Peloton's Transition To A Lifestyle Company
Peloton's revenue has exploded during the COVID-19 pandemic, but is the smallest part of their business also the most important?
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I’ve written about it before, and I’ll most definitely write about it again; Peloton, the leading fitness equipment, media, and technology company, has been a rocket ship the last few years — accelerated further by the COVID-19 pandemic.
Here’s a look at their annual revenue:
2018: $435 million
2019: $915 million
2020: $1.8 billion
Peloton did more than $1 billion in sales last quarter alone.
That’s obviously amazing, and we’ve covered the growth of their equipment sales in-depth recently, but there is one part of the business no one is talking about:
Apparel is the fastest-growing segment of Peloton’s business, albeit on a much smaller scale, representing significant upside for the fitness, media, and technology company.
Let’s run through why…
First, why is apparel important?
Sure, it obviously represents upside from a monetary perspective. Companies like Lululemon and Gymshark, which focus exclusively on athleisure, are printing money during the pandemic — as they have for years. With more consumers continuing to look for athletic apparel to wear for at-home workouts and around the house, that trend will continue.
For Peloton, the opportunity is just as obvious.
Let’s be clear; Peloton is a cult. Their members pay thousands of dollars to be included, don’t ever leave, and make sure to let you know about how great it is. That’s not a knock. It’s true. The community aspect of Peloton is the biggest selling point for the brand.
With a hyper-engaged community, Peloton has created a monetization flywheel that extends to ancillary products. Remember, if history has taught us anything, it’s that communities can monetize really, really well.
To be clear, apparel isn’t a new initiative at Peloton. But as their community gets stronger — now over 4M members as of Q2 — the ability to grow additional revenue streams like apparel naturally compounds over time.
Here’s what I mean…
Peloton has operated an apparel section on their eCommerce site since 2015 but has placed a greater emphasis on the business as of late. CEO John Foley put his wife Jill in charge of apparel, and she has doubled the size of her team within the last year — now 24 employees in total.
Here’s what Jill Foley told the WSJ last year:
“Just this year I hired eight more people because of our growth and I think the greater Peloton brand realized, ‘Oh, geez, we need to invest more in this apparel. They’re selling like hot cakes.”
Furthermore, while Peloton stopped disclosing the proportion of its apparel-related business, the investment is clearly paying off.
Peloton Apparel Sales:
2017: $2.6 million
2019: $14.7 million
The impressive part?
Peloton sold 600,000 units of branded apparel last quarter alone, according to Joe Vennare of Fitt Insider (Source).
So let’s do some math…
600,000 units x avg. price of ~$25 = $15M in quarterly revenue
To be clear, the average price of $25 is an estimate. But considering clearance t-shirts are still $50+, I actually think the real number is probably even higher.
Regardless, that puts Peloton on an annual run rate of $60M for their apparel business — less than 2-years after they reported ~$15M in sales for the entire year.
The craziest stat?
It took Lululemon, now a Peloton competitor in the athleisure space, almost a decade to reach $60M in annual apparel sales. Again, Peloton’s cult-like membership community is having a compounding impact on their apparel business.
Peloton has relied on apparel collaborations with companies like Lululemon, Nike, Athleta, and more in the past. By moving away from partnerships and focusing on its own power of distribution, Peloton has become a legitimate threat to athleisure incumbents.
In the end, $15M of quarterly revenue still represents less than 2% of their overall business. But don’t be fooled; it matters. For the same reason Lululemon bought Mirror for $500M, the combination of tech-enabled fitness equipment and premium apparel is imperative to becoming the premier fitness brand of the future.
Peloton realizes that; everyone else should too.
Have a great day, and we’ll talk tomorrow.
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Superb piece Joe! And this doesn’t include the Beyoncé partnership which far more likely to become their Brand Jordan caliber sub-brand, than Steph Curry’s will for UA.
What does this mean for Tonal? What Adidas has become positioned against Nike, can Tonal become the strength conditioning connected home fitness community, compared to Peloton’s rabid cardio conditioning home fitness community premium brand?