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Months after stepping back from plans to open a US factory, Peloton announced earlier this week it will start outsourcing the manufacturing of its bikes and tread machines to Rexon Industrial, its Taiwan-based manufacturer, to recover financial losses.
- Peloton also hopes to streamline its supply chain. “We believe that this, along with other initiatives, will enable us to continue reducing the cash burden on the business and increase our flexibility,” CEO and president Barry McCarthy said in a statement.
Don’t sweat it: Mike Simoncic, managing director at Alvarez & Marsal Consumer Retail Group, agreed that the move might actually help Peloton navigate a challenging supply-chain environment. “Turning over…the actual manufacturing of the equipment makes a lot of sense, because you’re going to lean on a third-party partner, who actually has more scale,” he told Retail Brew.
Zoom out: The timing also makes sense, Simoncic noted, as Peloton shifts its attention from manufacturing to enhancing its membership service—something CNBC also noted has appeared to be McCarthy’s focus to get the company back on track.
- Peloton hiked the price of subscription to $44—up from $39—earlier in June.
- The company is also trying a model that lets consumers rent its machines for a flat rate to boost demand.
“Peloton’s competitive advantage is more in the user experience,” Simoncic said. “The focus needs to be more on the user-experience content generation and retention and growth [of] subscribers. I don’t think the in-house manufacturing is where they need to differentiate.”—JS