Peloton’s clash with agency over treadmill safety threatens to tarnish brand

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A public dispute with a federal agency over safety concerns and a chilling video of a child being dragged under a treadmill threaten the community Peloton has built.

Pressured parents and exercise addicts who own Peloton products are scratching their heads and taking to social media platforms and community chat rooms to discuss the fitness equipment manufacturer’s response to the U.S. Consumer Product Safety Commission. The agency is investigating the safety of Peloton’s high-quality treadmill, which has now been linked to numerous injuries and the death of a child.

Peloton has said it has no plans to recall its $4,300 Tread+, despite calls from regulators and politicians to do so.

The back-and-forth jeopardizes the launch of Peloton’s cheaper treadmill machine in the US later this year. Brand experts and attorneys warn that the longer this goes on, the greater the risk that Peloton will face growing consumer backlash, requiring tougher damage control and costing more money.

“There is a rule of thumb that goes back to the Tylenol case, where people were poisoned,” said Luc Wathieu, a professor of marketing at Georgetown University’s McDonough School of Business.

Tylenol became a crisis management textbook in the 1980s, when: someone messed with capsules of Extra Strength Tylenol by adding deadly potassium cyanide, killing multiple people. Johnson & Johnson acted quickly to develop a strategy to regain American confidence.

“If there’s a threat to the customer — one that becomes so public — you have to overcompensate,” Wathieu said in a phone interview. “But for some reason, companies tend not to do this, even though it’s been shown time and time again that you need to act quickly.”

On weekends, the CPSC has a statement say consumers should stop using Peloton’s Tread+ machine if small children or pets are around. The move came after the organization’s investigation into the death of a child involving one of the Tread+ machines, as well as dozens of other reports of injuries.

The committee simultaneously released a graphic video, captured by a home security camera, of a young boy being pulled under one of the Tread+ machines and struggling to free himself.

The CPSC has further said that Peloton’s treadmills are designed differently from those of its peers, featuring “an unusual belt design that uses individual rigid rubber slats or steps that interlock and ride on a rail.” That is instead of a thinner, continuous belt. There is also a large gap between the floor and the belt of the Tread+, leaving room for things to crawl under.

Peloton said the design is intended to make running on the knees and legs easier.

For now, the company refuses to take the product off the market or make design changes. Peloton said it was “shocked and devastated” to hear about the fatal accident last month. However, over the weekend, it also issued a statement calling the CPSC’s press release “inaccurate and misleading.”

Peloton CEO and co-founder John Foley wrote in a separate letter to treadmill owners that the company is working on new software-enabled backup code “that will provide an additional layer of protection against unwanted use of the Tread+.”

“The Tread+ is safe if our warnings and safety instructions are followed,” Foley said in the letter.

A Peloton spokesman declined to comment further.

‘I’ve never seen a fight like this’

The company is better known for its exercise bikes and only launched a treadmill in 2018. First called the Tread, it’s now known as the Tread+ as the company prepares to later sell a cheaper version in the United States. this year. The smaller, cheaper model is already on sale in the UK and doesn’t have the same stiff slats as the Tread+.

The clash with the CPSC has not been good for Peloton’s stock. The stock fell 7% on Monday. The stock closed Tuesday afternoon at $106.50, another 1.2% lower. In the past three months, Peloton shares are down more than 32%, from an all-time high of $171.09 on Jan. 14. It follows a huge run-up in 2020, when investors viewed Peloton as a stay-at-home game and pandemic beneficiary, pushing its stock up more than 400%. But now that fitness centers are reopening, some of that gain has been abandoned.

According to BMO analyst Simeon Siegel, the Peloton stock price has recently “disengaged” from underlying fundamentals and reported results.

The stock appears to be “ruled by perception and hope,” he said. Siegel has an underperform rating for Peloton stock with a price target of $45.

“Most of Peloton’s market cap has been created by its marketing department, rather than its equipment, engineers or its instructors,” Siegel said. “They told a story… And that Peloton story is so much bigger than the Peloton paying membership base.”

Over the past six months, Siegel said, Peloton’s coverage has begun to falter as the company grows exponentially during the pandemic.

“Whether it’s Tread+, or responding to customers across the supply chain, … eventually, as businesses grow, they face obstacles, and not all of them can face violence,” Siegel said.

While Peloton isn’t breaking the sale of its treadmills versus bicycles, Cowen & Co. that the Tread+ will represent approximately 2.2% of unit sales by 2021. That’s out of about 1.633 million exercise bikes and treadmills combined, it said.

In 2020, Peloton reported revenue of $1.8 billion, up from $915 million a year earlier.

Cowen analyst John Blackledge said he expects most of Peloton’s longer-term treadmill capabilities to come from the upcoming Tread model, which is more affordable than the $4,300 Tread+. Hopefully, he said, the newer model will avoid similar issues with the CPSC because the belt doesn’t wrap under the machine.

Peloton has said it is open to working with the CPSC to ensure its customers are safe. It said classes include instructor safety messages to remind users to keep their children, pets and other objects away from the Tread+ during workouts, and to remove a safety key after workouts so kids can’t activate the machines. .

However, disagreements with the federal agency responsible for protecting U.S. consumers from hazardous products are rare. The CPSC cannot enforce a recall, but has: companies sued in the past to make them comply.

Peloton has also previously responded to the agency. Last fall, it issued a recall for a version of its clip-in bicycle pedals due to the risk of the axle breaking and injuring users. affects approximately 27,000 bicycles.

“To be honest, I’ve never seen a fight like this take place here,” said Anthony Gair, a partner at Gair, Gair, Conason, Rubinowitz, Bloom, Hershenhorn, Steigman & Mackauf, which specializes in adjudicating personal injury cases related to defective products.

“The CPSC must have reason to believe it was not designed appropriately,” he said. “Warnings are the last resort. And so the question becomes this, ‘Did they do a good hazard analysis, yes or no?’ And if they did a good hazard analysis, ‘Did that hazard analysis identify this hazard?'”

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