PTON 4.29%) were down 4% at noon ET on Wednesday after the connected fitness-equipment manufacturer announced it won't be making its exercise bikes and treadmills in-house anymore.
Instead, Peloton will expand its partnership with Taiwan-based Rexon Industrial as it seeks to cut costs, streamline its manufacturing supply chain, and focus on its technology.
Chief supply chain officer Andrew Rendich told Bloomberg News, "We are going back to nothing but partnered manufacturing."
Image source: Getty Images.
So what
Peloton has been in a downward spiral since the economy reopened after the pandemic lockdowns. Consumers flocked to its equipment during the COVID outbreak as gyms and fitness centers were forced to close, but once these businesses were allowed to reopen, orders for its high-priced equipment rapidly dried up.
The decision to bring a lot of its manufacturing in-house had actually been based on supply chain disruptions, which saw customers waiting weeks, if not months, for their equipment to be delivered.
As more consumers became disgruntled and started canceling orders, Peloton acquired Precor for $420 million in 2020 to expand capacity and take on more manufacturing responsibility itself. Precor also gave Peloton an entry point into the commercial market as it was a supplier to the hospitality industry and corporate fitness centers.
It will now suspend all operations at its Tonic Fitness Technology facility. Peloton bought Tonic in 2019.
Now what
Peloton is desperate to cut costs, as fitness product sales fell 42% in its fiscal 2022 third quarter.
It recently told discouraged employees that it would reprice stock options for those who were eligible and would pay out a one-time bonus for its hourly workers in a bid to retain them. The stock has lost 92% of its value over the past year.
