Peloton’s ride from pandemic peak to rental rebounds
Whilst home exercise bikes can be a great way to get fit, a lot of people who buy them end up using them as a very expensive clothes hanger. People start off with great intentions of getting fit but then one thing leads to another and before you know it the exercise bike is left in the corner of the room with a pile of clothes building up on top if it.
One of the best known providers of home exercice equipment is Peleton.
Peloton, the high-tech exercise company that soared during the pandemic, is now attempting to revive its fortunes with a strategic shift towards rentals. This move comes as the company grapples with a significant decline in sales post-pandemic and seeks to attract a younger, more cost-conscious audience.
The Pandemic Boom and Subsequent Bust
Peloton’s journey during the pandemic is a textbook example of a business capitalising on unforeseen circumstances. Before Covid-19, Peloton was relatively unknown in the UK. However, as lockdowns were enforced globally, the demand for at-home fitness solutions skyrocketed. Peloton’s futuristic exercise bikes and engaging video classes became immensely popular, leading to a membership surge from two million to over seven million between January 2020 and March 2022.
The company’s share price reflected this explosive growth, soaring nearly 500% to a peak of $163 in 2020. Peloton became a household name, synonymous with high-end home fitness. However, as the world began to reopen, the appeal of outdoor exercise and traditional gyms resurfaced. This shift led to a significant drop in Peloton’s membership, and its share price plummeted, now standing 97% below its 2020 peak.
Introducing Rentals: A New Strategic Direction
In response to these challenges, Peloton is embracing a rental model, launching a scheme on May 22 that allows customers to rent Peloton bikes for £99 a month. This fee includes access to all live online classes and the extensive back catalogue. While the rental cost may seem high compared to typical gym memberships, it presents a more affordable option than purchasing a bike outright, which costs £1,995 plus a £39 monthly subscription for classes.
The rental model also includes a £200 setup fee, making the rental option more attractive for those who may not want to commit to the significant upfront cost of purchasing a bike. Customers can cancel their membership and return the bike at any time without additional cost, offering flexibility and reducing financial risk.
Targeting a Younger, Cost-Conscious Audience
Peloton’s shift to rentals aims to attract younger and less affluent households who may have been deterred by the high upfront costs. By lowering the entry barrier, Peloton hopes to expand its customer base and increase market penetration.
This strategy aligns with broader trends in the retail and service industries, where rental models are gaining traction. The stigma associated with renting is fading, particularly among younger generations who value flexibility, convenience, and affordability. For instance, John Lewis offers a rental service for designer dresses, and Brompton rents out its folding bikes. The music industry has also transformed with streaming services, and personal contract hire has become common in the automotive sector.
The Growing Rental Economy
Research by Censuswide highlights the growing acceptance of the rental economy in the UK. The study found that one in five people viewed the rental market positively, with this sentiment rising to nearly half among those aged 25-34. Young people are drawn to renting for its flexibility, convenience, and cost-effectiveness.
Peloton’s decision to adopt a rental model is a strategic move to tap into this growing market. By offering a more accessible way to experience its products, Peloton can attract a new demographic and potentially stabilize its revenue streams.
Challenges and Opportunities
While the rental model presents a promising opportunity for Peloton, it is not without challenges. The company must manage the logistics of bike rentals, including delivery, maintenance, and returns. Additionally, Peloton needs to ensure that the rental model does not cannibalise its sales but rather complements its existing business model.
Peloton’s rental scheme has already shown positive signs in the US, outperforming internal expectations. If this success translates to the UK market, it could mark a significant turnaround for the company.
Lessons for Business Students
Peloton’s pivot to rentals offers valuable lessons for business students:
- Adaptability: Businesses must be willing to pivot and adapt to changing market conditions. Peloton’s move from a purchase-only model to rentals demonstrates flexibility and responsiveness.
- Market Trends: Understanding and leveraging market trends is crucial. The growing acceptance of the rental economy, particularly among younger consumers, provides a strategic opportunity for growth.
- Customer-Centric Approach: Reducing financial barriers and offering flexible solutions can attract a broader customer base. Peloton’s rental model addresses the affordability concerns of younger and less affluent consumers.
- Risk Management: New business models come with risks. Effective logistics management and ensuring rental options complement existing sales channels are essential for success.
- Data-Driven Decisions: Peloton’s decision was likely influenced by data from its US rental scheme, highlighting the importance of using data to guide strategic decisions.
Conclusion
Peloton’s rental scheme represents a strategic shift aimed at reviving its fortunes post-pandemic. By tapping into the growing rental economy and addressing affordability concerns, Peloton hopes to attract a younger, more diverse customer base. This move underscores the importance of adaptability, market awareness, and customer-centric strategies in today’s business landscape. As Peloton navigates this new direction, its success or failure will offer valuable insights for business students and industry professionals alike.
