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By Crystal — 4 months ago
127: Peloton Sues Echelon and our Interview with Brandon Zachary
October 11, 2019
- You’ve seen the ads for Echelon and wondered, “Isn’t that copyright infringement?” Well, Peloton has finally seen them too. And now they’re suing Echelon and we’ve got the details. It is shocking how many Peloton features that Echelon is openly ripping off. We also discuss another company Echelon is copying from.
- There’s been a new mini-Purge. Which kind of class only has 7 rides left? Find out here.
- We pick another bingo square for week 6.
- We have an update on, of all things, the Today show’s monkey. So, this is on me, not Tom. After I heard the story, I felt like you all needed to hear it. AND to find out what happened to Fred J Muggs after so many years in the business!
- Then NYC Marathon is almost upon us and Robin Arzon has a marathon simulation run for the Tread. This is THE BEST run! If you are anything like me, you will be pumped and ready to train for a marathon. I mean, I was when I was doing the class. Once I was done I remembered I still had like 22 miles to go.
- Oliver Lee is doing a half-marathon this weekend in Long Beach. He is going for a PR.
- We talk about the premiere episodes of Peloton’s new programs featuring Ally Love and Jess King. Ally focuses on courage for her first Sunday virtue and Jess King debuts the milestone minute. Jess also said there would be a surprise guest and big announcement during the next “episode”.
- Christine D’Ercole celebrates 5-years with Peloton. Congrats to Christine!
- Aditi Shah hosts Peloton’s first Signature Yoga series. Starting on 10/17, there will be 15 minutes of high energy flow and followed immediately by 15 minutes of restorative yoga. Aditi will be kicking off the first of 7 weeks!
- John Foley will be at the Vanity Fair Summit. For a small fee of $6,500, you can be too! There’s a very long list of other attendees that make up a fascinating list!
All this plus our interview with Brandon Zachary!Post Views: 0
By Crystal — 2 years ago
What gravitates people to any physical or even online store is not just the product but also the team behind them. For Peloton, each store brings customers to a whole level of community and personal experience with their fitness needs. Today, Crystal and Tom O’Keefe chat with Jill Foley, the Director of the Peloton Boutique. Jill talks about how she and her colleagues work together to buy, source, and sell apparel online and on showrooms. She also shares her retail store experience and what sets apart their boutique from traditional retail stores. Listen to Jill as she shows you how the store brings in more customers every day.
Listen to the podcast here:
Jill Foley Give Us The Inside Scoop On The Peloton Boutique
We have Jill Foley on. I’m so excited.
She is our third Peloton official Pelo people because she gets a paycheck. She’s on the payroll. She’s going to tell us all the great stuff about the boutique. If you have questions about the boutique, we have answers.
You want to read carefully because there are some little Easter eggs of information within the interview.
This is for fitness people. There are Easter egg whites of information for you.
There are dates included. We also have some great news to go over. I wanted to talk about Denis Morton because before we went on vacation, I was able to ride with Emma Lovewell, the Bond girl, and I was not able to ride with Denis Morton. However, it is after vacation and I still have not ridden with Denis Morton. I still have a little bit of feedback that I was able to garner. I have some news about the boutique, specifically a product line that I would like to update everybody on. There’s a little bit of tech.
Let’s dig in.
I have got to take a ride with him yet.
I, too, haven’t ridden with Denis Morton.
I have been trying to get my sleep schedule back from vacation.
You’re still on Mexican time.
I only was able to get up a couple of times this week, I’m ashamed to say, but I did do a little homework. This will shock you. Denis Morton is a hottie. That’s what I heard. All the women are texting me. They are messaging me and I was told that he is hot. Dreamy, I was told I would need a fire extinguisher when I met him. That’s what I know about Denis Morton.
He’s so hot, you’ll pick the seat off your bike. Is it too much?
Yes. I asked Lisa Carlson because she happened to tell me that she was doing a ride with Denis Morton. She said that they are good rides. It’s tough. He does get in and out of the saddle a lot because I’ve seen that comment a lot that there’s a lot of in and out of the saddle. I was wondering. She takes a lot of rides from different instructors.
Is he also telling the people to get on and off the bike?
Not on and off. I know you don’t ride, but I forget that you don’t know the jargon. This means you stand up and pedal.
I thought he was actually getting off the bike and just wandering around.
When they say getting in and out of the saddle a lot, it means standing up.
I was picturing him and he’s like, “I’m going to get a coffee. You guys keep pedaling.”
No, he doesn’t do that.
I was picturing him standing next to the bike with a cup of coffee like the boss on Office Space, “If you guys could just pedal a little faster, that’d be great.”
What’s going on here is there’s a different train of thought in the HR training world where you do a lot more seated. Steven Little taught us that when you ride seated, you have a lot more muscle engagement in your legs. That’s where all of the engagement is. When you stand, you’re making your core unstable. The idea is that the more you sit down on your rides, the stronger you will get faster because all that muscle engagement is focused on your legs rather than focused all over the rest of your body. There’ve been some comments that people have said Denis rides a lot out of the saddle, but from what I hear, there is a lot of out of saddle work, but it’s not constant up and down. It’s not dancy like there might be SoulCycle or something like that, but there is a lot of out of saddle work. That’s the official lowdown on Denis Morton.
Is there any sidesaddle riding like a special Downton Abbey ride?
I don’t think so. I’ve never seen any of the instructors do sidesaddle. It’s not a horse. It’s not a fair question. The seat, is that better?
I don’t know these things.
I forgot to mention that one of the big things that I wanted to talk about in the news is I got an HR Tribe update. It’s very good news. I chatted with Tom Lebel and he let me know that the HR Tribe has been officially adopted by Christine. She’s continuing to make sure that they have lots of heart rate training. I thought this was interesting. They gave Steven back the HR Tribe hashtag. They felt like it was his property, so they gave it back to him, which was nice. The HR Tribe is a good group of people. They’re not using it anymore. They officially said, “Steven, it’s yours to use. We’re not going to do that.” They’ve moved on and they’re in touch with him. All is well. Everything’s good with the tribe, everything’s good with Steven. They’re also able to take some training rides from Jennifer Jacobs, heart rate training, and a lot of people have started checking out the Matt Wilpers rides as well for Power Zone Training. I was surprised to see that the Heart Rate Tribe is still growing. They are over 2,300 people now. Congrats to the Heart Rate Tribe.
Speaking of Matt Wilpers, do you think he gets sad when everybody says, “Denis Morton is so hot?”
No, I don’t because I met his girlfriend or fiancé at the HRI and he’s doing okay for himself. She’s hot. She clearly thinks he’s hot. All is well.The minute a customer leaves the door, you are part of Peloton’s life. Click To Tweet
If everyone’s running around seeing how hot this other guy is, you would think at some point he’s like, “What about me?”
I think everybody’s excited about training with him. The jury is still out on this one. We don’t have the buzz that we’ve got going with Matt Wilpers. I think he’s probably okay but I could be wrong.
People love him for his mind.
I get what you’re saying, but I think plenty of people think Matt Wilpers is attractive. Denis Morton is like the guy that’s on the cover of all those bromance novels. He’s that guy and Matt Wilpers is not that guy. He’s a good-looking guy but he’s not that guy and that’s okay because Matt Wilpers is good looking.
He’s like the boy next door.
He’s also the nicest guy ever.
He was our first guest when we were nothing, unlike the huge juggernaut we are now. When we’re like, “We have an idea.” He’s like, “Sure.” He took a chance on us and then he couldn’t have been nicer during the interview and we got to meet him in HRI. I get what you’re saying.
Ladies and 5% to 8% of men, you need to start talking about how hot Matt Wilpers is too. Don’t ruin a poor guy’s self-esteem.
I think that there are other things that people appreciate about Matt Wilpers besides his looks. Right now, a lot of what I hear about Denis Morton is based on his looks, which is not a bad thing in and of itself, but as my trainer, I would rather him have more things that I’m excited about than just his looks. Although, the looks are okay. I’m not upset.
What you’re saying is the next time you say, “Do I look okay in this outfit?” I should say, “You’re a very smart, intelligent woman.”
No, I’m not saying that. Just for that, I’m going to wear spike heels everywhere we go.
I’m short. I’m like a Shetland person.
I don’t know if you remember this, but a while back, Matt Wilpers’ line of clothing came out in the boutique. I was very excited and I got his bib things and I got the cool down pants. Check this out. I was never able to get any of his tanks and tees that said #Wilpered on them because they sold out so fast, but I bought a tank. I was like, “I’m not letting it sell out again.”
If you want to know what to do when things sell out, you should keep reading because Jill Foley talks about ways you can get things or be made aware of things that have sold out.
