Peloton CEO John Foley tells Yahoo Finance the profitable fitness startup saw sales of its in-home exercise bike actually increase after it raised the price to $2,245.
“It was interesting psychology that we teased out,” Foley recalls. “In the very, very early days, we charged $1,200 for the Peloton bike for the first couple of months. And what turned out happening is we heard from customers that the bike must be poorly built if you’re charging $1,200 for it. We charged $2,000 dollars for it, and sales increased, because people said, ‘Oh, it must be a quality bike.’”
Some people seem to agree. The profitable fitness equipment startup is on track to generate $800 million in revenues in 2018 — more than twice its revenues versus the year before.
It’s a stark difference from six years ago, when Foley, a serial entrepreneur and former Barnes and Noble (BKS) executive, found himself turned down by over 400 investors, who didn’t see a viable business in developing and selling fitness equipment for the home, including yet another exercise bike.
“I was just always pitching and always getting ‘No,’” Foley recalls. “Finally, over the course of five years, we became capitalized enough to build what is now Peloton. But I am proud to the extent that I went through those tough times, that we’ve shown there will be great returns for capital that comes into the fitness space, to the extent some of these other fledgling niche companies are getting traction or getting capital.”
A crowded market
Now, the situation is different for the in-home fitness market, which is even more crowded with quality devices, ranging from — yes — more exercise bikes like the cheaper $1,000 Echelon Fit to even a $1,500 mirror with a virtual trainer.
The New York City-based Peloton, which now has over 900 employees, is worth more than $4 billion, driven largely by sales of its slick, internet-connected stationary bikes that stream thousands of live and pre-recorded SoulCycle-esque group classes into people’s homes. The company has sold over 300,000 Peloton bikes, which start at $1,995 (plus a $250 delivery fee and $39 monthly membership), earning a cult following of users who include Mark Zuckerberg, Richard Branson, Ellen DeGeneres, David Beckham, and Sean “Diddy” Combs. Along with the membership fee, Peloton offers an app with videos for spinning, running, strength training, and stretching.
Foley says presales of Peloton’s newer $4,000 internet-connected treadmill — a machine that chucks the old-school rolling conveyor belt in favor of smoother running slats — are “triple” the company’s internal estimates for the first six months. Over the next two months, Peloton plans on going global, including launching six physical retail stores in London and opening four stores across Canada. It’s planning an IPO in 2019.
It’s all part of a larger business play for Foley, which includes capitalizing on a slowly growing trend with Americans becoming more fitness-conscious: 63 million Americans now own gym memberships — more than twice the number in 2000.
By slowly rolling out new types of high-quality, internet-connected fitness equipment for the home, Foley contends he can get new customers to spend less time ponying up for gym memberships and more time exercising on Peloton machines in the convenience of one’s home. (Peloton is currently developing a third piece of fitness equipment, although Foley declined to give specifics.)
“You’re experiencing all the cardio you want from … your own home,” Foley explains. “Will you cancel your gym membership? Potentially, because you have better fitness equipment, better instructors, better software, better hardware, and a better location — and we’re going to make sure that’s a better value.”
Peloton’s growing pack of competitors will no doubt be watching closely.
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