New layoffs have Peloton ‘running a race with no finish line in sight’

In fact, it’s the fourth round of layoffs the company has undergone this year. When ex-Spotify and Netflix exec Barry McCarthy took the helm following the departure of co-founder John Foley in February, the company kicked off a major restructuring that saw 2,800 employees lose their jobs.

McCarthy inherited a company in turmoil. Following a series of scandals ranging from treadmill recalls in light of a child’s death to highly-publicized leadership failures and the withdrawal of an ad starring Chris Noth following sexual assault allegations against the actor, the company suffered sales declines, major cash losses and inventory pile-up. Plus, as consumers flocked back to gyms following the height of the Covid-19 pandemic, demand for at-home exercise solutions plummeted. The company announced a quarterly loss of about $1.24bn in its latest earnings call.

Now, as Peloton axes employees, it looks to recoup losses and strengthen its bottom line. “A key aspect of Peloton’s transformation journey is optimizing efficiencies and implementing cost savings to simplify our business and achieve break-even cash flow by the end of our fiscal year,” a company spokesperson said in a statement shared with The Drum today.

Marketing to suffer the brunt

The decision to cut jobs is, according to Peloton, the final major step in completing the restructuring efforts it launched in February.

The layoffs will affect Peloton’s marketing department more heavily than most, per reporting by The Wall Street Journal. Its global head of marketing, communications and memberships Dara Treseder departed earlier this month.

Still, the brand has recently been pouring cash into a content series starring high-profile celebrities including Ashton Kutcher and Kim Kardashian. Plus, during its Q2 earnings call in the spring, the company said it would be investing more in marketing its mobile app.

In an internal memo shared with employees, McCarthy sought to provide some solace to distressed staff. “I know many of you will feel angry, frustrated and emotionally drained by today’s news, but please know this is a necessary step if we are going to save Peloton, and we are,” he said.

Putting clout over community?

The decision to cut jobs adds to other recent efforts to bolster sales. The fitness company has solidified major deals with Dick’s and Amazon, and announced earlier this week that its equipment will soon be available in Hilton Hotels across the US.

The layoffs may provide some much-needed financial relief, says Dini von Mueffling, who runs an independent PR firm in New York and helps brands navigate publicity crises. “It’s clear that [McCarthy] is doing everything he can to turn around the company. Laying off 500 people is never an easy thing to do ... but it may ensure the company’s survival.”

Others, however, are quicker to call out what they see as hypocrisy. “The layoffs for Peloton may help alleviate the financial standing of the brand, but these actions tell a different story for what the company values,” says Dr Karen Freberg, a professor of strategic communications at the University of Louisville. “Employees are losing their jobs and livelihoods while Peloton continues investing in high-profile artist series and segments [with Kutcher and Kardashian]. This is not the message I think Peloton wants to be communicating, but they are with these layoffs.”

Freberg suggests that the brand would do well to “go back to its roots.” What originally built the brand and its loyal following was the vibrant community of instructors and users – but the brand has abandoned this community-based ethos in favor of celebrity endorsements, she says. “Peloton has lost its north star and has traded it for the shining stars of Hollywood and pop culture. Unless it changes course with its strategies, culture and community initiatives, Peloton will be feeling the brand and financial pains for a while.”

Satiating shareholders over customers

But it would seem that its community isn’t Peloton’s top priority right now. Shareholders are.

“The obvious thing you’d do in the situation of mass layoffs is that you’d talk about it where investors are, not where customers or your employees are, which is why CEO Barry McCarthy was on CNBC this morning doing exactly that,” says Andrew Graham, founder and head of strategy at Bread & Law, a New York-based PR firm. “This is news that is good for investors and bad for everyone else who has a reason to pay attention to the company. The stock has taken an absolute beating and, while I think the fix for that is growth, not layoffs, today’s announcement – and the rest of the downsizing more generally – do give the company a temporary reputational boost with the street.”

While things aren’t looking exactly sunny for Peloton, Graham says, it could be part of a tactic to underscore the positive impacts of good news, such as its recent retail and e-commerce deals and the launch of its rowing machine – which retails for more than $3,000 – last month. “This is in the playbook for PR practitioners who believe, as I do, that most serious reporting today has a transactional element to it.”

While much of McCarthy’s messaging, both internally and in the media, has aimed to create a narrative that reframes layoffs as a necessary evil but ultimately a net positive in the long run, Graham suggests it’s a fairly pointless strategy. “I don’t think you can genuinely reframe that or change that conversation. It just is what it is: bad stuff that impacts real people,” he says. “It’s more about taking the reputational hit, leaning on whatever positive thing you’re able to wedge into the news cycle after you’ve talked about the negative thing, and getting to work on all of the operational stuff that comes afterward.”

What comes next for Peloton remains to be seen. While it is scrambling to get out of the financial pickle it appears to be in, McCarthy said he believes Peloton has just six months to reverse its fortunes before it’s unable to proceed as a standalone company, according to The Wall Street Journal – although Peloton is reportedly arguing that the publication misconstrued what the executive said.

For now, the company’s outlook is uncertain. “It feels like they are running a race with no finish line in sight,” says Aaron Kwittken, founder and chairman at strategy and PR agency KWT Global. “It’s such a shame given how revolutionary this company was to digitizing and democratizing fitness.”

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