The Peloton blog got a facelift.
It did. Have you been?
No. I don’t get their emails because I don’t have a thing with them.
Do you see it on Facebook?
If it pops up, I see it. I did not notice it.
It came out. It was an email. I didn’t see it on Facebook. That’s why I wasn’t sure. It looks great. It’s beautiful. It’s a totally new design. They’ve got different categories broken out along the top. You can see the lifestyle, the instructors and the community. We may not end up on Peloton’s website, but I’ve got plans. It’s an awesome blog and it always was great, but now it looks totally different. It’s beautiful and very easy to navigate. I think people will enjoy the change.
Every week, we tend to have a different interview because it’s an easy way for us to not have to talk as much and it’s hard to believe, but we don’t love the sound of our voices that much. One of us doesn’t love the sound of his or her voice that much, so we have other people on. We are joined by none other than Jill Foley.
How are you doing?
We’re good. Why don’t you give us your exact title, position and duties at Peloton?
I am the Director of the boutique. I help run the team. It’s about four of us to buy, source, make the apparel that we sell online and sell in our showrooms. It’s all of our Peloton branded apparel. We work together to figure out how we want to put designs on it. It’s a lot of designing and marketing. It’s a lot of handling all the logistics of getting the products from our vendors to our warehouse and out to our stores and to our customers. I’m the director of all of that.
That sounds like a lot.
It’s a big job and I liked it. We’re growing our team slowly. As we grow, it gets a little more manageable.
That’s the first time I’ve heard the word growth and slowly associated with Peloton.
We are a small portion of the business. We don’t get all the resources of the rest of the company sometimes, so we do what we can.
I personally love everything in the boutique. I could make it a full-time job shopping there.
I love it slightly less than she does, but for the same. I buy my comic books nerd stuff. We each turn a blind eye to the other person’s weaknesses in that regard, so it’s okay. What did you do before you did this? What was your path to this?
I’m a lawyer by trade and I was a lawyer for about ten years. I had a lot of exposure to business through my husband, John. When he started Peloton, he and the other founders knew that I was passionate about fitness. I’m a huge fitness junkie and I was passionate about fashion and I had a lot of exposure to business, so they brought me on to help do this apparel side of it. It’s a mix. I’m a lawyer by trade, combining my passions of fitness and fashion. I feel pretty honored to be here doing this.
You said you have the passion for the fitness, I hear in your voice you have the passion for what you do. It sounds like you love what you do.
John and I have always been into fitness. I ran cross country and did triathlons my whole life as did John. That’s how we came up with the bike because we were so addicted to fitness and we had our two children and it was hard to fit fitness in. That’s where he came up with the concept. It’s fun to work every day at a company centered around something we love so much. I get to do the fashion piece. I like it because I understand that it needs to be fashionable, but it needs to be functional. Working out as much as I do, you want to feel good, you want to feel good in it. I like trying to create that for everyone. There is nothing worse than putting on something that makes me feel bad or is uncomfortable. You don’t feel pretty, good, or athletic. I like to be able to try and create more of that for myself and for our riders.
When you guys started Peloton, did you always envision there being an apparel component or because of its explosion and popularity, was there just a sudden demand that you had scrambled to fill?
It’s a combination of both. When they brought me on, it was on a smaller scale. We knew we wanted to open the Chelsea studio with some apparel to offer to our riders coming in there. Some nice leggings and bras and tops and what we call post practice pieces. You throw off your sweaty tank and put on a nice comfy long-sleeve tee or sweatshirt. I knew we were going to open the studio with that. As we saw the demand for the apparel and as we open more stores, it started to make sense to put apparel in all the stores. We started doing that. After doing all the apparel and all the stores, we saw the demand and we had a lot of people calling in. “I don’t live near a showroom. How can I get the clothes if I don’t live near a showroom?” That’s when we built the online store. We did not expect for it to be such a big part of the company at this early stage in the company. We had to grow fast to keep up with the excitement of our riders, which was, by the way, the coolest feeling. I loved seeing the demand and then my team and I being nimble enough to try and get it to that demand. No, we did not foresee that it would be as big as it is now, but we’re glad to do it and we’re excited that we get the chance to do it.
You’ve got to be careful because if you don’t fill the void then you have bootleggers come in and they’ll do it for you.
It’s been tricky because I finally brought on a merchandise planner. She came over from Macy’s. She’s amazing. She’s helping us plan the lines so that we don’t sell out anymore so that we have the right amount of inventory and the right styles and the right sizes for everyone. We didn’t have that before. Now, I have someone studying past years of selling and helping us make sure we’re getting stuff to people that they want. The bootlegging, while I love that because I love the excitement around the brand. When we built this brand, we knew there would be some cool social networking because that’s what the leaderboard does and we created the Facebook page, but we didn’t foresee the relationships, the friendships, and the positive aspect of it that Peloton has created.
It’s been so lovely to see friendships bloom and people cheering each other on and the community being so strong and that the community is so strong, people are making their own stuff. I love that. It’s very flattering. It makes us proud. What’s tough about that is at the same time, we’re trying so hard to keep such a tight brand story. As we grow, we want to make sure our brand is tight and clear and you see something it’s Peloton, which is why we can’t allow all the bootlegging so to speak. What I try to do is stay nimble and I have certain vendors that I can make something fast with so I can give people, give our riders what I hear they want. We try to do that as best we can.
I’m sure it’s tough to keep up with the demand because everybody’s growing so fast. We were talking. I received my Peloton. The Facebook page at that point had 8,000 people. There are 36,000 people now. It’s crazy. How does the process work whenever you have the instructors have their own collections? Do you come to them and offer it or is it just you go through a cycle or is there more to it? How does that work?
It’s actually one of my favorite parts because I do run that. Part of it is we’ve got so many requests from riders. “I want what Robin is wearing. I want what Hannah is wearing.” That’s where I came up with the idea. I said, “Why don’t I just design an outfit? I can’t buy everything that the instructors are wearing and sell it.” Robin gets these niche brands that I can’t get access to sometimes. I was like, “Why don’t I design an outfit with each instructor which is them and we can do that?” We developed the program. The way that works is, for instance, we’re doing Ally Love’s right now. I said, “It’s so cute. I want every piece.” I said to Ally, “We’re going to start thinking about your outfit. Start thinking about exactly what you want to do and then we’re going to meet.” Four weeks later, she came to me with all of her ideas.
When I see the instructor’s ideas, I then know what vendor to go to. I have a vendor that can do exactly that. I have a vendor that printing capability or whatever. Now, I went to those vendors and Ally and I meet with them and we just work on structuring an outfit. We do fittings, we do samplings. Now the outfit is done. I’m having her think, “What’s your concept behind it? How do you want to market it? What’s the visual you want our marketing email to look like? What’s your energy here?” She’s telling me that and we’re going to go meet with the marketing team and the design team and do all the marketing material. It’s truly a collaborative effort from designing the outfit to the marketing of the outfit, to the messaging and everything. It’s a time for them to do something different than instructing. They get to have fun creating this line with us.
Out of curiosity, have you ever run into an instructor that doesn’t know what they want, that doesn’t have a vision?
The men, usually. The women know what they want. The women come in with a storyboard, a color story. I haven’t run into that with any of the women at all, not even with Jenn Sherman. She came in with a clear idea of what she wanted. She wanted to be rock and roll. She wanted her Tuesday tribe. It’s been pretty easy and clear. It’s more the men coming in, “What do you think? What should I do? Why don’t you tell me?” I’ve got to pull out from them what they want to convey about themselves to the riders. “What is it about you want to convey or what is your favorite look?” With Alex Toussaint, that’s what we did. Actually, that’s not fair. He came in and said, “I know I want to do my look good, do better.” He wanted to put that on something, but he didn’t know what else you wanted to do or what that’s something should be to put it on. We took what he likes to wear and did that.
I don’t think that I ever saw any of Alex’s stuff available. You were talking about planning and how you brought in a planner to figure out when you need more. I have a couple of questions that go with that. One is how do you decide to bring something back if it did sell out fast? Two, it seems like with the instructor lines in particular, once they’re gone, they seem to be gone. I don’t know if you guys do that on purpose or if it’s like we’re going to refresh that every once in a while. What are your thoughts on that?
Usually, when we decide to reorder something, it’s based basically on lead time. Can I get it fast enough while there is still demand for it? If a vendor can turn something around to me within four weeks, then I’ll do it. I will get it back on the site. Right now, we’re sold out a few key styles. You’re going to see them back online in about four weeks. If it’s longer than that, I don’t do it. I know our new line is going to drop six weeks after because we drop a new line almost every six weeks so by then, it won’t make sense for me to do the reorder. The lead times are a big influence. However, that being said, we got so many requests. I read everything that comes into [email protected] just because I want to keep my finger on the pulse of the business and make sure we’re taking care of everyone. We got so many requests for Robin’s tank again, Christine’s tank again, Alex’s shirt.
