Peloton to Stop Making Bikes Itself

The change reverses a pandemic-driven strategy to bring its production in-house. It will reduce the cash burden on the business, said Peloton Chief Executive

Barry McCarthy,

who had already scrapped plans to build a factory in Ohio.

Peloton also said it will suspend operations at its Tonic Fitness Technology Inc. plant for the rest of the year. The company acquired Tonic, one of its longtime Taiwan-based bike-manufacturing partners, in October 2019.

Peloton spent hundreds of millions of dollars in the past couple of years to build in-house U.S. production capacity, believing that pandemic-driven demand for its products would remain elevated for years and that it could avoid ocean-shipping logjams by operating U.S. sites.

But sales of equipment have fallen more than 40% from a year ago as people return to gyms and pre-Covid-19 routines.

Mr. McCarthy, a former

Netflix Inc.

and

Spotify Technology SA

chief financial officer who took over the CEO role earlier this year from founder

John Foley,

wants to turn Peloton primarily into a subscription-based company rather than an equipment manufacturer.

Peloton has substantially cut the prices of its bikes and treadmills, which are equipped with a tabletlike screen that connects users to online workout classes, while raising the price of monthly subscriptions to $44 from $39. Though subscription growth has slowed, millions more people subscribe to Peloton than before the pandemic.

Under Mr. Foley, Peloton spent $420 million to buy Precor Inc., a maker of commercial exercise equipment with two U.S. factories. Then it announced plans for a $400 million Ohio factory—which it now intends to sell once construction is complete—in a strategy shift for a brand that until then had relied largely on third-party manufacturers in Asia.

With the plan to outsource manufacturing, Peloton again will be relying on a global supply chain that has been unreliable, hurting U.S. companies’ results as they struggled to keep up with demand.

Supply won’t be a problem for Peloton in the near term. Peloton in May said its inventory of unsold equipment had swelled to $1.4 billion, up from $19 million two years earlier when the company was scrambling to meet demand. Meanwhile, online reselling sites have swarms of sellers looking to offload relatively new Pelotons at substantial discounts.

Separately, the company said it rolled out incentives for hourly workers who remain in good standing with the company through January next year in an effort to ensure adequate staffing throughout the holiday season.

In May, Peloton reported its biggest quarterly loss as a public company and said it had raised $750 million to help sustain its business.

The company has laid off hundreds of workers and is saddled with a glut of unsold inventory.

Peloton, once worth around $50 billion, now sports a market capitalization of less than $3.4 billion.

Write to Sharon Terlep at [email protected]