Peloton’s clash with the agency over Tread + safety could tarnish the brand

A public dispute with a federal security agency and a frightening video of a child dragged under a treadmill threaten the community that Peloton built.

Parents with time issues and training addicts who own Peloton products scratch their heads and take social media platforms and community chat rooms to discuss the fitness equipment maker’s response to the U.S. Consumer Product Safety Commission. The agency is examining the safety of Peloton’s top treadmill, which has now been linked to numerous injuries and the death of a child.

Peloton said he has no intention of recalling $ 4,300 in Tread +, despite requests from regulators and politicians to do so.

Back and forth jeopardizes the launch of the less expensive Peloton rolling stock in the US later this year. Brand experts and lawyers warn that the further away this is, the more Peloton risks facing a growing consumer reaction, requiring stronger damage control and costing more money.

“There is a general rule dating back to the Tylenol case, in which people were poisoned,” said Luc Wathieu, a professor of marketing at McDonough School of Business at Georgetown University.

Tylenol became a case of crisis management manuals in the 1980s, when someone modified Tylenol Extra Strength capsules by adding lethal potassium cyanide, killing several people. Johnson & Johnson acted quickly to develop a strategy to regain trust with the Americans.

“When there is a threat to the customer – one that becomes public like this – you have to compensate in excess,” Wathieu said in a telephone interview. “But for some reason, companies tend not to do this, even though it has been proven countless times that you need to act quickly.”

Over the weekend, the CPSC issued a statement saying that consumers should stop using the Peloton’s Tread + device when they are small children or pets. The move came after the organization’s investigation into the death of a child involved in one of the Tread + devices, as well as dozens of other reports of injuries.

The commission simultaneously released a graphic video, captured by a home security camera, in which a boy was pulled under one of the Tread + devices and was struggling to free himself.

CPSC also said that Peloton treadmills are designed differently from those of his colleagues, with “an unusual belt design that uses blades or rigid rubber tires that are locked and travel on a rail.” This instead of a thinner and more continuous belt. There is also a big gap between the floor and the treadmill +, leaving room for things to move.

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

For now, the company refuses to remove the product from the market or make design changes. Peloton said he was “shocked and devastated” to learn about last month’s fatality. However, he also issued a statement last weekend calling the CPSC’s press release “inaccurate and misleading”.

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

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

A Peloton spokesman declined to comment further.

The company is best known for stationary bikes and did not launch a treadmill until 2018. First called Tread, it is now known as Tread + as the company prepares to start selling a less expensive version in the United States. United later. this year. The smaller and cheaper model is already on sale in the UK and does not include the same rigid blades as Tread +.

The clash with the CPSC was not good for Peloton’s actions. Shares fell 7% on Monday. The stock closed at $ 106.50 on Tuesday afternoon, down another 1.2%. Over the past three months, Peloton shares have plummeted by more than 32%, falling to a maximum intraday level of $ 171.09 on January 14th. A huge period of preparation follows in 2020, when investors saw Peloton as a period playing at home and benefiting from the pandemic, sending the stock with over 400%. But as fitness centers begin to reopen, some of those gains have been dropped.

According to BMO analyst Simeon Siegel, the price of the Peloton stock was recently “detached” from the basics and the reported results.

The stock seems “governed by perception and hope,” he said. Siegel has a low performance rating on Peloton shares with a target price of $ 45.

“Most of Peloton’s market capital was created by its marketing department, rather than equipment, engineers or instructors,” Siegel said. “They told a story … And Peloton’s story is much bigger than the paying members of the Platoon.”

In the last six months or so, Siegel said, Peloton’s messages have begun to get in the way, as the business grows exponentially during the pandemic.

“Whether it’s Tread + or responding to customers about the supply chain, … at the end of the day, as companies grow, they face obstacles and can’t be forced,” Siegel said.

While Peloton does not break sales of its treadmills to cycles, Cowen & Co. estimated that the + treadmill will account for about 2.2% of unit sales in 2021. This is about 1.633 million stationary bikes and combined treadmills, he said.

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

Cowen analyst John Blackledge said he anticipates that most of Peloton’s running opportunity will come from its future Tread model, which is priced more affordable than the $ 4,300 Tread +. We hope, he said, that the new model will avoid similar problems with the CPSC, because the belt does not wrap under the car.

Peloton said it is open to working with CPSC to continue to ensure its customers are safe. He said his classes include safety messages from instructors to remind users to keep their children, pets and other objects away from Tread + during workouts and to pull out a safety key after workouts so that children should not be able to activate the cars.

However, disagreements with the federal agency that is responsible for protecting American consumers from dangerous products are rare. The CPSC cannot force a withdrawal, but has sued companies in the past to force them to comply.

The platoon also complied with the agency before. Last fall, it issued a recall for a version of its bicycle pedals that could be fixed due to the risk of the axle breaking and injuring users, affecting approximately 27,000 bicycles.

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

“The CPSC must have reason to believe that it was not designed properly,” he said. “Warnings are the last resort. So the question becomes, “Did they do a proper hazard analysis, either yes or no? And if they did a proper hazard analysis, “Did that hazard analysis identify that hazard?” “