It’s funny you said that because we got so many requests for those instructor pieces, I brought them back even though it was eight week lead times, nine week lead times. We did bring those back. If I’m getting enough of our riders asking for something, we listen. That’s what we’re here for. I’m trying to make stuff that people want to wear and want to enjoy. As for the instructors, I did that with them. The ideas that we won’t restock unless there are a lot of requests because the instructors are all going to get to do this again. Jenn Sherman, she’s going to get to do another outfit with us again. As soon as I get through all of the instructors, then it’s time for Jen to go again. She was our first one. That’s why we don’t replenish because they’re going to get to design something again. The caveat to that is if we’re getting enough requests, for sure, we’ll make it again.
That makes sense. It also answers another question that I had. I was curious if you ever considered having a line of clothing that’s like an evergreen always available that has the instructors’ quotes, the key things they always say.
Yes, we have considered that. It’s funny you said that because you’ll see part of our holiday line, it’s a whole idea of this inspiration. Let’s start the year inspired, let’s get going and we’re using the quotes of the instructors. We’re developing that now. That’ll be a good program. I think that’s what people want. We’re going to put their signatures on stuff. We’re going to put quotes. I know I like that. I’m a home rider and I do 2 to 3 6:00 AM classes a week and the things they say are important to me. Robin will say something, they’ll be like, “That’s right, Joe. Stop thinking that negatively. Let’s think about how Robin is thinking about these things. I’d wear a shirt with a quote like that to remind myself.”
Have you ever thought about creating a wish list or something where somebody can mark it like, if that comes back and that way if you had enough people mark it, you would know we should bring that back?
We do have that feature. Maybe I need to make it more prominent on the site. I read those reports every Monday looking what’s being requested if it comes back in. It is there on the site. Maybe I need to look into making it more noticeable.
That might be a user error on our part. I might get so distracted by the shiny things I want.
That’s not that big. Email me if you go on the site and you don’t see it because I want to make sure people see it. I look at that report every Monday of what is being requested a lot.
Maybe if it sells out, you can have the buy button flip to a wish button.
I’ve got to make this clearer. I’m glad you pointed that out.
Have you ever spent time actually working within the boutique? It sounds like you do all the creative behind the scenes. I don’t know how you’d ever had time. I was curious.
No, I do. When we opened our first store in the Short Hills Mall back in October, November 2013, we worked in the store every weekend. We would work there and try and sell bikes. I got that experience. With our East Hampton store, I would work out of there a lot in the summers, which I loved, which was eye-opening for me to understand some of the issues our sales associates might face or how hard sometimes it is to pitch a customer on something. I have had that experience and it’s fun too. Talking with customers, sometimes you want to do a good job. It’s hard.There's an automatic conversation that customers have when they come in the Peloton boutique, less so than at a traditional retail place. Click To Tweet
Do you happen to remember when you’re doing the store, the actual physical sales, when it’s that new, the first person that took the leap and said, “I’ll buy this thing even though it’s so untested at this point?”
I do remember that. It was so exciting. If you’re buying it, we get so excited. One of the questions we always used to get in the early days was, “What if you guys go out of business? What do I do with this bike after that?” We got that question all the time. Now, we don’t get that question anymore. That was fun. We’re not going anywhere.
I was thinking when you sell that very first bike and you’re either like, “That’s the start of a great thing or did we just screw this dude?”
That’s the weird thing about our business is that we’re not just selling a bike. You leave and we’re saying, “Goodbye. We don’t care about you anymore.” We care a lot about it. You are now part of our community. We need to keep you engaged, happy and entertained, and we’ve got to make it interesting. It was such an interesting business in that way. The minute you leave the door, you’re part of our lives forever, so to speak. You’re right. The customer leaves, we got to do good by them. We’ve got to make sure we’re giving them a great product with great new features, great apparel. Definitely, that’s at the forefront of our minds.
I see on Facebook and stuff, the people that haven’t bought yet get a little sticker shock about the monthly fee. I understand that to one degree, but I think of what a lot of times people don’t realize is that also incentivizes Peloton because you guys want to keep your business. You want to keep that monthly fee rolling in. You’ve got skin in the game. You’re not there to just sell a bike. You also need to keep them involved. It incentivizes you guys to continue to have a great product.
To make sure that the coaches are doing their best. I’ve got to make sure my team is doing its best. Everyone feels that here, which is what makes working here pretty exciting. Pressure is a negative word, but it is the real-time pressure to keep giving and creating a good product.
You guys are hitting that one out of the park. When you worked in the boutique, did people come in looking for specific items that they had seen maybe at another store? Since you do drop a new clothing line pretty often, were they looking for things?
To be honest now because the brand has gotten so strong, they’re looking for things that have the Peloton logo on it. The way I started to boutique was, I used to have about 50% was Peloton branded and the rest was not branded because we wanted it to be this boutique type of thing. That was the concept, like an Equinox. As time went on, I noticed that no one was buying the stuff that didn’t have Peloton on it. Now if you go into a store, it’s 100% Peloton brand, except our Chelsea store. That still has some of the specialty items and Westchester and some of our bigger stores. Generally now, people are coming in because they want something with Peloton on it and that’s been fun to watch our business evolve that way.
I think it’s funny how many of the “problems” that you deal with are good problems. Like, “We didn’t think we’d be selling clothes quite this quickly, but what are you going to do?” “We had these things to sell, but anything that didn’t have our branding on got thrown away.”
We had to sell it on sale or samples. You’d have a fire sale for it. It’s been interesting. I bought the summer line thinking, “I hope I didn’t buy too much. That seems like so many units.” Now we’re already selling out. My merch planner is scratching her head, thinking, “We’ve got to buy more for fall.” If we went out at fall, I’m going to be shot.
That sounds like a challenge. This community can rise to that challenge.
I know a lot of ways you’re like the job interview equivalent of, “I think my greatest weakness is I care too much,” except in your case, it’s true.
We’re listening to our customers and trying to give what they want. Sizing has been an issue, so we’re trying to make sure we have a nice variety of sizes for both men and women. That’s why I read every boutique at Peloton Cycle email that comes in from the site so I can make sure we’re staying on top of the needs.
At Peloton, you guys listen to everything from every direction. I constantly see things being answered on Facebook. I see requests being answered by having new features and obviously, you’re doing the same with clothing. It’s wonderful that you guys listen to the community the way that you do. It’s unique. It’s one of many things that pull the community together and make it such a wonderful brand.
It is special. John, one of his favorite things to say is that we truly are one of the first interactive media companies. We are a media company. We’re streaming live television thirteen hours a day or something like that. We can interact with our audience. We can say, “Crystal, speed up,” or “You’re doing great on that hill.” We can interact with you through the camera, through that fourth wall. That’s so unique. That’s one of the pillars of our company. We want to do that in every respect, which is why I like to respond to be nimble with the apparel, which is why the marketing team likes to respond on Facebook. That’s part of what we’re striving for. I’m glad that you feel that. I’m glad that it’s coming through.
I’m totally counting that as I just got a shout-out from Jill Foley.
I get so excited when I get a shout-out where they’re like, “Jill, how are you doing?” I’m so excited. You can’t fight the feeling of excitement.
Will you tell us your leaderboard name?
It’s so boring. I’m Jill F. It’s really creative.
You were in from the early days.
That was it. It was because that was when I was testing the bike back in the day when we were building the prototype, it was like, “Jill F.” I didn’t think of anything cute.
Is it easier or better for riders to order online or in person? What is the best from a rider experience and what’s the best from a Peloton’s preference?
It’s either. I want customers getting it anywhere they can. I buy online a lot because I’m testing. I want to make sure the warehouse is wrapping it nicely and stuff. That’s always a good experience. The problem is you can’t try it on. It’s fun to go into the stores and feel everything and be able to try on. We try and keep the selection consistent. Online is our broadest selection. Our bigger stores like Chelsea and Westchester and Short Hills, they will have that full selection. As the stores get smaller, you’re not going to see the full selection. Our merchant planner is studying what colors, sizes, styles do best in each store. We’re often sending Boca something a little different than we’re sending Manhasset.
We study what people are gravitating towards at each store. We’re getting better at that each season as we have more data and as our merchant planner is able to focus on it. Not all stores have the whole selection. That’s a lesser experience but hopefully, it’s the selection we think they like. We’re going to be doing a lot of promotions to drive people to stores because the stores do move the products slower than online. When we launch online, we sell a lot fast. We’re trying to get people to also go to the store. There will be some fun promotions in the stores this summer, like free flip flops with a purchase and that thing. In that sense, the store experience is going to start getting more fun too.
