Peloton is entering a challenging phase as the fitness equipment company strives to attract younger and wealthier customers. According to an announcement expected on Tuesday, Peloton will partner with Costco, the well-known retail chain, to sell its stationary bikes in Costco stores and on the retailer’s website.
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Under the terms of the deal, Costco will offer Peloton’s Bike+ in 300 U.S. stores at a price of $1,999, and on Costco.com for $2,199 from November 1 to February 15. This represents a significant discount compared to the regular price of the Bike+, which is listed at $2,495 on Peloton’s website. Notably, the deal also includes a 48-month extended warranty, while the original price only comes with a 12-month warranty. However, it remains unclear how this offer will compare to any holiday promotions Peloton may roll out.
This new partnership comes during a transitional period for Peloton, which is being led by two board members after former CEO Barry McCarthy stepped down earlier this year.
A New Strategy for Profitability
In the past, Peloton has focused on growth at all costs, but now the company has shifted its focus to profitability. To achieve this, Peloton needs to be more creative in reaching new customers, and the deal with Costco is part of that strategy.
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With declining sales and mounting losses, Peloton is looking for lower-cost ways to attract new customers. According to Dion Camp Sanders, Peloton’s Chief Emerging Business Officer, Costco is seen as a channel to reach potential customers, as he shared in an interview with CNBC.
“We have structured a deal with Costco that ensures profitable and sustainable unit economics, while at the same time delivering clear value to Costco members,” Sanders said. “This agreement allows us to meet our growth and profitability goals while gaining access to Costco’s large customer base.”
Sanders emphasized that the partnership is only for a limited time because fitness is a seasonal category for Peloton, but the company hopes to build a long-term relationship with Costco and potentially expand the partnership to new locations in the U.S. and internationally in the future.
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A Major Opportunity with a Strong Partner
The partnership with Costco puts Peloton on the shelves of a retailer with a loyal and affluent customer base. Costco, a membership-based retailer, has gained popularity as consumers across all income levels increasingly prioritize value and look to save more through bulk purchases and private-label items.
According to analytics firm Placer.ai, Costco’s store traffic increased by 31% as of September 1 compared to the same period pre-pandemic in 2019. This shows Costco’s impressive growth, even as consumer markets rapidly shift.
Costco’s customers are also becoming younger, an important demographic that values health and fitness more than previous generations. According to Gary Millerchip, Chief Financial Officer of Costco, about half of the company’s new membership sign-ups last fiscal year came from individuals under the age of 40, and the average age of Costco’s 76 million members has decreased since the COVID-19 pandemic.
Additionally, according to Numerator, 36% of Costco customers have household incomes exceeding $125,000. With these characteristics, Peloton believes that Costco customers have the financial capacity to afford their premium products. “Many Costco members are affluent, live in suburban areas, and have the space in their homes to build personal gyms,” Sanders explained.
Peloton’s Transformation
Peloton is already available on major platforms like Amazon and Dick’s Sporting Goods, and the company has been working to develop partnerships with other companies that target similar customer bases. For example, hundreds of Hyatt Hotel properties are equipped with Peloton fitness equipment, and starting this month, Hyatt customers can earn reward points for completing workouts on the Peloton Bike and Row during their stay.
Additionally, Peloton recently announced a deal with Truemed, which allows Peloton members to use pre-tax earnings to purchase certain hardware products, including the Bike, Bike+, and Tread, through health savings accounts or flexible spending accounts.
The partnership with Costco marks a new chapter for Peloton as it expands its reach and looks to acquire potential customers at a lower cost. In an increasingly competitive fitness market, Peloton needs strong partners like Costco to solidify its position. Will this strategy help Peloton navigate its current challenges and return to sustainable growth? Only time will tell, but it is clear that Peloton is betting big on this transformation.
