Peloton has become so popular during pandemic, it doesn't need marketing
The pandemic has wreaked havoc on many retailers but Peloton isn’t one of them. The fitness brand, popular before COVID-19, is now enjoying the benefit of homebound consumers eager for exercise. Peloton said Wednesday that it has seen such a favorable sales response from word-of-mouth and existing brand awareness that it paused its cancellable advertising in the majority of markets in mid-March.
“This has been a really interesting time for us where we’ve reduced media spend because of the organic demand that we’ve had and we’re continuing to pause that media spend in most of our markets,” said Jill Woodworth, chief financial officer at Peloton, on a conference call with analysts Wednesday afternoon, noting that in the fourth quarter, the majority of the brand's media spend is “turned off.”
Despite that pause, the brand reported an increase in revenue of 66 percent for the third quarter ending March 31, to $524.6 million. Connected fitness subscribers grew 94 percent over the year-earlier period, to 886,100; paid digital subscribers grew 64 percent to more than 176,600 members. The company also extended the trial period for its digital subscription, from 30 to 90 days, and has pledged $1 million in subscription waivers for those financially impacted by COVID-19.
Woodworth said Peloton saw a spike in demand from consumers that started in early March and has continued through May. For the quarter, sales and marketing expenses were $154.8 million, a 53 percent increase over the year-earlier period that represents 30 percent of revenue. Peloton said the increase was driven by higher acquisition costs due to new products like the treadmill, and brand marketing.
Yet executives said the recent marketing pullback has been a learning experience in how Peloton will invest in media moving forward. “We do think fiscal ’21 and beyond we should expect to see more marketing efficiencies than we originally forecast,” said Woodworth on the call. In a recent survey with customers, more new buyers than ever before cited “word-of-mouth” as influencing their purchase decision, according to President William Lynch.
“We’ve heard countless stories of a lot of our newest members who again did not have purchase intent for the Peloton bike prior to COVID-19, who are complete converts,” said Woodworth, noting that even after gyms and health clubs reopen, it will be a “slow climb” for customers to think about being comfortable in such environments after the pandemic.
Like many brands, Peloton has had to make some changes in operations to deal with the pandemic. On March 19, it closed its 97 showrooms. It also temporarily stopped home delivery of its new treadmill product because the machines require workers to enter homes. However, Peloton is seeing interest in at-home content classes beyond its bikes and treadmill products, like family dance classes and strength and cardio workouts.
Peloton incurred a loss of $55.6 million, compared to a loss of $38.6 million for the same period last year, due to non-recurring litigation and settlement expenses. The company resolved a lawsuit with group of music publishers in February.
However, the company is seeing its share of supply chain issues as certain parts get delayed due to the crisis. Longer shipping and production times will continue through the fourth quarter, the company said. John Foley, CEO and co-founder, said Peloton is rethinking some of the new products it had planned to roll out, due to the pandemic.