Store exclusive, perhaps?
Exactly. The flip flops are store exclusive. You could only get them if you go to a retail store. There will be other little exclusives like that as well.
My wife is going to make me fly to Santa Monica to get a pair of flip flops.
You could go to our Century City store.
We’re at Century City. Which one’s that?
Our Century City store is the other big mall in Los Angeles, east of the 405.
We’re in St. Louis, Missouri. The closest one for me would be Chicago probably.
We’re going to have a second one there too, I think in Skokie. We’re looking at that market. It’s exciting.
The way some people want to go to all the baseball stadiums, that’s how she is with Pelotons.
We love that. We get so many home riders coming into the studio here. It’s so great to see it and see the cameras and see what the instructors look like in real life and it’s fun.
I noticed that you guys have a little traveling Peloton going around the United States. Is there any merchandise available at any of those travel sites?
No, they’re not. We’re not offering any merchandise in those.
I’m curious because I know that they were small, but I didn’t know if that was like you could also get a thing.
No, unfortunately that didn’t happen yet. You never know.
I know you said that you were a lawyer by trade. Did you ever work in any other retail settings to compare what it’s like in your boutique?
I’m ashamed to say I only worked in retail three days when I was in college at Abercrombie & Fitch, only so that I could get the 50% off of the apparel. A couple of college friends and I went and did that. We worked there for three days, got 50% off, a lot of clothes and then quit. I do not have much experience but I spend a lot of time with our current retail team. We say it’s so hard to manage field teams, but we do a very good job. Every Tuesday we have a huge sales call. Everyone gets on video so we can stay connected. There’s a lot of communication, maybe some over-communication. It’s very transparent. We feel connected and the retail team is excited. They know the product is selling is good. They know it’s an asset to people’s lives, helping them be healthier and happier. When you’re selling a product like that, it’s something it does inside of you as opposed to selling any old widget. I feel like it’s a good retail experience when I spend time in the stores. Everyone seems happy and there’s positivity. It’s nice. It’s good.
I would think that the energy from the customers would be different than a traditional retail setting as well. Is that true?
That’s absolutely true. They are excited. In your living room every day or wherever your bike is. Sometimes you want a little bit more connection than that. That’s what the retail stores can be and they get to know their retail store or sales associates. They want to come in and see what new apparel there is. There definitely is a fun experience because there’s a little bit of an emotional-psychological connection. With your instructors saying things and you’re having your own spiritual journey on the bike, then if you go into the Gap, you’re not having some connection with the Gap or a Ritzy or whatever it might be. We do see that level of excitement. People want to talk about their bikes. It’s so fun. People want to come in and talk about their favorite instructor and maybe get some more tips, “Who else should I try?” There’s an automatic conversation that we can have with our customers when they come in, less so than at a traditional retail place.
You guys, in your own way, are building your in-house celebrities. There’s that element of it that people are excited to see the instructors or whatnot in a way that’s like the Gap, as you said. They can never provide that.
They are becoming celebrities because you look at them on a screen all day. It’s like a TV actor. John’s cousin has a bike. She came in and I took her to a Robin class and she got all flustered when she met Robin. I was like, “What is wrong with you?” She was all flustered and she was like, “My hands are shaking.” I’m like, “This is interesting.” She’s like, “That was weird.” When we left, she’s like, “I was so overcome by emotion because I see Robin every day and I listen to her and a lot of things she says helps me in my life. Just seeing her, I got star struck.” That was so eye-opening for me.
You’re like, “It’s just some lady I work with.”
You realize at that point we are in people’s lives in a meaningful way sometimes.
It was. The entire time we walked around at the cocktail party at the last HRI, I couldn’t say anything to any of them. I took my picture with them.
I was the opposite because I don’t ride the bike because I’m lazy. I went to HRI and was like, “I’ll take your picture with that person.” She’s like geeking out and I’m like, “Whoever that is, sure. Click.”
I get it though. They’re on TV essentially. It gets that celebrity feeling.
It’s interesting that I’m going to abuse my communications degree here for a moment. Marshall McLuhan talked about hot media versus cold media and radio, which he considered hot media because you had to use more of your head when you use it. You had imagined. You ended up being more engaged with the radio. This was before radio was nothing but music. They were telling me stories. You had to be engaged with radio stories in a way that you weren’t with television. Television was considered cold. I almost feel Peloton flips the script on that because it’s television but you are engaged with it in a way that somebody like Marshall McLuhan, who coined the phrase global village, in a way that he could’ve never envisioned. You’re literally interacting with your television and you’re engaged psychologically in a way with it that you would never be with traditional television.
I’m going to use that one. I’m going to share that one with John.
I’ll type it all up for you. It’s like, “I finally got to use something from my mass communications degree. How about that?”
That is very interesting and it’s a good point.
I might be the first person ever to utilize their mass communication degree. I think that’s all the questions we have for you. Do you have a Twitter handle or an Instagram or something like that, you would like to plug here?
No, I don’t have any of that. Come to the boutique website and check it out. It’s all I have to plug.
If they want to find you on the leaderboard, it’s Jill F, as you revealed. It’s funny how the people with those sorts of leaderboard names are like, “They’re so boring.” Everybody says that but at the same time, it’s almost like a cool vanity play because you had to be so early in to get one like that. It’s almost like saying, “My email address is [email protected]” Who has that? Not me. Thank you so much for taking the time to join us.There is nothing worse than putting on something that makes you feel bad or uncomfortable. Click To Tweet
It is my pleasure. Thank you for taking an interest and interviewing me.
You’re very welcome. Also, thanks to everybody at Peloton for being so supportive and letting us have instructors and people like you on.
We think it’s fantastic. I’m excited.
Thanks, guys. It’s lovely talking to you.
If you do come to any open houses or anything like that, let me know. I want to make sure I can meet you in person.
That is so nice. Thank you. We will definitely do that.
Jill Foley is a big deal. There’s no way she gave us a recipe.
She gave us two. It’s like a one and a half. It’s a variation.
Is it like a doughnut covered in ice cream?
She went totally healthy.
We need to after Chris Merrill.
We had Sophia after him.
Chris Merrill is like, “You start with a bucket of lard and then you put in some ice cream sprinkles and drink it through a chocolate straw.”
You two on the Facebook feed and then Lisa Carlson and Jackie jumped in. You guys were killing me. That was my favorite thread on the internet. I loved it. It was very entertaining. For anybody that doesn’t know what I’m talking about, you should totally join The Clip Out Group because you are missing out.
These are the things you’re missing. All these witticisms that you get once a week, they could just happen at any time in The Clip Out group on Facebook.
It was great. Back to Jill Foley’s recipes, they do a lot of smoothies in the morning because they are very busy people. I get the impression they keep it pretty real.
Back to Jill Foley’s recipe.
They love smoothies and because they make a lot of smoothies, they use powders. She gave us two powders, Green Vibrance and PB2. She has two go-to smoothies. If she needs a little bit of an extra pick me up after a ride, she starts with coffee and then she adds a frozen banana, almond milk and a scoop of the PB2 protein powder and then adds some ice and blend away. She had another smoothie and I figured I would go ahead and do both. If you have just nutrition after a ride, you’re focused more on that than a pick me up, she suggests almond milk, a scoop of the Green Vibrance, also the frozen banana and a cup of frozen berries or pineapple. You add some ice and blend away.
I say that it’s awesome that she shared a recipe and not that it is awesome and I will eat or drink it.
There was fruit, there were coffee and milk. Nothing here is for you.
I will do chocolate milk. That’s about it. That was very nice of her to do not one but two recipes. I know she’s a busy lady.
She’s been very delightful throughout the process. I was so happy that she did that awesome interview with us.
If you want to find that recipe, we will post it on our Facebook page Facebook.com/theclipout, both of them.
If you want to find this, you can do that at the aforementioned Facebook.com/theclipout. You can also join The Clip Out Group where you can post things a little bit easier for other Clip Out readers to see more readily. You can also find us on iTunes, rate, review and subscribe. If you’re an Android user, we don’t talk about this bunch because we figure if you’re an Android user, you already know how to do this stuff. You can get this one a whole lot of places, whether that be Stitcher or Google Play. I don’t think we’re on the iHeart app yet, but we’re on TuneIn. We’re in all sorts of places. We’re on pretty much all of them. If you find one that we’re not on, just shoot us a message to the Facebook page and I will do my best to rectify that. Who will we be talking to next time?
It will be Kristy Carruba.
What are we going to be talking to her about?
