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Peloton announces store closures: Will the Roseville location be affected?

Sacramento Bee logo Sacramento Bee 8/17/2022 Randy Diamond, The Sacramento Bee

It was only nine months ago that Peloton upgraded its 300-square-foot caged kiosk in a mall passageway at the Westfield Galleria in Roseville to a much fancier brick and mortar store with private workout rooms to test its bikes

It’s unclear, however, if the 2,800-square-foot location that opened in late November 2021 will survive the latest transition at the financially troubled exercise machine company.

Peloton CEO and president Barry McCarthy in an Aug. 15 memo to employees said the company plans a “significant and aggressive reduction” of its store 86-store retail footprint.

As the pandemic has eased, fitness clubs are back in vogue, and Peloton has seen a reduction in sales of its bikes and treadmill products. Cutting retail stores is one way to reduce expenses.

“Consumers want a mix of virtual and in-person engagement with the brands they love, meaning a hybrid model of e-commerce as well as limited physical retail touchpoints, “ McCarthy said in the letter. “We have to meet our prospective members where they are.”

McCarthy said in the letter that the company will provide future updates on which retail operations will be impacted by this decision in the coming months.

“We do not anticipate closing retail locations in calendar 2022, but the timing is uncertain as we begin negotiations to exit our store leases,” he said.

Peloton officials did not respond to a request for comment from The Sacramento Bee.

Jennifer Crowley, a spokeswoman for the Westfield Galleria at Roseville, said she could not comment.

However, Peloton typically signs five-to-10-year leases, the company said in its 2021 annual report. The new store opened in November 2021, replacing the smaller kiosk location that opened in 2018.

On a five-year lease basis, the new lease would run at least until November 2026. On a 10-year basis, the lease would run until 2031.

But Peloton might decide to close the Roseville location whether they can negotiate out of their lease or not, said Steve Edwards, a Sacramento commercial real estate broker, who runs The Edwards Company.

“They could close and continue to pay rent,” saving labor costs, Edwards said.

While malls often have their own unique leasing rules, Edwards speaking about shopping centers in general noted, “it would be rare that a landlord would let a national tenant off their lease obligation.”

The Roseville location is the only Peloton store in the Sacramento area.

The next nearest store is at the Broadway Plaza complex in Walnut Creek. A San Francisco location closed more than a year ago.

Peloton also plans to lay off 800 employees and switch entirely to a third party vendor to set up its bikes and treadmills instead of using its own employees as part of cost reduction moves.

In the Sacramento area, the company had switched around a year ago to a third party vendor for set-up of its equipment.

The company also recently scrapped plans to build its own manufacturing plant in Ohio and will continue to rely on outside vendors to build its exercise equipment.

Peloton never made money, even in its heyday. In the first year of the pandemic, consumers rushed to buy its bikes that retailed for almost $1,500 plus a monthly subscription charge of $39, for the instructor-led biking/exercise classes on the bike’s video monitor.

Financial analysis the cost of retail sales plus marketing and advertising have exceeded the company’s revenue from selling its exercise equipment.

Peloton had a net loss of $71.6 million in 2020, which increased to $189 million in 2021, show the publicly-traded company’s financial statements.

In the first three months of 2022, Peloton reported a $751 million loss.

Nevertheless, the bikes became a status symbol for many health-conscious upper-class individuals. And up-scale rental communities in Sacramento touted the Peloton exercise bike as an amenity in their community gyms.

Some of Peloton’s biking instructors became celebrities in their right with hundreds of thousands of followers on social media.

As part of Peloton’s plan to grow more revenue, it’s also going to cost more to buy Peleton’s more expensive bike with a larger monitor that swivels and an enhanced sound system than the original model.

The cost of the Bike+ increased earlier this month from $1,995 to $2,495. The Peloton standard bike retails for $1495. Regardless of bike choice, the video class service costs $44 a month.

Peloton also increased the price of its basic treadmill aptly called the Tread by $800 to $3,495.

In the last month, Peloton has also introduced in the Sacramento area and other parts of California, a subscription model. Analysts say the model is aimed at countering the perception that a Peloton is for the wealthy only.

The standard bike can be rented for $89 a month while the Bike+ rents for $119 a month. The fee includes the monthly subscription to Peloton’s exercise classes. An additional $150 set-up fee is charged.

Customers, the company says, can cancel at any time. The set-up fee includes the bike removal, they say.

©2022 The Sacramento Bee. Visit sacbee.com. Distributed by Tribune Content Agency, LLC.

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