What happened
Shares of Peloton Interactive (PTON +0.78%) plunged on Thursday after the company revealed that it's partnering with Dick's Sporting Goods to stock its exercise equipment in select stores. As of noon ET, Peloton stock was down 12%.
So what
According to an official press release, Peloton's exercise hardware (minus its new rowing machine) will be available for sale at 100 Dick's Sporting Goods locations in time for the holidays. This is a massive shift for the beleaguered fitness company. Historically, Peloton has sold directly to consumers. By partnering with Dick's Sporting Goods, it's entering third-party brick-and-mortar retail for the first time.
NASDAQ: PTON
Key Data Points
Peloton shares were actually up briefly before the market opened on this news. The quick reversal indicates that investors aren't sure how to feel about it. On the one hand, increasing its physical retail presence makes sense for a business trying to move inventory. And Peloton is absolutely wanting to do that.
On the other hand, Peloton already had a negative gross-profit margin on its hardware devices for its full-year fiscal 2022. The press release doesn't disclose the fine details of its arrangement with Dick's Sporting Goods. However, it's logical to assume that Dick's will be making money from Peloton sales, further depressing already negative margins. It seems the market is focusing on this possibility today.
Now what
As a brick-and-mortar retailer, Dick's Sporting Goods has remained relevant in the e-commerce age by trying to provide consumers with things that can only be experienced in stores. Adding Peloton hardware to its stores is the latest example of giving shoppers a reason to come in.
Peloton is likely willing to take steeper losses on hardware so that it can move inventory that's collecting dust and so that it can beef up its subscription revenue. It could be a good plan to increase brand awareness and find more loyal subscribers. But it could also exacerbate losses for a company that already registered a painful $2.7 billion loss from operations in fiscal 2022.