We are going to talk to her about her journey to Peloton, but we will also talk to her about all of the fantastic things happening over at the JSS Tribe. She’s one of the admins for the JSS Tribe.
She’s got all the scoop. I can’t wait.
For those of you that asked, you shall receive.
That’s it for this episode. Thank you for tuning in. Until next time.
- Jill Foley
- Denis Morton
- Emma Lovewell
- Matt Wilpers – Past episode
- [email protected]
- Chris Merrill – Past episode
- The Clip Out – Facebook group
- iTunes – The Clip Out Podcast
- Stitcher – The Clip Out Podcast
- Google Play – The Clip Out Podcast
- TuneIn – The Clip Out Podcast
- JSS Tribe
By Crystal — 5 months ago
Peloton’s SEC filings are public, and for those of us outside the financial sector, we are left wondering what it all means. In this special bonus episode, Crystal and Tom O’Keefe bring out an equally special guest who can bring to light all of these complexities. We have Michael Jurenka, a certified public accountant and Peloton owner. Michael brings both his financial expertise and love of Peloton to the table as breaks down Peloton’s filing – from its margin on selling and subscription to the music licensing and more. He also breaks down some of the pros and cons of the IPO filing, helping us understand the whys and hows of the entire process. Join Crystal, Tom, and Michael uncover more of this matter.
Listen to the podcast here:
BONUS EPISODE: Peloton IPO Special with Michael Jurenka
“If Peloton wanted to, if it slashed its marketing and it stopped opening stores to sell the product, it could probably be profitable next year if it wanted to.”
Joining us for a very special bonus episode to discuss exactly what all the fancy government filing paperwork means is Mike Jurenka. How’s it going, Mike?
I’m doing well.
Mike, can you start by giving a little bit of your background so people know where you are from an expertise standpoint?
I grew up in Montana and I went to Montana State University and became a CPA. I got my degrees there. I moved out to Seattle. I worked for a CPA firm for about five years mostly focusing on the tax side and not so much the auditor accounting side. Years ago, I started my firm with another business partner in a little town called Issaquah, which is a suburb of Seattle. We do mostly federal and state income taxes but I also have an affinity for investing and get a lot of questions from my clients about financial planning matters. This is not the first official government form I’ve ever read and look through though that’s not probably the most exciting.
Before we dig in, we should probably put a disclaimer on this that this is not financial advice.
This is for entertainment purposes only because we wanted to dig in. I especially am a big old Peloton nerd, we wanted to dig in a little more.
We’re getting somebody who knows this world a little bit better but do your own digging. Don’t hear this as an endorsement or an unendorsement. It’s a discussion.
I should also disclose that I’m a little bit biased as well because I’m an owner of Peloton Bike.
That makes a difference here. A lot of times with the product, with something this, you have to be careful probably about being too close to the product. A lot of the articles I’ve been reading, it seems like the opposite is at play here. That if you’re not close to this product, I feel it’s easy to be dismissive of it.
All the articles that I looked at getting ready for this, they don’t get the product. They didn’t spend any time with the product. It shows in the articles. As you said, “It’s an infuriating how little research they did.”
The one I posted, which we’ll get into on the next episode of the show, but I wanted to punch somebody by the time I was done reading it.
In the immortal words of Donald Rumsfeld, “You don’t know what you don’t know.” That’s a lot of what’s at play is that it’s easy to go, it’s an exercise bike and we’ve seen those before. It’s a big deal. You put a monitor on it. It is more than that. If you’re not engaged with it, there’s no way for you to know that.
Having said that, let’s talk about the actual SEC filing. What were your overall initial thoughts?
I thought it was an interesting read because being an accounting person and a CPA, we’ll go into a business and I’ll see what they’re selling or something. I’m like, “I have no idea how these guys are paying their rent.” Cupcake shops confused the heck out of me because I’m like, “You have to sell a lot of cupcakes to pay rent here.”
They’re like $8 cupcakes.
The Peloton filing was interesting because it was the first peek into, how is it this company is working? I had a lot of misconceptions about how they were making their money that the registration statement put to bed. The biggest shocker out of it for me even though I have no background in music licensing or anything, but it was obvious from the registration statement that is a super complicated part of their business.
The average person doesn’t grasp how complicated that issue is. It’s not settled law yet. It’s still the Wild West when it comes to a lot of that stuff.
One thing that I feel some of the articles have stated correctly is that there were some surprises in the filing. Things like the cost of the hardware, cost of the software, what kind of profit margins they had, salaries, what are your thoughts on those types of surprises?
I was surprised that they were making quite a decent margin on selling the Bike and the Tread. I had assumed that they were more of like a Costco model or even an Amazon Prime model where they’re making most of their money on the subscription because once they got the bike in your house, the only way to get programming to it is to subscribe to Peloton. I was like, “This $40 a month, they’re probably making a killing on this $40 subscription.” They’re selling you the bike at cost or barely above to get the bike in your house, to get you the subscription but that wasn’t the case at all. I was surprised that they’re making a 42% margin on selling us the Bike and the Tread and they’re making them about a similar margin on the subscription, which I expected to be higher. The music licensing, part of it is a big chunk of the costs of that subscription.
I was surprised at that as well. As far as what the margins are, however, I couldn’t help but wonder if it’s because early on, we were told from the media that it was a loss leader. I don’t think we all got that in her head. It was reported as such. Maybe over time, I don’t even know if this is possible, but in my head, it would seem logical that when they first started making the bikes, it was a loss leader. They were selling it at a loss. Over time, as more and more people could sell more and more then they scaled it. They’ve been making them for a number of years now. I feel like is it possible over time that the reverse has become true?
That’s probably true. They do mention in the registration statement that they’ve added or invested significantly in improving the process of the production. That’s building efficiencies into that supply chain has helped boost their margin. Maybe when they first did start, they weren’t making money on it and it was a loss leader, but as it continued, it’s been steady. If you look at the three fiscal years, the margin has been steady. They figured that out early on.Peloton could start making money. If it wanted to, it could make money tomorrow. Click To Tweet
For our nonfinancial people, I’m asking for them. Maybe explain what a tender offer is. There’s no swiping.
What they did, I would assume that when some of their investors on one of the rounds that they did came to them and said, “We want to own 15% of this company after we do this deal with you, but we can’t do that unless some of these other people who have stock options, exercise and sell those options to us.” What they did was in those rounds make an offer to people who held those stock options and made a market for them so that they could reduce essentially their ownership percentage. I’m guessing that’s why those tender offers are made. That does happen in the private equity world where they’re looking at investing in a company. They want a certain stake in that company going forward. That’s why those likely were made. It might also have been made to help those executives get some cashflow too.
People do lose sight in those early years. They weren’t exactly raking it in. They were pouring it right back into the company. I’m sure that was probably a way to get a paycheck for some people.
I assume that the $500,000 salary you see listed for some of those people for their base salary, I’m sure they weren’t getting paid back in the early years.
People that I have talked to that worked for Peloton off the record have told me that is not the case. I don’t want to get anybody in trouble, but I know that was not always the case. As far as surprising things, the losses are a big point of contention for a lot of people, they’ve quadrupled in the last year. As I think about all the things that have been going on with their expansion into London, the new HQ, they’re building, the new studio they’re building and of course their huge increase in marketing. What would be reasonable to accept? I feel like the losses are normal, but it seems like a lot of people are very put off by it.
It’s hard to say for this type of company if a $500 million or $200 million loss is acceptable. It’s individualized by the company. The other thing you’ve got to remember about financial statements is we’re looking at a specific period. Peloton is what I would argue is a hyper-growth or expansion stage because they’re trying to continue to be the leader in this industry. They’re the first mover. They’ve got to stay ahead of everybody. They’ve got to make certain investments and all those things you mentioned, the new headquarters and studio, that’s not a cheap proposition. That’s a 21-year lease.
Especially in Manhattan.
Rents are not cheap there. The new London studio just came online. They had to build a whole production studio over there.
Simultaneously in two of the most expensive cities on the planet.
Don’t forget hiring talent for London too. They’re going to have to build that up. I know according to the Prophet, they’ve only hired one more instructor for London, but more are coming.
They wouldn’t have built that so that the two that are there now would be the only instructors. They’re going to start filling out that schedule. The other part about the loss, we won’t know probably until another 1 or 2, 3 years if these investments in these types of things have paid off for them. There were also parts of they’re losing money. I don’t find that odd at all, particularly where they’re at in the market. The other part of it that is good to see, even though they are losing money, is they’ve had a 500% growth in the number of subscribers to their content from June of ’17 to June of ’19. That is unbelievable growth. As I’m reading through the statement, I’m picking out these little tidbits. Their employee headcount went from 450 to 1,950. That’s huge growth. They launched Peloton Digital in 2018. It went from 0 to 100,000 subscribers. They added eighteen instructors in the fiscal year 2019 and it’s been a 100% increase in revenue year over year for the three prior fiscal years that we can see. Those are all things that are great to see for a company that’s focused on growth.
