Inventory, Working Capital and the Bullwhip

In the spring of 2021 Peloton could not make its machines fast enough. The connected-fitness company, founded in New York in 2012 and listed on Nasdaq since September 2019, sold bikes and treadmills with touchscreens and a monthly subscription to live and recorded classes, and the lockdowns of 2020 had turned it into one of the pandemic's emblematic products. Customers waited weeks for delivery. Peloton had already bought a Taiwanese manufacturer, Tonic Fitness Technology, in October 2019 for about $47.4 million, and in 2021 it bought Precor, a maker of commercial fitness equipment with US plants, for about $420 million (reported). On 24 May 2021 it announced Peloton Output Park in Wood County, Ohio: a factory of about $400 million that would employ more than 2,000 people and start production in 2023 (reported). Revenue in its fiscal year to June 2021 was about $4 billion (reported).

Three weeks before the Ohio announcement, on 5 May 2021, Peloton and the Consumer Product Safety Commission had announced the recall of about 125,000 Tread+ treadmills after the death of a child and reports of injuries, stopping sales of its most expensive product and offering refunds. Peloton's chief executive apologised publicly for the company's initial response, and in January 2023 the company agreed to pay a $19 million civil penalty for failing to report the hazard promptly (reported). The recall came just as gyms reopened and the demand that had produced the waiting lists began to fade. Orders already placed with suppliers kept arriving. By late 2021 Peloton was cutting prices and building inventory.

On 8 February 2022 John Foley, a co-founder, stepped aside as chief executive in favour of Barry McCarthy; the company said it would cut about 2,800 jobs, stop developing the Ohio plant and target about $800 million of annual cost savings (reported). On 12 July 2022 it said it would exit in-house manufacturing altogether, making the Taiwanese contract manufacturer Rexon its primary manufacturer and suspending Tonic's operations. The fiscal 2022 accounts recorded what the peak had cost: $611.3 million of restructuring charges, including $373.8 million of asset write-downs and a $40.3 million impairment on the Ohio site; about $337.6 million of settlements with contract manufacturers for commitments it no longer wanted; and, in the fourth quarter, a gross margin on connected-fitness products of −98.1% as stock was cleared (filings). Revenue fell to about $3.6 billion and the net loss for the year was about $2.8 billion (reported).