Peloton outsources all manufacturing as part of its transformation efforts

peloton On Tuesday, it said it plans to exit all of its internal manufacturing operations and instead expand its existing relationship with Taiwanese manufacturer Rexon Industrial, in a bid to turn around the money-losing business.

This is a move for the company to streamline its supply chain and reform its cost structure, which is a top priority, said Barry McCarthy, Peloton CEO.

“We believe this, along with other initiatives, will enable us to continue to reduce the cash burden on business and increase our resilience,” McCarty said in a statement.

Peloton shares fell less than 1% in premarket trading on the news.

Peloton said Rexon is now set to become Peloton’s main manufacturer Bike and tread machines. The company will also suspend operations at the Tonic fitness facility until the remainder of 2022. Peloton acquired Tonic in October of 2019.

In its press release, the company did not disclose any financial impact. It was also not immediately clear what this meant for Peloton’s business at Precor, Bought by Peloton for $420 million In order to expand its manufacturing capabilities in the United States.

McCarthy, a former CEO of Spotify and Netflix, Appointed Peloton CEO in early Februaryto replace founder John Foley. He took charge as the company’s expenses spiraled out of control and the demand for related fitness equipment waned.

At the time of the C-suite change, Peloton announced that it would cut approximately $800 million in annual costs. This included eliminating 2,800 jobs, or about 20% of corporate positions. Peloton also said it was moving away from plans to build a sprawling production facility in Ohio.

CNBC reported in January That Peloton planned to temporarily halt production of its equipment, according to internal documents that outline those plans, as a way to control costs as demand falls.

One of Foley’s biggest mistakes was making long-term bets on Peloton’s supply chain during the height of the pandemic, as consumers stuck at home eager to shell out hundreds of dollars for ways to sweat out the living room or garage.

However, the dynamic quickly reversed, as Covid vaccines were made widely available and indoor gyms and fitness studios were able to reopen without many restrictions.

From the start of his reign, McCarthy has made it clear that he is more interested in Peloton as a subscription company than as a manufacturer.

Already, he has Peloton All-Inclusive Fitness Membership Prices Raised And you’re testing a new model where customers can. Pay a fixed price To rent a piece of equipment and take exercise lessons upon request.

He has also been tasked with trying to boost employee morale, particularly with the company’s share price under severe pressure. Peloton stock is down more than 75% so far this year, as of the market close on Monday.

last week, Company employees learned that Peloton offers one-time cash bonuses to hourly workers who continue to operate early next year and are making changes to their stock compensation plans, given the stock price.

“Staying away from proprietary manufacturing is probably the right move,” said Simon Siegel, an analyst at BMO Capital Markets, adding that McCarthy appeared to be trying to “reverse past mistakes” from the Foley era.

“Obviously there will be savings,” Siegel said. “But given the state of Peloton’s balance sheet, it’s worth asking how much the relaxation costs and what else needs to be done.”