If they were making these investments and you weren’t seeing increases in the subscriber base and all those things, that would be even more concerning. If they’re losing money and what they’re spending it on is not paying dividends to back to the company in growth and their subscriber base. In the very first section of the registration, they talk about, what their market is and who they’re targeting. I think the whole Peloton’s luxury or wealth brand gets overblown too because I’m not a wealthy person and I own a bike. I know lots of other people who I wouldn’t label as wealthy who also own this equipment. Their market, they say they’re trying to reach 67 million households in the United States and they’ve barely tapped that market.
I saw that listed. What do they call that?
It’s the TAM.
It’s the Total Available Market.
The thing I find interesting is that when you say that they’ve seen a 500% increase in the subscribers over the last 2.5 years. I find it fascinating that we’ve seen almost the exact same number in the growth of this show. We’ve also seen 400% to 500% growth in our subscribers over the last 1.5 to 2 years.
In other words, that number we don’t feel is inflated because we’re seeing it play out in real life in our own doing the show.
Ernst & Young is their accounting firm and most people didn’t get past a page 80 or a page 100, but these financial statements have been audited by an accounting firm. The accounting firm is signed off that they tested different things to make sure that what the company was telling them was true. They’ve done a deep dive into these financial statements and none of this stuff is over-inflated there. It is what it is. They’re doing a good job. You think about the net loss in a growth company, you’re concerned about how fast are they burning through their cash reserves. If at some point they run out of cash and they can’t continue to fund their growth, then you’ve got a problem.
Think of Tesla. They’re a company that’s past their growth stage and is having a significant problem generating and it’s still burning through a significant amount of cash. In Peloton, that’s not the case. That’s probably why they’re going to IPO is because they probably tapped out the private equity markets at this point. The last investor in the Series F put in $500 million. If the next round has to be bigger than that to support a bigger valuation and should be based on their financial results. The private equity firm is probably not ready to throw down $1 billion to help them get through the next couple of years. The initial public offering was probably their only option.
How do they arrive at these figures in terms of if a company is losing money, what’s the math on how but it’s worth $1 billion or $5 billion, even though on paper it’s trending the other direction?
The last company that bought the Series F put in about $556 million. They got a certain percentage equity stake in the company for that investment. You take that number to divide by whatever the interest they got and that gives you the valuation of the entire company. Even though companies are losing money, their valuation can still be going up because at some point, Peloton will not need to spend this much on marketing to get more customers. Word of mouth is going to take over. They don’t need to run those flashy ads on television as often.
At some point, they’re going to have saturated the store market too. There’s not going to be another mall that they need to open a store in to reach any more customers. Those expenses are going to start to taper off. At that point, hopefully, the revenue from the subscribers has also continued up to the right significant growth trend. Those variable costs are going to start shrinking. Peloton could start making money. If it wanted to, it could make money tomorrow. Its products are driving revenue and margin. They’re spending more than they’re getting in the margin to essentially increase the subscriber base over time.To be a first mover, you need to be out there grabbing the biggest chunk of the market share before somebody else comes along. Click To Tweet
To that point, one of the criticisms that they are getting is that in the past, John Foley has been on record as saying, “We’re profitable.” The financial records are saying, “We’re not profitable.” People are making it sound like he lied. John Foley, in my opinion, is a good person. I do not believe that is true. That’s my personal belief. I have nothing to base it on other than having conversations with them. That’s not how Peloton is in general. What other things could explain that?
He probably segregated these. The income statement is a high-level statement. You’re not seeing all the numbers that go into what’s in that general and administrative expense number.
That’s what I was thinking.
He’s looking at somewhat different reports then we’re seeing the registration statement and saying, “The company is profitable.” If Peloton wanted to, if it slashed its marketing and it stopped opening stores to sell the product, it could probably be profitable next year if it wanted to. Frankly, it almost was in a fiscal year ’18. The other thing that the financial statements are somewhat, what I call misleading unless you understand financial statements is they lost $195.6 million is what the income statement says. There’s another schedule farther back in the notes that say, “This is what our EBITDA loss was and that’s Earnings Before Interest, Taxes, Depreciation and Amortization.”
Basically it’s, “What is our true non-cash loss or true cash loss?” There’s a bunch of things in the financial statements that it didn’t cost them money, but it’s an expense on their financial statements. It may have cost them money in a previous period. Think about all the TIS the Tenant Improvements for the Studios and stuff. Those have a useful life of say, ten years or however long the lease is. Those are being amortized and depreciated over their historical life. If you look at the EBITDA, one schedule, their loss last year was $71,000. In fiscal year ’18, they had a positive EBITDA number. It’s possible that’s what he was referring to. If Peloton wanted to, they could become profitable next year.
They need to stop spending money on the growth, which is its own danger too because they’re trying to be a first mover. To be a first mover, you need to be out there grabbing the biggest chunk of the market share before somebody else comes along. It’s like the Apple and Samsung thing. Apple was the first mover. A bunch of people has iPhones and they tried to grab up as much of that market share as they possibly could. Samsung may be copied them, who knows? People are moving from iPhone to Samsung. They’re trying to grab as much market share and hold on as possible. In order to do that, they need to make these big investments and spend more money than they’re making.
It’s similar to what Netflix has been going through. They know all these studios are going to start throwing streaming companies at them like Disney+. They’ve been throwing money against the wall on content because they knew that they would start losing content very quickly and having competitors.
There are downsides in this report though. What would you say are the biggest cons for Peloton in the filing?
I would say that in the report, the risk to our business go on for 30 pages. I’m not a lawyer, but this is probably done to make sure that they get all the risks as possible outside of the business. A lot of these are risks that any business faces and are pretty mundane. They talk about foreign currency risk. Every business that operates in more than one country has foreign currency risks. They talk about maybe they have paid a processor and they won’t give them the money from the subscriptions. There are tons of risks that every business even a small CPA firm from Issaquah faces. It’s a little misleading as to how much was listed there. The one risk though as I think about this more and more is the instructors.
You remember back in the day when there was a Sirius Radio and an XM Radio and they weren’t combined as SiriusXM Radio. What they were doing is similar to the Netflix-Disney fight is they were outbidding each other for content. They’d bid themselves in the bankruptcy essentially. That’s why we now have a SiriusXM Radio. Could that happen to Peloton in the future? I look at all those stuff following that some of these instructors have and let’s say another company comes in and says, “I want a Matt Wilpers and I’m willing to pay whatever it takes to get Matt Wilpers on my brand and no longer with Peloton.”
Peloton is either going to have to let them go or step up and pay that ridiculous fee. That could happen with any of their instructors that have a big following. That is a risk down the road. The other thing, which is definitely highlighted and we already know from the music licensing lawsuits and stuff that have had been happening and the amount of content that got pulled off the bike. I got mine after the whole content dump. I didn’t realize what was happening, but the music licensing and royalty pieces is also a gigantic issue for them.
That will fall into place eventually because people want to make money off their music. At some point, they’ll figure out a price point that everyone agrees with. It’s a fistfight over what that price point is going to be. At some point, there’s no way that as the music moves forward and you see fewer and fewer records sales, now people aren’t even buying digital copies. They’re streaming and all these music companies, they need to figure out a way to monetize their songs. Things like this are new avenues in which to do that and they want to make sure they’re getting paid appropriately because they’ve seen what happens when they don’t. They get $0.01 for every spin on Spotify and get three million plays and a check for $0.45. I get that they want to carve out and make sure that they get a good deal moving forward but I do feel at some point, that it will resolve itself.
They’ll essentially come to an industry-standard that said, “This is how we do it on streaming.” That costs will become more fixed over time as the market for streaming content gets more and more solidified because right now, it’s a Wild West it seems like.
In regards to people, upstarts potentially poaching instructors, what it reminds me of is professional wrestling. I know that sounds weird, but you saw this in the ’90s with professional wrestling where Ted Turner wanted to start his own professional wrestling thing to air on the TBS properties and then they came in. They spent a ton of money to poach the big names away from what at the time was the WWF. I can’t remember what it was called, but they’re a startup one. It was airing on TBS. That’s why it’s so important for Peloton to stay in this growth mode in terms of dumping money to solidify market share because that’s eventually what killed the other wrestling league was that they would bring over all these big names.
