Platoon collision with agency over Tread + safety could affect brand

A public dispute with a federal agency over safety concerns and a chilling video of a child being dragged under a treadmill threaten the community that Peloton has built.

Timeless parents and sports addicts who own Peloton products scratch their heads and take to social media platforms and community chat rooms to discuss the fitness equipment manufacturer’s response to the US Consumer Product Safety Commission. The agency is investigating the safety of Peloton’s high-performance treadmill, which has now been linked to numerous injuries and the death of one child.

Platoon has said it does not intend to recall its $ 4,300 Tread +, despite calls from regulators and politicians to do so.

Shifting back and forth further jeopardizes the launch of Platoon’s cheaper treadmill machine in the US later this year. Brand experts and attorneys warn that the longer this takes, the greater the risk that Peloton will face increased consumer backlash, require greater harm reduction and cost more money.

“There is a rule of thumb that goes back to the Tylenol case, where people were poisoned,” said Luc Wathieu, a professor of marketing at Georgetown University’s McDonough School of Business.

Tylenol became a textbook example of crisis management in the 1980s when someone messed with Extra Strength Tylenol capsules by adding deadly potassium cyanide and killing several people. Johnson & Johnson acted quickly to develop a strategy to regain confidence in the Americans.

“If there is a threat to the customer – one that becomes so public – you have to overcompensate,” Wathieu said in a telephone interview. “But for some reason, companies tend not to do this, even though it has been shown time and again that you need to act quickly.”

Over the weekend, the CPSC released a statement saying consumers should stop using Platoon’s Tread + machine if there are small children or pets around. The move came after the organization’s investigation into the death of a child involving one of the Tread + machines, as well as dozens of other reports of injuries.

The committee simultaneously released a graphic video, captured by a home security camera, of a young boy being pulled under one of the Tread + machines struggling to free himself.

The CPSC went on to say that Peloton’s treadmills are designed differently from its peers, with “an unusual belt design that uses individual rigid rubber slats or treads that interlock and run on a rail.” That’s instead of a thinner, continuous belt. There’s also a large gap between the floor and the Tread + strap, leaving room for things to wiggle underneath.

Peloton said the design aims to make walking on the knees and legs easier.

For the time being, the company refuses to withdraw the product from the market or to implement design changes. Platoon said it was “shocked and devastated” to hear about last month’s fatal accident. However, it also issued a statement last weekend calling the CPSC’s press release “inaccurate and misleading.”

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

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

A Peloton spokesman declined to comment further.

The company is better known for its stationary bikes and only launched a treadmill in 2018. First called the Tread, now known as the Tread +, as the company prepares to later sell a cheaper version in the United States. year. The smaller, cheaper model is already on sale in the UK and doesn’t feature the same stiff battens as the Tread +.

The clash with the CPSC was not good for Peloton’s stock. Shares fell 7% on Monday. The stock closed at $ 106.50 on Tuesday afternoon, down another 1.2%. Over the past three months, Peloton’s shares are down more than 32%, from an all-time intraday high of $ 171.09 on Jan. 14. It follows a massive run-up in 2020, when investors saw Peloton as a residence. play at home and pandemic beneficiary, sending the stock by more than 400%. But now that gyms are reopening, some of that profit has been given up.

According to BMO analyst Simeon Siegel, Peloton’s stock price has recently “decoupled” from underlying fundamentals and reported results.

The stock appears to be “ruled by perception and hope,” he said. Siegel is underperforming Peloton stock with a target price of $ 45.

“Most of Peloton’s market capitalization has been created by the marketing department and not the equipment, engineers or instructors,” said Siegel. “They told a story … And that Platoon story is so much bigger than the Platoon-paying membership base.”

In the past six months, Siegel said, Peloton’s coverage has started to stumble as the company grows exponentially during the pandemic.

“Whether it’s Tread +, or whether it responds to customers across the supply chain, … at the end of the day, as businesses grow, they face obstacles and not all can face violence,” said Siegel .

While Peloton doesn’t split up sales of its treadmills compared to bicycles, Cowen & Co. that the Tread + will represent about 2.2% of unit sales by 2021. That’s of the roughly 1,633 million stationary bikes and treadmills combined, he said.

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

Cowen analyst John Blackledge said he expects most of Peloton’s longer-term treadmill opportunities will come from the upcoming Tread model, which is priced cheaper than the $ 4,300 Tread +. Hopefully, he said, the newer model will avoid similar issues with the CPSC as the belt doesn’t wrap under the machine.

Peloton has said it is open to working with the CPSC to ensure its customers are safe. It said the classes include safety messages from instructors to remind users to keep their children, pets, and other items away from the Tread + during workouts, and to remove a safety key after workouts so that children cannot access the machines. activate.

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

Platoon has also previously complied with the agency. Last fall, it issued a recall for a version of its clip-in bike pedals due to the risk of the axle breaking and injuring users, affecting approximately 27,000 bikes.

“To be fair, I haven’t seen a fight like this take place here yet,” said Anthony Gair, a partner at Gair, Gair, Conason, Rubinowitz, Bloom, Hershenhorn, Steigman & Mackauf, who specializes in personal injury cases. related to defective products.

“The CPSC must have reason to believe it has not been properly designed,” he said. “Warnings are the last resort. And so the question becomes this: ‘Did they make a good hazard analysis, yes or no?’ And if they have made a good hazard analysis: “Has that hazard analysis identified this hazard?” ”