Peloton will stop making its own interactive stationary bikes and treadmills, outsourcing those duties to a Taiwanese manufacturer as it attempts to revive sales that surged during the pandemic.
The New York City company, which recorded its only profitable quarters during the pandemic, is seeking to lower costs after sales slid when gyms began to reopen and cheaper knockoffs entered the market.
It will suspend manufacturing operations at the Tonic Fitness Technology plant in Taiwan for the rest of the year.
Peloton’s strategy was to bring manufacturing inhouse, believing that if sales remained robust it would reduce costs and avoid shipping complications. Sales growth doubled in 2020 and it ramped up production.
However, after three consecutive profitable quarters in 2020, the height of the pandemic, it began to lose money in the first quarter of 2021 and has continued to do so.
Other manufacturers, seeing Peloton's success, stepped in to build cheaper interactive bikes and treadmills, leaving Peloton with a growing inventory of unsold equipment.
In February the company announced a major restructuring and abandoned plans to open its first U.S. factory in Ohio, which would have employed 2,000. Co-founder John Foley stepped down as CEO and the company announced nearly 3,000 job cuts.
The company reported mounting losses and stagnating sales in its most recent quarter. It also offered a bleak sales outlook for the current quarter and signed a commitment to borrow hundreds of millions of dollars.
Peloton has had success with its digital app, which can be used with other equipment. The company has said that it would like to focus more on the app and less on equipment sales. It has cut the price on its equipment, but the price of its monthly subscriptions are up around 13%.
Taiwanese manufacturer Rexon Industrial Corp. will manufacture equipment for the company as part of an expanding relationship.
Shares of Peloton Interactive Inc. rose 4.5% Tuesday.