They would poach the Hulk Hogans of the world, but they couldn’t crack that nut. A lot of times, you’d go into the markets and there’s only one arena in which to do a show. They would have to go to these other venues that were either way too big or way too small and were constantly playing catch up. It lasted for a few years and a lot of wrestlers made way more money than they should have. It collapsed and they all went back to the WWF. That’s why it does make sense for them to hemorrhage money at the moment to establish market share. That prevents someone from coming in and trying to gut their instructors to go to a rival brand.
The other thing, maybe Crystal, you’ve probably known more about this than I do since I’m not nearly as deep in the Peloton. As the community grows, it’s going to become harder and harder for riders and runners to get shout-outs and stuff for milestones. When there are more and more people taking that live class, they don’t get a shout-out. Is that going to get frustrating for people? It doesn’t matter to me. I don’t care but it may to some others and so maybe that community feel of the shout-out thing will get lost. We’re already seeing it. I know I’ve seen some stuff on Facebook and people being disappointed. They didn’t get a shout-out to their milestone rides or complaining that, “This person’s got all their ten-minute cooldown ride still counted. That’s the reason why they’re at 1,500 rides.” Is that going to become an issue down the road?
I don’t think that’s going to change the community. What you will see is that Peloton will eventually find a way to go around that. I remember not this past year at Homecoming but the year before that, people were already complaining about it. It was one of the questions that came up when we talked to John Foley live because we interviewed him at Homecoming. He said at the time that he felt strongly that all of the instructors should be free to give the shout-outs whatever they wanted. Somebody had come up with a suggestion like, “Do the shout-outs for 50s or 100s, not every quarter.” That was the suggestion. He was like, “The instructors ought to have the freedom to do whatever.”
That will always remain, but I also think that as their technology gets better and since you’re a newer rider, you may not know this. They used to have small screens in the studio. When the instructors would have all of us in a class, they had nothing to call out who was getting a shout-out. I would say it was mid-2017 that they came out with the bigger screens in the studio that the instructors were using. Now, they have people that are bolded in red for their milestones. They will keep going down that road and everybody who has a milestone for a multiple of 100 will be in a different color than everybody in a multiple of 50 and everybody in a multiple 25.
Birthdays will probably be a different color as well. They’ll come up with some way to highlight that for the instructors so that they can make their choices accordingly. That’s a guess. Peloton feels strongly about maintaining the choices for the instructors. They don’t want to get down to the nitty-gritty of saying, “You have to play this song or you have to do it this way for a shout-out.” They want the instructors to be genuine. That’s important to them.
The other thing that is going to become interesting as they add more and more subscribers. I don’t know what all that technological things that are needed to connect, say 500 riders to a lively ride. At some point, are they going to have to say, “We can’t support 1,500 live riders on a ride. You’re going to have to schedule or reserve your spot for a live ride?” I’m on the Pacific Coast until the woman’s studio open, there was nothing live for me to do. I’ve done everything on demand and I still love the product.
I don’t think that’s the case because there was a time that they did this World Record Ride and they had as many people as they possibly could get on at one time. I know we hit over 7,000 and then for the All For One Ride, they had way over that. They’ve broken records before where it’s been double-digit thousands, 11,000, 15,000 people on a ride. I don’t think that’s an issue. I will say that there was a lot of jumping around and the leaderboard was a joke those days. If that’s where they see it going, that’s the growth that I feel that Peloton is like, “If we’re going to have that many people in a ride, we need to continue to put money into making sure that they have a smooth ride when it occurs.” I also think that you’re going to have more and more instructors because I’ve been told that they’re looking for as many as 32 instructors in London. That’s over Tread, yoga and the Bike. The point being that if you add that many new instructors to the schedule, you’re going to have multiple opportunities to ride a bike live, at the same timeline.
As long as they can keep the user experience where it is, I don’t see any reason why they can’t keep adding people. I espouse the coolness of Peloton all the time to anybody who will listen to me. As long as they keep that customer experience feel, as they continue to grow, they’re going to do fine. That’s my opinion. They’ve got a product. As you were saying, I was shocked about the low rate of the churn of subscriptions because in getting ready for this, I looked up, “What are some other statistics that fitness companies look at?” If you’re LA Fitness or Gold’s Gym, you’re losing 30% to 40% of your subscribers every year and they’re only losing 1%. That’s a shockingly low number for me.Every business that operates in more than one country has foreign currency risks. Click To Tweet
That means the people that are buying the product, not to say that that might not go up in the future as they expand their market and more people join on and that number might go up but to start at that low number, is a good thing for them. Over time, it doesn’t cost them much more to say 5,000 riders to connect a ride as it does for 10,000 riders to connect to a ride. Over time, that subscription number is going to get much bigger and I expect that margin to get bigger. If they can keep those people sticky to their product and not canceling their subscriptions, that’s going to unbelievable moneymaker for these guys.
That’s what I feel people who are writing these articles talking about the IPO don’t get. That’s what they don’t get because they don’t ride the Bike. People aren’t leaving Peloton because Peloton is a different kind of company. Peloton is not in it to make money. They want to make a profit. They want to be a big deal but there are things that they focus on that no other company in the world focuses on. I have never had a company send a handwritten note to me and Peloton has. They’ve done it for numerous other people. When you go into the studio, the instructors take the time to meet you and they talk to you. That has never been the case for me. You’re just a person when you go into a gym. They truly care about the people and I believe that. I don’t think that these other people valuing the company looking at these options, I don’t think they get it. They think, “It’s another flash in the pan.” I feel they’re missing the boat.
Part of it might be that they don’t know where to put Peloton. One of the guys on a CNBC or something was reading, what Peloton is? They list 6 or 7 different things. We’re a software company. We’re a customer company, we sell products. I don’t think they know who to peg and compare Peloton to, because there’s not another company out there that’s doing what Peloton is doing.
That’s right, which is why I don’t see why it’s not obvious that they’re amazing.
If you’re not utilizing it then you see a bike or a tread. The prognosticators like to look at similar things and say, “This is how this other restaurant chain looked when they did their IPO or what have you.” There isn’t a comparable business model to what they’ve created to look at. They’re trying to compare it to other things that they think are comparable, but the things that they’re looking at are one carved out piece of what Peloton does. It’s not a full picture.
The quote that gets me and it was the Business Insider article that I read that he said, “Peloton downplays that they are essentially a bike company.” They’re not tough. When they say that they’re a tech company and they say that they’re a media company, it’s because they are. They’re not just a bike company. If they were selling a bike, we would not be having this conversation right now.
That is infuriating because it’s myopic to discount the hundreds of hours of content that they create monthly and say, “It’s just a bike.” They’re not creating content. It’s not a media company. What else is your definition of media? Especially, I would even get this a few years ago before streaming television had completely disrupted an almost 100-year-old industry. Now that it has, why can’t you see that they’ve created a new streaming television ecosystem within the streaming television ecosystem that’s only two years old? It’s jaw-dropping that people can’t see it. These stories are, might be apocryphal, but the stories about when the Mayflower was coming over and the Indians didn’t even see the boats because it was so much an alien concept that their mind couldn’t process it. It’s what this feels like.
You see the value in Peloton when you see what other companies are doing. You’ve got LA Fitness and Gold’s Gym and all those people, they’re trying to come out with their streaming exercise classes. They’re doing that to try and combat Peloton.
They will fail because they essentially do not get what Peloton is doing differently. They are going to fail because they’re not building a community. It’s not the same. That is not even all Peloton. The community was built from the fact that Peloton listens. They had a huge part of that but even the instructors did that. Jenn Sherman is the cornerstone of building this community because from day one, she has been saying, “Susie, you’re always in my class and I’m glad you came back.” When you take a Jenn Sherman class, you learn about the other people in the class and you see them on the leaderboard week after week. You connect with them even if you never talk to them because you see the same people over and over again and she’s drawing you together by pointing that out. Other instructors, they all have their way of approaching it.
She created that template.
She did. She was their first instructor. If the instructors were not doing that and the community did not make their own Facebook page because they created it and Peloton took it over, then neither of these things would’ve happened. It was the perfect confluence of events and Peloton didn’t mean to create it, but they did. They embraced it. None of these other companies can come close to that. It is impossible to replicate.
It would take years for them to do it. It’s similar to the Marvel, DC thing has Marvel created this amazing universe over ten years before they gave you something like Avengers End Game. DC wants to do it right now and they keep brushing it and they keep putting out substandard products. That’s what you’re seeing. Whenever I see a gym that’s like, “We’re going to have our streaming fitness classes.” Three words come to mind, Blockbuster to-go. It’s the same thing. They’re playing catch up and they’re doing it poorly and they’re missing the point.
You don’t go into an LA Fitness and there’s no Matt Wilpers instructor at any amount that says or Denis Morton or Christine D’Ercole. There’s not that type of talent in their instructor base to even videotape and stream.
