Peloton has a unique potential to draw in new, cost-conscious members from the secondary market who are prepared to pay for a monthly membership.
Peloton said on Thursday that it will begin charging new members an initial activation charge of $95 if they purchased their hardware on the secondary market. This move comes as more customers are able to purchase gently used gear for a far lower cost than at retail.
The U.S. and Canadian subscribers’ used equipment activation charge coincides with a noticeable rise in the number of new members joining Peloton who purchased used bikes or treadmills from peer-to-peer marketplaces like Facebook Marketplace.
Peloton reported seeing a “steady stream of paid connected fitness subscribers” who purchased hardware on the secondary market during its fiscal fourth quarter, which concluded on June 30. According to the corporation, the category had a 16% yearly growth.
In a statement to shareholders, the business stated, “We believe a meaningful share of these subscribers are incremental, and they exhibit lower net churn rates than rental subscribers.”
Interim co-CEO Christopher Bruzzo subsequently noted on a conference call with investors, “It’s also worth highlighting that this activation fee will be a source of incremental revenue and gross profit for us, helping to support our investments in improving the fitness experience for our members.”
Although many Peloton customers are ardent users of the at-home exercise equipment, others have compared it to a glorified clothes rack due to the high attrition rate. Those customers initially paid Peloton for that gear, but more significantly, a large number of them have stopped their monthly membership, which is how Peloton generates the majority of their revenue.
One of Peloton’s greatest opportunities to increase income without incurring any upfront costs is by drawing in new, cost-conscious members from the secondary market who are prepared to pay for a monthly membership, on top of the proceeds from the first sale.
Ari Kimmelfeld thinks that there are about a million bikes gathering dust in homes worldwide that may be a source of fresh revenue for the firm. Trade My Stuff, originally known as Trade My Spin, is a startup that sells secondhand Peloton equipment.
He told CNBC that he had previously met with Peloton management to talk about ways to work together because each used piece of equipment he sells might bring in over $500 in additional income for Peloton annually. That amount can increase to more than $600 for the first year in addition to the activation price for new secondhand equipment.
Following the announcement of the higher activation charge on Thursday, Kimmelfeld told CNBC, “We save the customer a lot more than $95.” “I don’t think it will slow down or prevent people from purchasing auxiliary equipment. because, even with the $95, let’s call it a tax, from Peloton, you can have a bike delivered more quickly and for less money on the secondary market.”
Exchange First-generation bikes cost $499 from My Stuff, but modern bikes cost $1,445 in comparison. The Bike+ is available for $1,199 instead of $2,495 as a new model. Additionally, it offers used Treads for $1,999 as opposed to $2,995 for new.
Since starting his company, Kimmelfeld has assisted customers in selling their used Peloton bikes, and he has sold “few thousand” bikes. The firm provides same- or next-day delivery in 14 locations around the nation, including Los Angeles, Denver, and New York City. It offers delivery in such areas within three to five days. In contrast, the delivery time of a brand-new Peloton order might be much longer.
According to the firm, the purpose of the used equipment activation charge is to guarantee that new members “receive the same high-quality onboarding experience Peloton is known for.” According to Bruzzo, buyers of secondhand bikes or Bike+ have access to a history summary that details how many rides the bikes had prior to being resold, as well as a virtual custom fitting before their first ride.
According to Bruzzo, “We’re also giving these new members discounts on accessories like bike shoes, bike mats, and spare parts.” “We’ll keep focusing on this crucial channel and look for other ways to enhance the experience for new members. For instance, we can educate new members early on about the variety of fitness modalities we offer and the numerous series and programs our instructors lead.”