When they get one, Peloton will poach them. They’re serving as the minor leagues for Peloton. I guarantee you, any instructor in one of those gyms right now fantasizes about the day Peloton comes in and spots them.
That’s the other thing that I mentioned about maybe the instructors being a risk to them until there’s another product. If you’re a spin instructor, I would say at this point, Peloton is the pinnacle of the place you would want to work. Until there’s another company out there that is leading or is giving a Peloton a run for its money, Peloton is going to have its pick of people.
Which this also goes back to the potential of poaching instructors. That’s going to be difficult because as someone wants to become the upstart and challenge them, there will be this whole subset of instructors chomping at the bit to be the next Denis Morton, be the next Matt Wilpers, be the next Christine D’Ercole or Jenn Sherman or whatever. That’s the goal. They’ve created a goal, a pinnacle for that industry that didn’t exist years ago.
Do you have any feeling where they’re going to set their IPO price?
I’m on the front page of the statement. In the statement, there are a whole bunch of blanks because they haven’t figured it out exactly. On the front page of the statement, they say they’re looking to raise off $500 million. I have a feeling that the number is low because that was the investment that was made on their last Series F round. Peloton is already pulled in over a billion dollars in financing to get the company to where it is. The IPO has got to be bigger than that I would think. The market and the underwriters are going to price the stock at what the market will demand that day because they want to get as much money as they possibly can in the Peloton hands by this IPO.
They’re not going to undersell the market. They’re not going to oversell the market. Peloton could go to the market pretty quickly. Uber, once they released their statement, went public 30 days later and that’s been a disaster since then. Peloton could reasonably go to the market quickly. I don’t think they have to. They’re not in that great of a need. They’re in a much better position than a lot of the IPOs we’ve seen come out this year. There’s going to be a big demand for the stock if people understand it, as we understand it, there will be. The stock price could be shocking depending on how many numbers of shares they decided to issue and how much they were looking to raise that. At this point, I couldn’t tell you what the stock price or how many shirts they are going to sell that day.
When they estimate that they want to raise $550 million in their IPO, is it possible that they deliberately low ball bet number so when they go past it, it looks better? If they tell people they’re going to raise $1 billion and they raised $990 million, people are going to be Nelson Muntz on the Simpsons. If you tell people $550 million and you’re raising $750 million, you’re a rock star. Is that even a possibility or are there formulas in place in-laws that prevent you from playing that game?
When they start filling out those blanks, we’ll get another one of these statements before the IPO happening, which will dictate exactly how many shares are selling. As you get closer and closer to the IPO date and the underwriters are making the presentation to Fidelity and all these other companies that are going to buy some stock on day one, they’ll get a feel for what the stock price is going to be. Leading up to it, they’ll have a good idea of what the true market out there is. They’re not going to oversell it and they won’t undersell it. They’re not going to set the stock price high that they’re not going to sell out the block of shares are going to sell release that day.
They also don’t want to undersell it because they want to hit that sweet spot to where the economic X happens, where supply meets demand. That’s where they’re going to shoot for that specific day. They will have like, “We’re planning on selling many shares, but the underwriter will have the ability to essentially oversell the block by many units if the IPO was going that well that day.” That could be a pretty significant demand for this company. What you don’t want to see or the company is trying to avoid is the Uber scenario.There's not another company out there that's doing what Peloton is doing. Click To Tweet
They come out super hot and then their stock price tanks for the next 3 or 4 months because they’ve got a bunch of unresolved issues they went to the market with. That’s what they’re going to try to avoid is they’re going to try to hit that sweet spot of what the stock price is that they can continue to support as they continue to release information because once they go public, we’re going to start getting quarterly results. We’re going to see how many subscribers they added in the last quarter. We’re going to see what the churn rate is of those subscribers and the stock price is going to move based on those numbers.
Do you have a price in your head that you think would be a good deal? I don’t even know if that’s a fair question to ask. I’m not trying to put you in the spot.
No, I would assume that they’re going to shoot for something that the average person could buy. They’re not going to shoot for an outrageous stock price like Amazon where you can’t get in unless you have $2,000 to buy one share. They’re going to shoot for a price that most people if they wanted to go out and get a couple of shares, they could get a couple of shares. I imagine that the stock price will end up somewhere in around $50 to say $100 per share because that’s what they want to be able to get the biggest market they can. That’s why companies do stock splits and stuff is because eventually, their share price gets so big that the average Joe doesn’t have $2,000 to buy a share of Amazon. They split the shares into five and suddenly, they can afford one of those shares.
It doesn’t happen so much anymore because there are a lot fewer individual investors out there buying shares in their stock portfolio. It’s mostly done by computer, indexes or whatnot. I would say I wouldn’t be surprised to see a stock price somewhere around $50 to $100. In my mind, it’s not so much what the share prices, but it’s how much risk am I willing to put towards this and my personal financial life. If I’m willing to completely lose $1,000, if the share price is $50, I’ll buy 20 shares. It doesn’t matter what the share price ends up to be. It’s more about, how much am I willing to put at risk to own a couple of shares of Peloton? I’ll be honest, I’m probably going to buy a few shares because I had this story that I keep going back to.
I have a client who his wife became disabled on the job. She was at home most of the time and he noticed he’d come home from work that there would be Amazon boxes on the porch and he’s like, “This is a great idea.” It’s hard for my wife to get out. She can order off Amazon. These boxes are showing up, they’re showing up more frequently. This was before Amazon was a thing. He’s like, “This makes sense.” My wife’s figured it out and she’s not a technology person. More and more people are going to figure this out. He’s like, “Yeah, I’ll take $1,000 and buy some Amazon stock. We’ll see what happens.”
That Amazon stock is with that thousand dollars she bought is worth a lot. Peloton could be that next Amazon. I’m probably super biased in this because I have one, but they’ve definitely onto something and they’re doing it the right way. Their financial statements, even though they’ve lost some money, there’s a lot of good stuff in there. A lot of stuff that they should be super happy about and be proud to go to the market with. It’s not something where I’m like, “I’m taking a flyer on this one.” That’s stuff to back up their hype.
It seems like once every generation there’s a product or a service that comes along that people don’t understand unless they’re personally interacting with it like your Amazon story. I feel like this might be that. We should probably in closing say, “This is conjecture and please don’t run out and make decisions.”
Talk to your financial advisor or get one, don’t make investment decisions based on what we said and do not overspend and do something that you cannot afford, please. Don’t come back here if you did.
Mike, where can people find you on social media if you would like to be found?
About the only social media thing I do is Facebook, Facebook.com/MJurenka. Though if you friend me and I don’t know who you are because I find that a little creepy. I’m a member of the Peloton Data Junkies group and the Power Zone Pack group. I’m on your Facebook page. I like to comment and help when people have questions. That’s where I’m at. My leaderboard name is a MapleBar_Fueled.
Why? I could ask that now.
Originally it was MDJ_CPA, which was my initials and the fact that I’m a Certified Public Accountant but then my friends who have a Peloton bike were like, “That is the most ridiculous leaderboard name ever.” First of all, it’s hard to say for a call out. Nobody’s going to try and say that, though Ben did on my 50 rides. I got that. They are like, “You’ve got to think about, where did you go to school? What do you like?” I’m like, “The reason I am the way I am is probably because of maple bars?” That’s one thing. I’m in the search for, it would, Tom and this chicken. I’m scouring the country or whatever for the best hamburger and the best maple bar. That’s where it came from.
Mike, thank you so much for taking the time to do this and walking through all this with us. I appreciate it. It’s nice to get a perspective. I always like people to agree with me, but I feel like this was a discussion rather than the horrible things I’m reading online.
Thank you so much for taking the time out of your busy day.
Thank you very much. If there’s ever anything we can do for you, let us know.
- Mike Jurenka
- Facebook.com/MJurenka – Mike’s Facebook page
- Power Zone Pack – Facebook group
- Facebook – The Clip Out Facebook page
- Peloton Data Junkies – Facebook page
About Mike Jurenka
Mike has been a Certified Public Accountant since 2006. Mike earned a Bachelors of Science in Business – Accounting and a Masters in Professional Accountancy from Montana State University in May 2005. Following graduation, he moved to Seattle and spent the first five years of his career working for Clark Nuber, PS, in Bellevue.
Mike’s areas of expertise include commercial and individual income tax, as well as international tax. His strongest expertise is working with closely held businesses and their owners on tax issues that arise throughout the course of running a business. He consulted with clients at Clark Nuber on accounting for income taxes for large private and smaller publicly traded clients. Assisting several clients with the implementation and adoption of FIN 48, Accounting for Uncertain Tax Positions, is another area Mike excelled.